Daily Analysis Report 12 May '2022
During the Asian session, the euro traded with mixed dynamics against the US dollar, stabilizing near 1.0500. The euro attempted to increase the day before, aided by the President of the European Central Bank’s (ECB) upbeat words, but the “bulls” failed to consolidate on fresh local highs. EUR/USD eventually fell back into the “red” zone, maintaining the short-term trend of flat dynamics. The European Central Bank is expected to conclude the asset buyback in early Q3 2022, after which it would begin hiking interest rates.
ECB President Christine Lagarde said this the day before in a speech in Ljubljana. Much will, however, rely on the outcome of the military confrontation in Ukraine, which is still quite dangerous. The instrument’s dynamics were unaffected by macroeconomic information from Europe released on Wednesday. The Consumer Price Index in Germany increased by 0.8 percent in April, which was in line with market predictions. Inflation hovered at about 7.4% on an annual basis.
During the morning session, the British pound is trading in a downtrend against the US dollar, testing 1.2200 for a break and updating local lows since May 2020. The pound is again under pressure from the surging dollar, which continues to enjoy unwavering support despite a deteriorating global economic outlook. Furthermore, the instrument is under pressure from weak macroeconomic data from the United Kingdom, which reflect the risk of a recession in the country. The market is currently anticipating the release of March data on UK GDP trends and Industrial Production volumes.
The day before, investors were led by releasing US consumer inflation data for April, which is still one of the primary guiding principles for the US Fed when deciding on monetary policy. In April, the Consumer Price Index excluding Food and Energy surged from 0.3 percent to 0.6 percent, exceeding analysts’ predictions of 0.4 percent. The index slowed from 6.5 percent to 6.2 percent on a year-over-year basis, exceeding market expectations of 6.0 percent.
During the Asian session, the Australian dollar steadily fell against the US dollar, testing 0.6900 for a break. Since June 2020, the AUD/USD has been breaking new lows. The instrument had sought to strengthen the day before, with solid data from China providing support; however, with the start of trading in the US session, the “bulls” swiftly lost all their gains, reacting to the release of April consumer inflation data in the US. In April, Chinese figures showed that the Consumer Price Index increased from 0% to 0.4 percent, twice as high as market expectations.
China’s annual inflation rate increased from 1.5 percent to 2.1 percent, exceeding expectations of 1.8 percent. Inflation in the United States has accelerated from 0.3 percent to 0.6 percent (excluding food and energy). Meanwhile, in May, Consumer Inflation Estimates in Australia (a Melbourne Institute indicator) declined from 5.2 percent to 5.0 percent, exceeding analysts’ expectations by 0.2 percent.
During Asian trade, the US dollar fell slightly against the Japanese yen, maintaining the corrective trend established the day before. The USD/JPY is testing 129.60 for a break, retreating from the record highs set at the start of the week. The macroeconomic figures from Japan help to strengthen the Japanese currency. In April, bank lending increased by 0.9 percent after increasing by 0.5 percent. The indicator was predicted to decelerate to 0.4 percent, according to analysts.
In April, the Eco Watchers Current Situation Index increased from 47.8 to 50.4 points, above estimates of 42.9 points. For the same period, the Eco Watchers Outlook increased from 50.1 to 50.3 points, which was higher than analysts’ predictions of 47.4 points. Finally, the non-seasonally adjusted Current Account jumped from 1648 billion yen to 2549 billion yen in March.
During the Asian session, gold prices are consolidating near 1850.00. The instrument anticipates the appearance of fresh growth drivers; nevertheless, the “bulls” are constrained by the strengthening US currency, which is bolstered by the expectation of a rate hike by the Federal Reserve. The April inflation numbers were issued in the United States yesterday, indicating a slight easing of price pressure in the country but still indicating considerable inflation threats.
Such information is unlikely to significantly impact the US Federal Reserve’s present intentions to raise interest rates and begin a quantitative tightening program. The instrument is bolstered by the continued geopolitical concerns in Eastern Europe, where Russia continues to execute a special military campaign on Ukrainian territory despite a barrage of sanctions. Markets are also reacting positively to news from China, where a two-month quarantine in Shanghai is nearing its end.