London 08/07/2022
Following the FOMC minutes that were released on Wednesday, it is clear that growing stress exists among the central bank members to address inflation using a restrictive monetary policy, but the minutes did not change the current expectations of a potential 0,5%-0,75% interest rate hike in the next meeting in July. Today’s NFPs (Non-farm payrolls) announcement was of significant importance and indicated that the US is still in good condition and will be in better shape (at least short term) regarding the economic slowdown, compared to other economies. In May’s release, the US Bureau of Labor Statistics presented 390K new jobs, which is significantly higher than the consensus expectation for June which was 268K. Moreover, bond yields are again on the rise as the US 10-year approaches 3%.
The Euro faces a bearish trend this week as the US dollar continues to strengthen in this risk-averse environment. Also, the escalating energy crisis and the delays in policy tightening measures by the ECB may increase inflationary pressures across EU countries but no further actions have been announced.
Boris Johnson’s resignation was perceived as a positive result by the markets with the pound achieving a short-term upward movement to $1.20, because it reduced the political risk and uncertainty, however with inflation at the highest level in four decades and the expectation that the BoE will move slower compared to Fed in the tightening of monetary policy the mid to long term bearish trend is still in place.
The major stock indices are bullish this week, while gold is neutral but the oil prices dropped significantly.
EURUSD (current price at 1.0138) is sharply bearish this week. The US dollar continues to strengthen as the divergence between ECB and Fed policies continues to exist. The speech of Chair Lagarde gave slight hope to the Euro and a short-term bullish trend started while the speech was in place, but the positive results of today’s NFP announcement immediately changed the direction in favor of the dollar. The bearish trend exists, and the scenario of parity (1:1) is coming closer as there is no clear support level in between.
GBPUSD (current price at 1.1976) is bearish continuing the previous week’s trend due to the dollar’s strength and the UK government crisis, ahead of the support at 1.1930. The resignation of Prime Minister Boris Johnson had an impact short term with GBP achieving an upward movement against USD, but on Friday morning a sell-off started that reduces significantly these gains. In case of a bearish breakout below 1.1930, the downtrend may accelerate.
USDJPY (current price at 136.39) is mildly bearish this week and 137 is the major resistance ahead of 140 which is something that many analysts estimate. The weekly uptrend stopped after the shooting of former Prime Minister Shinzo Abe during his speech in the city of Nara. This week’s positive NFPs release strengthens the US dollar and the pair again, as no important events will take place in Japan and the outlook of BoJ remains unchanged.

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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