London 09/12/2022

During the last 2 days, the US dollar took back all the profits that it had performed since the beginning of the week and currently its price is very close to the weekly open price. Especially in the last hours, we saw a spike in many USD currency pairs after the producer price index announcement in the US which was above markets’ expectations. Inflationary rates define the trends and the volatility of the currency pairs lately and this is because these numbers also define the perception of the markets regarding the next steps of the central banks on interest rates and monetary policy.
Earlier today, China announced the inflation in November at 1.6%, significantly higher than the 1% that the markets estimated.
Equity markets in Europe, the US, and the UK are bearish this week. Gold is neutral but oil is in a free-fall being at its lowest price of the last year. Finally, the bond yields have had no meaningful change this week as the US 10-year bond yield is sitting at 3.50% during the last few days.
EURUSD (current price at 1.0547) is marginally bullish this week, taking advantage of the dollar’s neutrality and the euro’s strength. Most of the analysts of the markets say that we should expect a 0.50% or even a 0.75% interest rate hike at the next decision of the ECB, combined with a further hawkish stance. On Wednesday, the announcement of the GDP in the Eurozone gave a sense of satisfaction since there was a 2.3% GDP growth in the 3rd quarter of 2022, making many investors think that the situation in Europe is not as gloomy as it was estimated. It takes a bullish breakout above 1.06 for the uptrend to continue strongly.
GBPUSD (current price at 1.2265) is mildly bearish this week, unable to fully recover from the losses of Monday & Tuesday, although there’s been an important attempt in the last 3 days. There was no important news for the UK economy this week so the pair was moved by the US news and the market speculations upon the next central banks (Fed & BoE) moves. Under the current data, there’s a higher probability for more aggressive interest rate hikes by the BoE, compared to the Fed and this is why there’s a strong uptrend in the GBPUSD in the last weeks. The price zone of 1.2350 is the next resistance for a potential uptrend continuation of the pair.
USDJPY (current price at 136.19) performs a remarkable bullish recovery this week after the strong bearish channel that we see during the last 1.5 months. Under the circumstances of an unchanged US dollar and unchanged bond yields, all the “blame” for this uptrend comes from the yen’s weakness. The head of the Bank of Japan Harohiko Kuroda made some comments early this week regarding the monetary policy. He said that the Bank of Japan is keen to maintain its current loose monetary policy until inflation reaches 2%. It was a dovish statement that weakened the yen. From Wednesday onwards though, it seems that this piece of information is being consumed by the markets and the pair returns to its longer-term downtrend. Below 135, we may see this pullback getting stronger.

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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