Daily Analysis Report 06 July '2022

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EnclaveFX
Jul 06, 2022
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EUR/USD

The euro displays a little fall while gaining a significant “bearish” momentum established the day before. The EUR/USD pair is close to the record lows posted yesterday and targeting 1.0245 for a collapse. Alarming statistics on business activity in the eurozone from S&P Global put significant pressure on the instrument’s position: the Composite PMI dropped to a 16-month low, suggesting a decline in manufacturing activity and rising concerns of an actual economic recession. Investors have changed their estimations of the likelihood of tightening monetary policy in this regard, although there is almost no uncertainty about the European Central Bank meeting in July (ECB).

The situation is still stressful because the regulator has not yet raised the rate, and recession chances are just rising. Investors are concentrating their attention on data from the euro region regarding retail sales trends in May. The most recent predictions made by analysts are pretty bullish; they predict increases of 0.4 percent every month and 5.4 percent every year. Factory Orders data for Germany in May will also be revealed during the day. This data is expected to maintain a downward trend at -0.6 percent.

GBP/USD

The British pound is consolidating near 1.1930 and moving in multiple directions. The previous day, GBP/USD maintained a price below 1.2000, updating the previous record lows from March 2020. The US dollar is surging amid mounting concerns about a worldwide economic recession. In particular, the Bank of England released a financial stability report highlighting the dangers of new economic shocks. The regulator recommended banks raise buffer capital to act as a reserve in trying circumstances. In addition, inflationary risks continue to exist despite the Bank of England’s actively growing interest rates.

While the British regulator is constrained from further tightening monetary policy, inflation exceeds double digits. The day before, S&P Global released a report on business activity in the UK that was surprisingly upbeat: The June Services PMI jumped from 53.4 to 54.3 points with an unbiased estimate, and the June Composite PMI increased from 53.1 to 53.7 points, despite analysts’ expectations for no change.

NZD/USD

The New Zealand dollar has slightly declined, maintaining the negative trends established the day before. NZD/USD is pushing 0.6150 for a collapse and is holding close to the May 2020 record lows. Investors prefer the more “calm” US currency over the volatile New Zealand dollar because they are still apprehensive. The dangers of a recession in some developed economies, as well as a discernible slowdown in the global economy overall, are attracting traders’ attention. This compels financial regulators to rethink their plans for tightening monetary policy.

Markets anticipate that many central banks would pause after the rate hikes in July or attempt to use extra measures to combat inflation. The Dairy Price Index dropped by 4.1 percent in the reporting week after falling by 1.3 percent the previous period, contrary to analysts’ expectations of a minor increase of the index by 0.3 percent, which put pressure on the holdings of the New Zealand dollar yesterday. Investors are also keeping an eye out for news out of China, where officials in Shanghai have reported new cases of the COVID-19 virus, which could mean the reinstatement of restrictive restrictions.

USD/JPY

The US dollar is correcting after climbing at the start of the week and now displays a modest fall. In anticipation of new drivers entering the market, USD/JPY is pushing 135.20 for a breakdown. The demand for US dollars is still quite strong, however, as investors continue to reduce their exposure to risk in response to mounting signs of a potential global recession, particularly in the US, where the Federal Reserve has raised interest rates several times and is expected to do so again during its meeting in July. While corporate activity gradually drops amid continuously high energy prices, inflation is still alarmingly high.

The yen rapidly declined, eventually falling to new record lows because the Bank of Japan had patiently waited for consumer inflation to reach its goal level of 2 percent. The weak national currency has increased risks for the primarily export-oriented Japanese economy, which could prompt the Bank of Japan to engage in foreign exchange interventions shortly.

XAU/USD

After Tuesday’s exceptionally tumultuous trading, which prompted the sale of the precious metal against the backdrop of the US dollar’s strengthening, gold prices are stabilizing and holding close to the recent December 2021 lows. In addition to gold, other commodities such as gasoline and the costs of silver and copper also showed a dramatic fall. Growing concerns about a potential global economic recession and deteriorating outlooks for inflation and manufacturing output bolstered demand for the dollar. Additionally, the population’s cost of borrowing significantly increases due to the active increase in interest rates by the world’s central banks, which, when paired with an overall increase in the cost of living, has a detrimental impact on the economy.

Separately, there are concerns of an energy catastrophe, especially in Europe, which relies heavily on the Russian energy supply. The EU, along with the US and UK, continues to put further pressure on Russia with sanctions, which only heightens the dangers of a natural gas shortage for the functioning of industrial companies, particularly as the cold winter approaches.