London 23/11/2022

No visible trend for the US dollar this week so far. The volatility is also low for most of the major currency pairs as the FOMC later today keeps the markets in a wait-and-see mode. Low volatility is also expected for the two last days of the week, due to Thanksgiving in the United States. Earlier today, the US durable goods orders had a good result but the reaction of the market was not important.
In the last few days, there have been several statements from central bankers (Fed and ECB) regarding the next steps in the monetary policy and the interest rate decision. Fed officials reiterated that the high inflation issue is still very strong and that more interest rate hikes are necessary to face it. However, the probability that the next hike in December will be 0.50% is above 75%. If this comes true, it will be the first 0.50% hike after four 0.75% hikes in a row. On the same page, ECB officials say that the inflation rate is too high and they don’t rule out a 0.75% interest rate hike in the next decision session.
Equity markets had a bullish jump yesterday in both US and European markets. Commodities such as gold and oil are in deep red for a second week in a sequence and the bond yields keep on consolidating a sideways movement with US 10-year bond yield at 3.80% currently.
EURUSD (current price at 1.0333) is neutral this week as it has fully recovered from Monday’s drop with two bullish days. The PMI indicators in Eurozone, Germany, and France were all above market expectations and this creates anticipation that the ECB has room to proceed with new interest rate hikes. FOMC tonight is also critical because we may have new hints regarding the monetary policy plans of the Fed. As we enter Thanksgiving day, we expect lower volatility which may cause some spikes in the currency markets. Buyers are still targeting the price zone of 1.0480 as it is the highest price of the last 5 months and so it is a strong resistance. Above this level, we may see a stronger uptrend.

GBPUSD (current price at 1.1970) is bullish this week, having approached very much to the critical price area of 1.20. Yesterday there were some rumors that the new UK finance minister Jeremy Hunt, who expressed optimism that trade barriers between his country and the EU would be removed in the coming years will conflict with some new government ministers. The point is that the GBPUSD has been in an uptrend rally since the end of September when we saw historically low prices for the pair. The new government, some good macros (PMIs today had a good result), and an optimism that the upcoming recession will be easier in tension and duration, have given credit to the sterling. Of course, the weakness of the dollar has helped as well. Above 1.20, this uptrend channel may become even stronger.

USDJPY (current price at 141.10) is bullish this week although the dollar does not become stronger and the bond yields remain unchanged. It means that we should search for the reasons for the pair’s rising into the yen’s weakness. The Bank of Japan up to now has shown no tendency to change the ultra-loose monetary policy or/and to hike the interest rates. All the major banks are moving in a different direction which is why the Japanese currency has become very weak during the last months. Above 142.25, we may see more bulls for the pair.

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

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