The US dollar enjoys a heavy bullish trend this week as the USD Index approaches the price of 107 which is the highest price since the end of 2002. The risk-off mood that has dominated the financial markets has favored the US currency which is one of the first selections between investors when they’re looking for safe-haven currency assets. No other important news was released about the US economy so far but the week is still young. The Minutes of the Federal Open Market Committee (FOMC) will be released today and we will learn more about the intentions of the Fed, regarding the monetary policy views of the counterparties and the upcoming interest rate hikes. Moreover, the Services PMI announcement will offer a good estimation of the markets’ psychology, before the FOMC.
In the Eurozone, Christine Lagarde failed to convince the markets about the growth and the inflation in the Eurozone area and so, the euro entered a strong downtrend channel. The European PMIs were slightly good but the retail sales disappointed along with a negative trade balance in Germany, – 1.03 billion. It was the first time after many decades that Germany had a negative trade balance in Germany and this fact underlines how exceptional and abnormal the situation is.
Another important market news is the further drop of the bond yields (US 10-year bond yield dropped to 2.80%) and the huge losses in US oil (WTI) of 10%. Gold suffers also serious losses while the major indices do not have important changes in the current week so far.
EURUSD (current price at 1.0188) is sharply bearish this week. The strength of the US dollar has become a storm that caused a heavy drop in the pair, breaking out the important support at 1.0350. Besides the US dollar, Europe has a series of reasons for concern. Eurozone and German macros (retail sales, trade balance) were announced below markets’ expectations. Also, there’s an obvious divergence in the interest rates policy between Fed and ECB that favors the US currency. After this abnormal bearish price action, the scenario of parity (1:1) has earned many credits.
GBPUSD (current price at 1.1876) is bearish continuing the previous week’s trend. Today, the newly appointed UK Finance Minister Nadhim Zahawi mentioned that the government should be careful about public sector pay and the increasing inflation, which might be a signal of further actions from the BoE. The government of Boris Johnson faces serious issues (Finance Minister Rishi Sunak and Health Secretary Sajid Javid resigned) and some say that it’s not sustainable anymore. Besides the PMIs, no other important announcements were released for the UK so far. The supports of 1.20 and 1.1930 do not exist anymore so the bearish trend of the pair is established. The US PMI and the FOMC later today are factors that may change things though.
USDJPY (current price at 135.35) is slightly bullish this week. Normally it should be in an uptrend as the US dollar strengthens but the lower bond yields do not allow it. As per the economic news & announcements in Japan, the current week is poor so the pair moves from the US dollar’s behavior along with the perceptions of the markets regarding the central banks’ actions. Nothing has changed from the Bank of Japan, as all the information converges that the loose monetary policy will carry on. Above 137, the pair has a good chance to approach the price area of 140.
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