End of the week currency markets review


The Fed surprised the markets last Wednesday. Interest Rates remained unchanged but the Monetary Policy turned hawkish as there’s a high probability that there will be two rate hikes in 2023 which is much sooner than expected. The bond-buying program will be cut down much earlier as well. Also, the Fed reviewed the projection and estimation of Growth and Inflation in the USA, to higher rates. These actions took place to deal with the inflationary issues, as the Inflation in the USA rose to 5% in May. The Fed developments dominated the currency markets as it seems that all the rest of the announcements or economic news were ignored.
All the above facts lead to a very strong USD as the USD Index climbed from 90.40 on Wednesday to 92 currently. All the USD currency pairs performed high volatility.
EURUSD (current price 1.1895) dropped sharply, losing more than 220 pips in 2 days as the strong USD after the Fed, caused a very bearish trend to the pair. The Eurozone released the Inflation in May which was, more or less, very close to the expectations and practically was ignored by the markets. Europe has significantly lower Inflation, compared to the USA so ECB can keep the loose Monetary Policy for more time. The next support for EURUSD is at 1.17 and the pair can do it but we suspect that some buyers will appear, trying to take advantage of the huge drop of EURUSD.
GBPUSD (current price 1.3860) had also a very bearish direction, losing more than 240 pips after the Fed news. Things got worse today after some negative news in the UK, regarding the Retail Sales which in May (MoM) announced at -1.4% versus 1.6% expected. This fact shows that the recovery in the UK is not as strong as the markets believed and this fact combined with some concerns after higher COVID-19 cases, pushes the sterling even lower. There’s mild support at 1.38 and a stronger one at 1.3670. There is no other news that can affect the markets until the weekly close so during the weekend there may be a colder estimation and we’ll wait and see the markets opening on Monday.
USDJPY (current price 110.23) climbed after the Fed to 110.80 but very soon it lost its profits as the bond yields started to drop. More specifically, the US 10-year bond yield rose to 1.60%, it dropped to 1.47%, and currently, it is moving close to 1.52%. Earlier today and during the Asian trading hours the Bank of Japan kept the Interest Rates unchanged at -0.1% and announced that the target rate for the Japanese 10-year bond yield is 0%. This fact weakened JPY which is why USDJPY is trying a bullish recovery after yesterday’s drop. As long as the pair remains above 110, there is no danger of losing its bullish trend. Above 110.85, we expect a bullish trend acceleration.
AUDUSD (current price 0.7512) is in a very strong bearish trend that started last Friday and it has been accelerated after the Fed on Wednesday. Australia had amazing results in its jobs market: 115.2K new job positions were created in May versus 30K expected and the Unemployment Rate fell to 5.1% from 5.5% in April. The point is that the Australian news was ignored by the markets since AUD had no signs of recovery. AUD is also suffering from the bearish trend in commodities, mostly in Gold and Copper. There’s no obvious support for the pair ahead and only the milestone price of 0.75 can be an obstacle to the bears. It takes a bullish breakout above 0.7650 for a stronger trend reverse chance.

Leave a comment