London 19/08/2022
The US dollar continues to strengthen, showing that its recovery is total this week. Two key factors contribute to this: the deterioration of global investment sentiment that pushes many investors to safe investment solutions, and the statements of central bankers in the United States announcing a continuation of the aggressive interest rate hike by the Fed. It seems that the slight de-escalation of inflation that we saw last week is not enough to calm down the Central Bank of the United States and now the chances of a 0.50% or 0.75% increase in interest rates are the same. In addition, the US continues to have a good macroeconomic picture, and the Initial Jobless Claims announced yesterday below estimates show that the labor market in the United States continues and remains a strong macroeconomic factor.
In Europe, on the other hand, the situation remains the same with fears and concerns about energy shortages during the next winter that may lead to a recession. The announcements continue to have negative signs while inflation was announced for July, unchanged at 8.9%.
Most stock indices in Europe and America have corrective trends except for the United Kingdom, where the upward rally continues. We see strong downward pressure for gold this week while the oil losses are smaller. It is important to mention the increase in bond yields with the US 10-year touching 3% again.
EURUSD (current price at 1.0053) is heavily bearish this week and took back all the recovery that took place during the last month. The exchange rate managed to reach the price range of 1.0370 but then the intense downward pressure began and now it is a breath away from the 1:1 parity. The United States seems determined to continue raising interest rates at least until the end of the year, while in Europe things are not the same since the high probability of a recession does not give the European Central Bank room to move aggressively to combat high inflation in the eurozone. Earlier today, we saw the announcement of the producer price index in Germany which increased by 37.2% compared to the previous year. The bond yields are also moving higher with the German 10-year having climbed to 1.22%. A downward breakout of 1:1 can lead EURUSD to a strong bearish rally.
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GBPUSD (current price at 1.1820) is bearish this week, having lost the milestone price of 1.20 very easily. The great strength of the US dollar after the statements of central bankers from the United States to continue the aggressive monetary policy drifts the exchange rate to lower levels as the sterling can not show signs of recovery. Inflation in the United Kingdom for July was announced at an unreal 10.1% and if the Bank of England estimates that towards the end of the year the country will go into recession come true, we will be dealing with an explosive environment of a shrinking economy and very high inflation. Retail sales in the UK fell by 3.4% in July, on a year-on-year basis showing the recession is just around the corner. Finally, the GfK Consumer Confidence Index had a strongly negative result proving that psychology is also at particularly low levels. GBPUSD is very close to the support of 1.1760 which is a low price of about 2.5 years and below this price zone, a downward scenario is particularly strengthened.
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USDJPY (current price at 136.96) is very bullish this week and very close to the important resistance of 137. The very strong dollar has given a bullish breath to the exchange rate and has brought it back into the upward channel in which it has been moving for several months. This situation is also reinforced by the increase in bond yields, especially American 10-year. The situation in Japan remains unchanged since very loose monetary policy continues, even though inflation in July moved slightly upward and was announced at 2.6%. If the USDJPY exceeds the price range of 137 solidly, the scenario for prices close to 140 earns a lot of credits.
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