London 23/12/2022
The US dollar aligns with its long-term downtrend as the current week comes to an end. More specifically, the USD index after reaching its 20-year highest price at the end of September started to decline, having lost more than 8% in this period. Most of the weeks from then on were bearish with the current week not being an exception to that. There were no important economic announcements or decisions from the central banks but the ones that prevailed were the US GDP, the PCE, and the durable goods orders. The annualized US GDP for the 3rd quarter of 2022, surprisingly rose by 3.2%, much higher than the expected rate of 2.9%. It was a sell trigger for the stock indices and a trigger for strengthening the dollar as the markets assessed that there is room for the Fed to hike the interest rates even more aggressively. The price index of the Personal Consumption Expenditures (PCE) dropped to 5.5% in November vs 6.1% in October but higher than the 5.3% that the markets expected and so the dollar took some more strength, following the mini recovery direction of the last two days.
Outside of the USA, there was no important news in Europe and China left the interest rates unchanged at 3.65%, in the decision session on Tuesday. The UK had some important announcements as we’ll see below in the GBPUSD section.
Overall, the stock indices in US & Europe are bearish with the only exception of the FTSE100 in the UK. Gold has a sideways movement this week as it did the previous two weeks as well but oil continues the mini uptrend rally of the last week, having reached the price zone of $80. Interestingly enough, the bond yields keep on rising as the US 10-year is above 3.70% (it dropped below 3.50% two weeks ago).
EURUSD (current price at 1.0614) is slightly bullish this week and as the volatility is relatively low, it continues the uptrend that started about 3 months ago. The general perception of the markets is that the ECB is going to hike the interest rates more compared to the Fed and the euro is taking advantage of it. Jerome Powell was hawkish enough in his previous speeches but since the hikes of the Fed were quite aggressive in the last months, markets consider the continuation of the aggressiveness a case of low probability. Maybe the volatility will drop further during the holidays period but the next important resistance for the uptrend of the EURUSD remains the price area of 1.0740.
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GBPUSD (current price at 1.2052) is bearish this week, even if the dollar is weak. Last week, the disagreement of the two counterparties of the BoE on the interest rate hikes caused a crack in the hawkish perception of the UK. Following this event, the macro results of the UK that were announced this week hurt the sterling further. The GDP of the 3rd quarter of 2022 was in negative territory compared to the previous quarter (-0.3% even below the markets’ estimations of -0.2%) and the fears of a big recession switched back. Yesterday, the GBPUSD dropped below 1.20 for the first time since the end of November and although we saw a partial recovery, a new breakout below 1.20 may be considered a new bearish turning.
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USDJPY (current price at 132.86) is heavily bearish this week as the markets still assess the Bank of Japan announcement to allow the 10-year bond yield to move between -0.5% and 0.5%. The previous range was from -0.25% to 0.25%. It happened on Tuesday and the light recovery attempts have not changed a lot of things so far. The increased inflation that was announced earlier today (3.8% in November vs 3.7% in October) did not ring any bells in the investing community regarding a change in the monetary policy from the BoJ. On the contrary, the USDJPY performs some small profits today even if the dollar is weak. A pullback above 133.60 may help the pair recover more but if it drops below 130 a possible bearish direction is the prevailing scenario.
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