The US inflation in January was the most important announcement for the week. There was a new jump at 7.5% which is significantly higher than December’s price of 7.0%, even higher than the markets’ expectations at 7.3%. The bond yields jumped as well and the US 10-year bond yield exceeded 2%, for the first time after August 2019, before the pandemic. The US dollar though, had a very strange and interesting behavior: bullish in the 1st hour of the announcement, then turned to bearish and 3.5 hours after the announcement it became bullish again. The confusion in the markets and the investors/traders is obvious. Not only the rate of 7.5% is the highest price of the last 40 years but also some rumors come and go regarding the monetary policy and the interest rates in the Fed and what will be the measures and the actions. The interest rates are supposed to hike next month, probably there will be more hikes throughout the year but nobody knows if it’s enough to tame the monster of inflation.
In Europe, the European Commission raised the estimations for the eurozone’s inflation at 3.5% in 2022, and Christine Lagarde in an interview at Redaktionsnetzwerk Deutschland stated that “raising interest rate would not solve any of the current problems. On the contrary: if we acted too hastily now, the recovery of our economies could be considerably weaker and jobs would be jeopardized. That wouldn’t help anybody.” and she carried on by saying that “we have already begun to take measures. In March we will discontinue the pandemic emergency purchase program. The ECB will reduce the overall volume of its net asset purchases. Ending net asset purchases is a precondition for increasing interest rates at a later point in time.”
EURUSD (current price 1.1390) turned bearish this week, after hitting a 3-month high price at 1.1495. The behavior of the USD was the main guide for these movements. The inflation in Germany was announced at 4.9% which means that the problem of inflationary pressure is very serious in the European countries as well. Since the pair was not able to exceed 1.15, the bullish scenario lost some credits, and if it drops below 1.13 it may get into a downtrend again. The economic calendar in Europe will be full next week with announcements such as the GDP and the industrial production and along with the USD movements, it can maintain the high volatility.
GBPUSD (current price 1.3571) is bullish this week, despite the USD strength of the last few days. The UK, earlier today, had a series of important economic announcements: the Q4 2021 GDP was announced at 6.5% vs 6.4% expected, the industrial production in December at 0.3% vs 0.1% expected, and the manufacturing production in December at 0.2% vs 0.1% expected. The outperform of the markets’ expectations has developed a positive outlook for the course of the sterling. Also, some Brexit issues seem to be smoothed out and the country eases more pandemic restrictions. A possible bullish breakout above 1.3645 (highest price in February) may bring more buyers and it may lead to the pair to the major resistance of 1.3750.
USDJPY (current price 115.89) is favored by the strength of the USD and by the rise in the bond yields but it seems that the resistance of 116.35 (the highest price of the last 5 years) is a very big hurdle and it takes more “fuel” to be broken out. The ongoing loose monetary policy and the low interest rates from the Bank of Japan also weaken the Japanese currency. The trend is undoubtedly bullish but the 116.35 resistance creates sellers around this price area. The next week’s Japanese announcements (GDP and inflation) along with possible USD movements, may resolve this issue.