Daily Analysis Report 14 June '2022
The euro has risen slightly against the US dollar, recovering from a “bearish” start to the week, as a result of which the EUR/USD pair has updated local lows from May 16. The instrument is waiting for further growth drivers to arrive before testing 1.0430 for a breakout. On the other hand, investors are not in a rush to open new trading positions ahead of this week’s meetings of major central banks, the most important of which is the US Federal Reserve, which will announce its interest rate decision tomorrow. Investors are confident that the US Federal Reserve will continue to tighten monetary policy; the only question today is how quickly it will do so.
In any case, traders will be watching authorities’ words closely for any shift in attitude. Today, Germany is slated to release a set of consumer inflation numbers for May; it is believed that the amount will fall slightly from 0.9 percent to 0.8 percent and that the annual price increase rate will continue at 7.9 percent. Data on the eurozone’s Consumer Price Index will be released on Friday.
The British pound is trading in an uptrend against the US dollar, correcting after a confident “bearish” trend on June 8, which caused the instrument to update record lows on May 18, 2020. The development of technical aspects is significantly responsible for growth. Specifically, investors are establishing long positions in the US dollar, preferring to await the result of Wednesday’s US Federal Reserve meeting. According to inflation figures issued on Friday, consumer prices do not appear to have passed their peak levels, surprising market participants. The macroeconomic backdrop in the United Kingdom is similarly murky. On Monday, GDP figures were released, showing that the national economy contracted by 0.3 percent in April after dropping by 0.2 percent in March.
Industrial production declined 0.6 percent in April after falling 0.2 percent the month before, while manufacturing output decreased 1% in the same period after falling 0.2 percent the month early. This week, investors will be focused on the outcomes of the Bank of England meeting, from which they expect more actions aimed at tightening monetary policy; however, due to the British economy’s second consecutive month of decline, there are concerns that such actions by the regulator will be noticeably complicated.
The New Zealand currency recovers ground against the US dollar, retreating from local lows of May 16 and testing 0.6275 for a breakout, attempting to reverse the confident slide the day before. On Tuesday, correctional emotions for the US dollar were seen across the market. They were linked to the US Federal Reserve’s approaching meeting, which will conclude with the release of an interest rate decision on Wednesday. Current projections suggest a 50-basis-point hike; however, given the freedom of inflation data in the United States at the end of last week, it’s likely that the regulator will take more harsh actions.
The most critical data from New Zealand will be released on Thursday when new data on the dynamics of the Gross Domestic Product for Q1 2022 will be presented. The New Zealand economy’s quarterly growth rate is expected to be reduced from 3.0 percent to 0.6 percent. In comparison, annual GDP is expected to grow by 3.3 percent, higher than the prior estimate of 0.2 percent.
When partnered with the Japanese yen, the US dollar exhibits multidirectional trading behavior, consolidating near record highs and the level of 135.00. Investors prefer to wait for the outcome of the US Federal Reserve meeting, which will be held on Wednesday. Therefore activity on the instrument has been noticeably falling since the end of the previous trading week. Following the announcement of US inflation statistics last Friday, the Fed’s chances of raising the rate by 75 basis points or adjusting the timeframe of the scheduled halt in monetary tightening have increased dramatically. The Bank of Japan will also meet this week, although no significant action is expected from the Japanese regulator.
Although the Japanese economy faces tolerable inflation risks, regulator representatives warn of the dangers of the rapid depreciation of the national currency. Japan’s macroeconomic indicators issued today added to the yen’s pressure: Industrial Production declined by 1.5 percent in April after falling by 1.3 percent the month before, and the hand lost 4.9 percent annually after falling by 4.8 percent.
Gold prices are recovering from local lows on May 18 with sluggish corrective growth. The instrument had been steadily declining the day before, owing to the quick rise in fears of a new coronavirus outbreak in China. Shanghai authorities have announced additional mass testing in almost all of the city’s districts, with five residents already barred from leaving their homes. Beijing has also reported an increase in COVID-19 infections, which could force the closure of several businesses. Gold demand is also dwindling against the backdrop of a resumption of the rise in US Treasury note yields: the measure jumped to 3.301 percent from 3.300 percent the day before.
Investors are not in a rush to start new long positions on the instrument ahead of the release of the US Federal Reserve’s last minutes on Wednesday. Given the previously released poor data on consumer inflation, the regulator is expected to raise the interest rate by at least 50 basis points. However, given the disappointing data on consumer inflation, a more aggressive hike is possible.