London 18/11/2022
It’s been a relatively quiet week in the financial markets, compared to recent weeks when the volatility was very high and there were many changes in the markets’ trend. The big player in the currency market which is the US dollar is marginally bullish this week but it’s not a strong reaction after last week’s sell-off. Some statements regarding the Fed’s future steps gave some more credit to the dollar. These statements had to do mainly with the inflation problem and with some new big interest rate hikes that may be necessary. According to the CME FedWatch tool though, the probability of a 0.50% rate hike in December’s Fed decision, remains above 80%. Also, the bond yields keep on de-escalating as the US 10-year bond yield is currently below 3.80%.
In Europe, the head of the ECB Christine Lagarde reiterated in her speech today that the bank will raise the interest rates until it is ensured that the Eurozone inflation returns to 2%. She also mentioned that the probability of a recession is high and that the balance sheet is normalized in a measured and predictable way.
No important changes for the US stock indices this week but the European ones continue to perform profits for one more week. Gold has a corrective week while oil prices are in a deep bearish trend this week due to hawkish comments from Fed members.
EURUSD (current price at 1.0379) is slightly bullish this week although it reached the 10.5 area on Tuesday. After that day, the dollar became stronger mostly because some Fed members had hawkish statements, heralding new & high interest rate hikes. Christine Lagarde was also hawkish but the markets anticipated a slow-down by the Fed after the lower inflation rates that we saw last week. As per the macros, the inflation in the Eurozone dropped slightly from 10.7% in September to 10.6% in October but this number was almost ignored by the markets. The probability of a recession in the Eurozone area remains significantly high. A possible uptrend channel for the EURUSD may be developed if the price breaks out of the zone of 1.05.
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USDJPY (current price at 139.89) is bullish this week after the huge downtrend that we saw last week. It is mostly the dollar that strengthened a bit after some hawkish comments from Fed members, as the bond yields dropped marginally. This week started negatively for the Japanese economy as the macro results were disappointing: GDP and industrial production had negative figures in contrast with the market expectations. The inflation in Japan was announced at 3.7% in October which is a very high rate compared to the previous one of 3% and the markets’ expectations of 2.7%. Bank of Japan head Haruhiko Kuroda commented that the inflation shows signs of increase but he also said that the loose monetary policy will continue to support the Japanese economy. As long as the USDJPY remains below 140, we cannot speak of a bullish recovery while below 137.60 the downtrend may accelerate.
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USDJPY (current price at 139.36) ends the week with the most bearish performance of the last 2.5 years. The mood of the markets has changed dramatically after the US inflation announcement and the big drop in the bond yields pushes the pair even lower. It’s impressive how the pair opened the week from above 147 and now it is well below 140 which is a milestone price. All these, without any hint so far that the Bank of Japan will change its ultra-loose monetary policy and negative interest rates. There’s no obvious support for the pair until the price area of 130.
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