Mid week currency markets review
The US dollar appears very strong this week, as the USD Index is already at a ten-month high price, at 93.93, having started the week at 92.60. Generally, there’s a risk-off mood that favors the dollar which comes mostly from the global concerns of economic growth, helped by the Chinese black-outs and the shortage of goods in the UK. Today, the two most active bankers, Christine Lagarde and Jerome Powell have speeches upon the Monetary Policy and inflation and more or less their words may affect the markets. Another factor that gives more credits to the dollar is the explosion of the bond yields. The US 10-year bond yield started the week at 1.34% and yesterday hit a 3-months high price at 1.56%.
EURUSD (current price 1.1647) has broken out the support of 1.1664 and it’s moving towards the 14-months low price, below 1.16. The strength of the USD (as we saw below) is the most critical factor for this bearish movement and EUR is also weak as the loose Monetary Policy from ECB will carry on, according to Lagarde’s statements. Tomorrow, Germany is going to announce the September inflation rate and so will the Eurozone on Friday and those two events may be game-changers, especially if we see prices out of the expectations. Below 1.16, the downtrend may accelerate.
GBPUSD (current price 1.3475) dropped easily below the support of 1.3570 and it’s already almost 100 pips lower than this level. We may call it a free-fall although the Bank of England has left open windows for Interest Rates hike and a tighter Monetary Policy. The big issue of the last few days in the UK has to do with the shortage in fuels and food which may slow down the economy significantly if it continues for some time. The UK economic calendar has been empty so far but tomorrow the 2021 Q2 GDP will be released as well as the Manufacturing PMI on Friday. There’s no obvious support for the pair, at least before 1.31.
USDJPY (current price 111.57) has a clear uptrend this week and it is very close to the critical resistance zone at 111.65. The next obvious target for the buyers is the price area of 114.55. The strong USD, helped by the increasing bond yields drives the pair to a bullish rally. Fumio Kishida has won the LDP leadership election and most likely he will be the next Prime Minister in Japan. Important announcements on Thursday (Retail Trade, Industrial Production) and on Friday (Tankan Manufacturing Index, Unemployment Rate) but the USD is the absolute dominator of the pair.