London 16/11/2022

This week continues that downtrend of the US dollar which started last Thursday, after the inflation announcement. Most likely, the markets anticipate that the next interest rate hike by the Fed will not be 0.75%, as it happened four consecutive times this year. There were some fears in the last few days due to a missile attack in Poland but according to NATO sources, it is unlikely to be a deliberate attack. In the G20 meeting, the majority of the countries dispraised the Russian attack in Ukraine but besides some announcements, no further developments took place. Back to pure economics, the producer price index announced yesterday in the USA was lower than expected, which was another hint of inflation de-escalation. Markets reacted positively. A few hours ago, retail sales were announced at +1.3% (on a monthly basis) which is considered a good rate but the markets almost ignored it. Most of the stock indices are unchanged so far this week with relatively low volatility. The commodities’ sign is mixed: gold continues the uptrend rally while oil applies an important price correction. Finally, the fall in bond yields carries on with the US 10-year bond yield dropping to 3.73% which is a 40-days low price.
EURUSD (current price at 1.0399) keeps on rising this week too although it performed a significant pullback from yesterday’s high price at 1.0480. In a few hours, Christine Lagarde, head of ECB, will speak in the European evening and we may learn more about the possible next steps of the ECB. Inflation remains high and some new interest rate hikes have been heralded but the fears of a recession remain and act as a counterweight. Surprisingly enough, the macroeconomic image of the Eurozone remains strong: Q3 2022 GDP rose by 2.1% (yearly) and industrial production rose by 4.9%.  Of course, the important announcement of the week is the Eurozone inflation in October. The estimations are 10.7%, the same as the previous month. The next resistances for a possible continuation of the bullish trend are 1.0480 and 1.0790.

GBPUSD (current price at 1.1873) is bullish this week, following the previous week’s uptrend. Earlier today, many inflation indices were announced for the UK (CPI, PPI, RPI), all above market expectations. The CPI (Consumer Price Index), which is the most important amongst them, was announced at 11.1%, significantly higher than the 10.1% of the previous month, and even higher than the 10.7% that the markets estimated. Later today, the monetary policy report hearings will be released. Yesterday, the unemployment rate was announced marginally higher (3.6% vs 3.5% in the previous month) and the cycle of the UK announcements will close on Friday with the retail sales. The most reasonable short-term target for the buyers of the GBPUSD is the price area of 1.20.

USDJPY (current price at 139.30) is neutral this week (so far) but still below the milestone price of 140 that dropped last Thursday. The US dollar is weak and the bond yields keep on dropping but the pair cannot take advantage of it to develop a downtrend. It’s obvious that the weak yen does not allow it, not only due to the continued loose monetary policy but due to the negative news from the Japanese economy. The annualized GDP for the 3rd quarter of 2022 fell by 1.2% while industrial production fell by 1.7% on a monthly basis. Given the weakness of the Japanese currency, it all depends on the dollar but as long as the pair cannot climb above 140, the bearish scenario prevails. Also, since the USDJPY moved away from the area of 150, the Japanese government does not have a good reason to intervene again.

DISCLAIMER: The information produced by a-Quant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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