The demand for the US dollar was strong at the beginning of this week’s trading, amid a decline in global stock markets linked to renewed fears of more Chinese economic problems as a new outbreak of Covid-19 was reported in Shanghai. Accordingly, the price of the USD/JPY currency pair moved for more bullish breaches, as it jumped to the resistance level of 137.75, the highest for the currency pair in 24 years, before settling around the level of 137.50 at the time of writing the analysis, waiting for any news.

Investors had hoped China was on its way to easing its Covid-free approach to the virus, but news that areas of Shanghai are undergoing mass testing has led to fears of severe restrictions being imposed again. According to market performance, the dollar was the strongest against a basket of currencies due to global growth concerns. Those concerns were exacerbated by fears of more lockdowns in China after Shanghai reported its first case of the highly contagious BA.5 omicron subtype.

Shanghai reported its first case of variant BA.5 on Sunday and authorities say mass testing for Covid will be conducted twice between July 12 and July 14 in nine regions. Commenting on this, Susanna Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdowne, said: “The uncertain outlook keeps stock markets volatile with growing fears of severe inflation and a global slowdown, while Covid concerns are back again.” And “signs that the story of The Covid horror is not over yet on our nerves.”

Asian and European markets were trading in the red while US stock futures pointed to a softer open. These dynamics reflect an investor environment that tends to favor the dollar and other “safe havens” currencies.

The DXY dollar index – a measure of the dollar’s broader performance based on exchange rates specific to the US dollar – was near its highest level since 2002 at 107.47.

Commenting on this, Mark Heffel, chief investment officer at UBS Global Wealth Management, says: “In the current climate of risk aversion in the markets, the US dollar’s ​​rally is likely to continue in the near term.” But looking to the future, the analyst says, this strength is unlikely to last in the long term. UBS said in a note Monday that the dollar’s rally will be constrained by peak rate hike expectations by the US Federal Reserve as investors begin pricing in a physical economic slowdown in 2023.

This could prompt the Fed to cut interest rates. Accordingly, some analysts advise investors not to take a position in order to continue the rise of the US dollar. Instead, our favorite safe haven currency is the Swiss franc. We also favor commodity currencies, which we expect to benefit as commodity prices recover from the recent decline.

Overall, the selling of the Japanese yen accelerates after Japan’s ruling coalition expanded its majority in Sunday’s upper house elections, as investors interpreted the result as a near-referendum on the country’s ultra-easy monetary policy. Accordingly, the Japanese currency fell 0.8% against the dollar, surpassing the closely watched 137 level. Bank of Japan Governor Haruhiko Kuroda reiterated on Monday that he would not hesitate to add monetary stimulus if needed to bolster the faltering economy.

Rising Treasury yields and strong US employment data on Friday also gave an additional boost to the dollar, which rose against most of the major currencies. Commenting on the performance, Tsutomu Soma, a bond trader at Monex Inc said: “The environment is vulnerable to dollar buying and yen selling given the sense of security that there will be no turmoil in Japan for a while and amid expectations of a Fed rate hike to combat inflation.” . in Tokyo. “It wouldn’t be surprising if USD/JPY tested 147 or 150 in that direction.”

With the Bank of Japan keeping interest rates on the floor even as foreign interest rates rise, the yen has fallen to a 24-year low, down more than 16% against the dollar this year. The coin is a very short distance from its worst decline ever, according to data compiled by Bloomberg. Japan’s elections came two days after the assassination of former Prime Minister Shinzo Abe, who was seen as a major supporter of the Bank of Japan.

USDJPY Technical Outlook

The general trend of the USD/JPY currency pair is getting stronger towards the upside and stabilizing above the resistance 137.50, which does not rule out moving towards the next psychological resistance level 140.00. The factors of the strength of the US dollar continue, and the Japanese yen did not even benefit from the attempts of investors to buy safe havens. On the downside, if there is profit taking selling, which is expected at any time, the currency pair may move towards the support levels 136.80 and 135.00, respectively.

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At the end of last week’s trading, the price of the GBP/USD pair fell below the 1.2000 psychological support, with losses to the 1.1975 support level, its lowest in two weeks. It returned quickly amid buying operations, as the technical indicators moved recently towards oversold levels, stable around the 1.2120 resistance level at the time of writing the analysis. However, the pair is still far from retesting the 100-hour moving average line, which leaves more room for an upward movement. In addition, the currency pair did not reach overbought levels after recently recovering from the oversold levels of the 14-hour RSI.

On the economic side, the GBP/USD currency pair is trading influenced by the announcement that the US ISM manufacturing PMI for June fell from expectations at 54.9 with 53. The related PMIs also came in below estimates. On the other hand, the S&P Global Manufacturing PMI beat expectations of 52.4 with a reading of 52.7. It was announced that initial jobless claims for the week ending June 24th exceeded the expected number of claims by 228K with a total increase of 231K.

In the UK, May Mortgage Approvals beat the forecast of 64K at 66.16K, while M4 Money Supply increased 0.5% (MoM) and 5.1% (YoY) compared to the previous period increase of 0 % and 4.9%, respectively. It was announced that the GDP in Britain for the first quarter matched expectations (quarterly) expected at 0.8% with a reading of 0.8%. The change (year-on-year) was also in line with expectations of 8.7%.

BoE Governor Andrew Bailey offered, among many others, some contextual insights that will be of great relevance to all those seeking to understand or evaluate the merits of the current market expectations of the Bank rate, which has been raised to the highest level a year later. “We can see very clearly the direct market pricing and the implied market curve ie prices in what we are going to do,” the Bank of England governor said last week. We are also as you know, and we just started doing that recently, and we’re publishing a market survey.”

Implicit market measures of central bank interest rate expectations are often derived from the overnight index swap market, a derivative market that investors use more to hedge or hedge against interest rate risk than by those rate speculators. Prices in the overnight index swap market since mid-June indicate that there is a high risk of the Bank of England’s interest rate rising from 1.25% to 2.75% or more before the end of the year, although the Bank of England’s survey of market participants suggests an expected rise. Bank interest rate to only 2%.

GBP/USD Technical Outlook today

In the near term and according to the hourly chart, it appears that the GBP/USD currency pair is trading in the formation of a sharp ascending channel. This indicates a strong short-term bullish momentum in the market sentiment. Therefore, the bears will target potential pullback profits at around 1.2061 or lower at 1.2006. On the other hand, the bulls will target short-term profits at around 1.2136 or higher at 1.2184.

In the long term and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within the formation of a descending channel. This indicates a significant long-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current declines towards 1.1938 or lower to 1.1772. On the other hand, the bulls will look to rebound at 1.2272 or higher at the 1.2478 resistance.

Ignoring the Japanese government and the Central Bank of Japan, the recent collapse of the Japanese yen in the forex market allowed the USD/JPY to move strongly higher. It broke its highest level in 20 years, and the currency pair reached the top of the dollar. The US dollar is still the strongest with interest rate hike expectations. This is a major reason for the recent rocketing rise of the currency pair.

In contrast to the performance of the currency pair, the dollar fell after international trade data showed that US demand for imported consumer goods declined during April in a result that may be related to the Fed’s monetary policy expectations. The dollar was broadly bought in mid-week trading, resulting in gains on almost all major currencies, although the trend was reversed somewhat after the Census Bureau released its trade balance estimate for April.

The deficit decreased from $107.7 billion in March (revised) to $87.1 billion in April, as exports increased and imports declined. The Census Bureau added that the March deficit, which was previously published, was $109.8 billion. The US trade deficit fell sharply during April due to an economically supportive increase in exports and a decrease in imports which should also boost GDP. The data is likely to carry with it a pessimistic message about how far the price may need to be in US interest to go up later this year.

Subsequent declines of the US dollar have been widespread and more noticeable against currencies with global central banks that are either in the process of raising interest rates or about to raise interest rates in order to curb their own runaway inflation rates.

One explanation for the market’s response to the data may be that the decline in imports is indicative of a cooling in consumer demand for manufactured consumer goods among households, which has been an important source of inflation in the US recently and is something the Federal Reserve has openly begun to curb. “The main challenge facing the economy is unacceptably high inflation, which reflects the imbalance between strong aggregate demand and constrained aggregate supply,” Loretta Meester, president of the Federal Reserve Bank of Cleveland, told the Philadelphia Council on Business Economics last week.

“There has been strong demand in the face of very limited supply in both the product and business markets. Product markets have had to deal with a succession of disruptions in supply chains, reflecting differences in virus conditions and virus containment policies around the world.” The Fed is seeking to use monetary policy to reduce consumer demand to a level that is in better balance with the restricted supply of commodities noted above, and this is a major part of the reason why policy makers have been more hawkish in their statements over the recent months.

The FOMC is committed to using its inflation-control tools, on a downward path to its long-term 2% inflation target and has begun the process of monetary policy repositioning. Loretta Meester added that this recalibration reflects evolving economic conditions, the economic outlook, and the risks surrounding the outlook, and as re-calibration continues, it will continue to do so.

Overall, these types of data affect all financial markets as well as general financial conditions within the economy, conditions that have tightened significantly since June of last year and the point at which the Fed first began signaling that it would soon look to tighten its monetary policy.

According to the technical analysis of the pair: The general trend of the USD/JPY pair is still bullish, and the continuation of its gain’s factors mentioned above will ensure control of testing stronger ascending levels amid a clear ignoring of the movement of some technical indicators towards overbought levels. The closest to the trend is now levels of 134.85 and 136.00, respectively. According to the performance on the daily chart, to breach the current ascending channel, we must break 129.80. The currency pair may remain on track until the release of US inflation figures tomorrow.