The US dollar continues its heavy bullish rally. In April, the USD Index started at 98.33 and it is currently at 102.96 which is 4.71% higher and this is one of the highest monthly performances for the dollar in the last decade. The risk-off mood due to the war in Ukraine and the long-term economic consequences that it may cause, pushes many investors to safer investing options. Another reason is the monetary policy of the Fed as it seems that there will be several interest rate hikes until the end of 2022, starting from the next week when a 0.50% hike is expected. On the other hand, the ECB remains idle and inactive with just a few vague signs of an interest rate hike until the end of the year. The sharp drop of the EUR though, makes today’s speech of Christine Lagarde very interesting because some analysts believe that the ECB has no other option but to raise the rates, even during the summer. After all, the inflation problem becomes even worse with a weaker euro.
The stock indices had important losses yesterday and although today there’s a recovery attempt, the sentiment remains negative. Gold, oil, and most of the commodities perform losses this week as well among global fears regarding the demand. A serious correction is taking place in bond yields as well and the US 10-year bond yield that opened the week at 2.89%, has dropped to 2.74%.
EURUSD (current price at 1.0545) is heavily bearish this week, having lost more than 250 pips so far. The different approaches between the Fed and ECB regarding the monetary policy and the interest rates strengthens the dollar, makes the euro weak, and pushes the pair lower. The economic calendar is poor so far so the EURUSD is moving mostly through the central banks’ decisions and the risk sentiment, mostly defined by the Ukrainian war. The durable goods orders in the US were a neutral announcement as the results were more or less close to the markets’ expectations. We saw an easy bearish breakout of the important support at 1.0635 and below that, the next important support is at 1.0340. Possible reasons for a bullish recovery are any possible positive news from Ukraine or signs of an interest rate hike from the ECB.
GBPUSD (current price at 1.2559) is in a free-falling situation as it was well above 1.30, just 10 days ago. Since the Bank of England has done three interest rate hikes during the last months and there’s an intention for more, the sterling’s weakness should be addressed for other reasons. The negative sentiment of the markets most likely is one critical reason as the investors favor the USD instead of the risky GBP. There were also bad macroeconomic results from the UK last week, mostly the reducing retail sales and the high government borrowing showing that the war affects the country much more than it was expected. The current price is the lowest since the summer of 2020 and the next major support is at 1.2075.
USDJPY (current price at 128.11) was very bearish until yesterday but today, most of the loss has been covered and the pair is just a few pips away from its weekly opening price. The lower bond yields have helped indeed to this correction as well as the good news from the Japanese jobs market since the unemployment rate dropped to 2.6% in March (the rate in February was 2.7%). Tomorrow, there is the interest rates decision and the monetary policy statements from the Bank of Japan. No surprises are expected to both monetary policy and interest rates (the current rate is -0.1%) but there may be a pledge for the future as it is inevitable for the inflation rate to rise in Japan due to the higher energy cost. The price area of 130 is the obvious target of the buyers but in a hawkish hint from the Bank of Japan tomorrow, correction cannot be excluded.
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