London 16/12/2022

A very critical week for the financial markets comes to an end. A week that contained interest rate decisions from the three major central banks, inflation announcements, and a series of other economic results. The Fed increased the interest rates by 0.50% as was highly anticipated but the hawkish stance of Jerome Powell at the following press conference caused a heavy correction to the equity indices and a strengthening of the dollar. The lower rate of inflation, according to Powell, is not a factor in slowing down as many critical steps are still pending. Yesterday, the very negative results of the retail sales and industrial production in the USA strengthened, even more, the negative sentiment of the markets.
As per Europe, the ECB raised the interest rates by 0.50% and Christine Lagarde was pretty hawkish about the next steps as the inflation problem in the Eurozone is even stronger. In November, the inflation in the Eurozone was announced at 10.1%, marginally higher than the 10% in October and it seems that the tight monetary policy of the last months does not have a happy result so far.
As we mentioned above, the equity markets in the US and Europe are in a heavy correction. Commodities had a mixed image as the oil is bearish but the oil performs profits. Regarding the bond yields, the US 10-year bond remains almost unchanged, being at 3.51% at the current time.
EURUSD (current price at 1.0631) is bullish this week although the dollar has taken advantage of the negative sentiment of the markets, as a safer currency option. The hawkish stance of the ECB and the 2-digit inflation (10.1%) in November in the Eurozone, leave no room for slowing down so new interest rate hikes are expected by the ECB. Hawkish was Jerome Powell as well but the inflation in the US is much lower (7.1% in November) so many analysts believe that the next interest rate hikes may be calmer. Moreover, positive results in Eurozone’s PMI indicators and trade balance helped the euro further. The weekly higher price is the next obvious resistance for EURUSD.
GBPUSD (current price at 1.2188) is slightly bearish this week. In the UK, the Bank of England decided on an interest rate hike of 0.50% but since two members voted for unchanged interest rates, there’s a perception that not all the counterparties are a robust and solid set for new hikes. Also, the inflation in the UK dropped in November to 10.7% (from 11.1% in October) and this result helps, even more, the dovish perception. Retail sales in the UK had a disappointing result so the sterling had more reason to drop. Below 1.20 the bearish psychology will earn some credits as it’s a milestone price for the pair but above 1.2450 which is a 6-month high price, the bullish scenario prevails.
USDJPY (current price at 137.27) is bullish for the second week in a row. Even if the dollar is getting weaker and even if the bond yields remain unchanged, the USDJPY is moving higher because of the weakness of the Japanese currency. Japan had good economic results in PMIs, imports/exports, and trade balance but the latest statements from the head of the Bank of Japan, Hirohiko Kuroda about the continuous loose monetary policy, leave no room for the yen to breathe. If the pair can approach the price zone of 140, the bulls will stand better. It takes a pullback to 135 for the USDJPY to start being heavily bearish.

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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