London 21/12/2022

It’s been a quiet week so far for the financial markets and especially for the foreign exchange markets. The US dollar continues to weaken for one more week, confirming the downtrend that started in late September. Markets are trying to digest the last week’s announcements and decisions, mostly regarding the monetary policies and the interest rate hikes by many central banks. There’s a lack of economic announcements and only the interest rates decision in China (unchanged at 3.65%) and some serious developments in Japan (as we’ll see below) make sense. Tomorrow the GDP that will be announced in the USA may increase the volatility but in any case, most of the market analysts are trying to estimate the next decisions of the central banks as it is the main and dominating factor for the financial markets nowadays.
There’s no obvious trend for the US equity indices so far but the European ones are in profit. Commodities such as gold and oil perform important profits and finally, the bond yields recover with the US 10-year yield, moving close to 3.65% currently.
EURUSD (current price at 1.0610) is slightly bullish this week, mainly following the weakness of the dollar. The uptrend that has been formed during the last 3 months seems to still stand after the last week’s announcements and decisions from Fed and ECB.  The business climate and consumer confidence were announced in Germany above market expectations and the producer price index increased in November by 28.2% (on an annual basis) which is also below market estimations. As we expect the US GDP and the durable goods orders to give new insights for the rest of the week, the next significant resistance for the EURUSD is at 1.0740.

GBPUSD (current price at 1.2106) continues with a bearish trend for the second week in a row. Even the weak US dollar is not able to make the pair move higher because the sterling has also become weak from last week’s news. The Bank of England increased the interest rates by 0.50% but the two members of the bank that voted against this decision have caused many concerns about whether the aggressive policy will continue. This dovish stance of the markets has affected the sterling. This mini downtrend may accelerate if the price drops below 1.20 and it takes a solid come-back above 1.2350 for a bigger recovery probability.

USDJPY (current price at 132.28) is heavily bearish this week because a significant event acts like a game-changer for the pair. More specifically, yesterday was the interest rates decision, the monetary policy statement, and the press conference from the Bank of Japan. The interest rates remained unchanged at -0.1% but then we learned something new: the Bank of Japan will allow the 10-year bond yield to move between -0.5% and 0.5%. The previous range was from -0.25% to 0.25% and this announcement was interpreted by the markets as a hawkish turn. The head of the Bank of Japan Hirohiko Kuroda reiterated that the loose monetary policy will carry on but it did not change the views of the markets. As a result of the above, the USDJPY dropped from the price zone of 136 to 130.56 (weekly low price) while we see a partial recovery during the last hours, above 132. A possible break out below 130 may be a strong signal for further losses.

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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