Daily Analysis Report 12 Jul '2022

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EnclaveFX
Jul 12, 2022
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EUR/USD

The euro displays a slight decline, forming a strong “bearish” momentum from the previous day and challenging the crucial psychological barrier of 1.0000, beyond which EUR/USD will require different powerful impulses. Less than a year after the introduction of the single currency, in 1999, the euro last maintained parity with the dollar. At the time, technical factors and the process of stabilizing the new financial system could be blamed for the euro’s weakness. However, the eurozone economy is currently confronted with significant challenges in the form of a sharp rise in energy prices and the associated increase in inflationary risks. The European Central Bank (ECB) will increase interest rates by 25 or 1 percentage point this year.

Given the region’s present inflation scenario and the fact that this would be the European regulator’s first rate increase since 2011, many people feel that it is now too late to tighten monetary policy. The ECB will probably not be able to prevent a recession in the Eurozone at the current rate. Still, it appears that not only the European department but also, for instance, the Bank of England, have accepted this. According to data for July, investors will pay attention to ZEW statistics on Economic Sentiment in the euro region and Germany today. The somewhat pessimistic analysts predict that the euro region’s economic sentiment index would decline from -28.0 to -32.8 points. 

GBP/USD

In anticipation of new market influences, the British pound is currently trading on the decline, hitting new all-time lows in March 2020 and testing 1.1860 for a collapse. The United Kingdom’s May figures on GDP and Industrial Production dynamics will be released on Wednesday. Still, it is unlikely that they will have a considerable impact on the value of the national currency. The political crisis at home about Boris Johnson, who announced his resignation as prime minister last week under pressure from his party members and considerable layoffs in the government, might make the UK economy’s swift decline into recession worse.

At least 50 representatives vacated their positions. Close friends of the former leader of the Conservative Party are among them; Chancellor of the Exchequer Rishi Sunak, for instance, criticized Boris Johnson for being incompetent. What would give the pound more incredible support is unclear, and the Bank of England is unconcerned by the pound’s low rate. One should expect additional tightening of monetary policy because the regulator is much more concerned about the issue of excessive inflation, even at the expense of a recession in the national economy.

AUD/USD

The Australian currency depreciates slightly versus the US dollar, strengthening the “bearish” signal established the day before and revising the June 2020 record lows. Despite worsening forecasts for global economic development, the US dollar is in great demand on the market. Investors worry about the start of a recession in national economies due to leading central banks’ recent substantial increases in interest rates intended to rein in inflation. In addition, given the intensification of the military crisis in Ukraine and intensified sanctions and pressure from all sides, there is still uncertainty about how much different energy prices will rise.

Additional pressure is placed on the instrument by the macroeconomic data released in Australia today: the Business Conditions index of the National Australia Bank for June dropped from 16.0 to 13.0 points, while analysts had predicted a decrease to 9.0 points, and the Business Confidence Index dropped from 6.0 to 1.0 points, despite analysts’ expectations for growth to 8.0 points.

USD/JPY

The US dollar stays close to record highs at 137.70 while trading with mixed dynamics. The previous day, the US dollar displayed a fairly robust increase as a result of the market’s response to Bank of Japan Governor Haruhiko Kuroda’s speech, in which he highlighted the high level of economic uncertainty in his country and reaffirmed his willingness to step up stimulus programs to support weak economic growth. In the face of worsening inflationary prospects in the global economy, the Japanese regulator is one of the few keeping a loose monetary policy in place. However, the country’s consumer price increase is still well below the Bank of Japan’s target levels, so the regulator’s position is entirely understandable.

In contrast to a decline in consumer activity during the coronavirus pandemic, there has been an improvement in assessments of the economies of most regions of Japan. Likewise, yesterday’s macroeconomic data proved unclear: Machine orders fell by 5.6 percent in May after rising by 10.8 percent the previous month, and the indicator’s annual growth rate plunged from 19.0 percent to 7.4 percent.

XAU/USD

During the morning session, gold prices exhibit mixed dynamics while remaining close to record lows at the end of September 2021. As the US currency gains ground against its main rivals, quotations continue under pressure. Investors are again preferring fewer risky products today because they are worried about the prospects for global economic development. With the world’s top central banks continuing to raise interest rates, gold is less appealing in this regard. The European Central Bank (ECB), the US Federal Reserve, the Bank of Canada, and the Reserve Bank of New Zealand should all raise interest rates in July (RBNZ).

Market participants are also anticipating the release of important macroeconomic data from the US on inflation. According to current forecasts, the annual rate will rise from 8.6 percent to 8.8 percent, forcing the Fed to raise interest rates by 75 basis points, as opposed to the most likely scenario, which is a rate increase of only 50 basis points. On Wednesday, the US regulator will also release its monthly economic review, providing light on its current monetary policy direction.