London 01/06/2022

There is a visible recovery of the US dollar during the last two days as the markets’ sentiment has worsened. Along with the dollar, the bond yields are rising too (after three consecutive bearish weeks) and the US 10-year bond yield has managed to return to the area of 2.88%. This week is also very active regarding fundamental news & announcements. The most important was the Eurozone’s inflation which was announced at 8.1% in May, much higher than the 7.4% in April and even higher than the expectations of 7.7%. Such a high rate should cause the strengthening of the euro because it makes the interest rates hike from ECB a necessity but almost after the announcement the euro got into a heavy downtrend. Almost all the statements from ECB officers converge on the conclusion that we may see a 0.50% hike until September. Later today, the US PMIs will be announced and it will be a barometer of how managers see the outlook of the US economy. Earlier today, the PMIs in Europe and the UK did not have a big impact on the markets.
EURUSD (current price at 1.0716) turned bearish in the last two days, after the dollar’s strengthening. Besides the inflation announcement in the Eurozone, there was also the release of the unemployment rate in April at 6.8%, a bit worse than the 6.7% of the previous month as the European economies are already into the cyclone of the energy crisis and the lowest growth rates. Germany had also important announcements: inflation at 8.7%, unemployment rate at 5%, and retail sales at -0.4% creating a negative picture. The pair needs to surpass the price area of 1.08 to earn a formal uptrend but below 1.0640 the bearish course earns more credits.

GBPUSD (current price at 1.2592) is in a mild bearish trend this week. Although there are no important announcements for the UK economy this week, some fundamental news has affected the sterling. There are specific concerns that the following interest rate hikes from the Bank of England may hurt the vulnerable economy and a possible recession along with a two-digit inflation rate could create a suffocating environment. Above 1.2670 we expect the uptrend to return stronger and in the case of dropping below 1.25, the GBPUSD will face the high probability of a bearish trend.

USDJPY (current price at 129.37) is in a great recovery this week, having already exceeded all the drops of the last two bearish weeks. Many reasons contribute to this heavy bullish recovery: the stronger US dollar, the rising bond yields, and a series of positive economic announcements from Japan. More specifically, the unemployment rate fell in April to 2.5% (vs 2.6% in March), the retail trade was at +2.9% and the consumer confidence was well above market expectations. There was only a mild decline in industrial production, justified by the higher energy prices. The pair is very close to the psychological limit of 130 and above this level, the wind of optimism may bring more buyers.

DISCLAIMER: The information produced by a-Quant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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