For two consecutive weeks, the EUR/JPY currency pair was subjected to selling due to concern about the future recession of the Eurozone economy. This came at a time when the European Central Bank accepted for the first time to raise interest rates in many years. Selling losses pushed the EUR/JPY towards the 136.86 support level, and it settled around the 138.50 level in the beginning of this week’s trading.

In the recent period, there has been a torrent of statements by European Central policy officials commenting on the future of raising interest rates and their amount, and the reaction to doing so, especially as the eurozone faces an inevitable recession due to the continuation of the Russian-Ukrainian war. European Central Bank Governing Council member Yanis Stournaras said a new tool to keep debt market turmoil at bay, as there may be no need to use higher interest rates if they are strong enough to convince investors not to test them.

In an interview with Bloomberg TV on Saturday in Aix-en-Provence, France, Stournaras said there was a “very good discussion” going on about the tool, expressing confidence in a “consensual and effective solution” and hoping it would surprise markets “on the positive side”. “I think there is a lot of truth in the idea that if we convince the markets that this is going to be a powerful tool, we may not need it,” the Bank of Greece governor added. And “we will have it on the shelf. This is a good scenario.” In the face of record inflation, European Central Bank officials preparing for a series of interest rate increases are racing to ensure there is no negative reaction in bond markets for the most vulnerable members of the eurozone. And since a jump in Italian government revenue in June, they have accelerated work on a so-called anti-fragmentation tool, which policy makers have so far called the Transport Protection Mechanism.

Sturnaras’ comments recall the European Central Bank’s Explicit Monetary Transactions program that followed former President Mario Draghi’s famous pledge to do “whatever it takes” to hold the eurozone together amid the sovereign debt crisis. And in this case, his words were persuasive enough to never use OMT.

And while officials aren’t yet sure that the new tool will be ready for their July 21 decision, according to people familiar with the matter, Stournaras was more upbeat. But he declined to go into detail about the conditions that eurozone members would need to meet to be eligible for assistance.

He emphasized that the instrument was necessary, however, in the absence of broader reforms in the European Union.

The official said the European Central Bank’s plan to raise the deposit rate by a quarter of a point this month is likely to happen. With a bigger date for the next meeting, in September, Stournaras said, “We’ll see what the data says on the inflation front and also on the activity front.” He sees price growth starting to slow down towards the end of the year and approaching the medium-term target of 2% in 2024. It is currently more than four times that level. “I won’t be able to tell you where it will peak because it depends on external factors that can’t be measured by models,” Sturnaras added, and “maybe it depends on geopolitical considerations.”

The price increase will coincide with a slowdown in the 19-nation eurozone economy – an economy that could turn into a recession. Expectations of a downturn are growing as the possibility of a Russian power cut this winter becomes more real than ever. ING warned that a recession is coming regardless.

EUR/JPY Forecast

On the daily chart, the EUR/JPY is still within a bearish channel range, and despite the recent halt, the bears’ control is still the strongest and their control factors continue to lead a bleak future for the eurozone economy due to Russia’s pressure to cut gas from the bloc countries. The closest support levels for the current trend are 137.70, 136.80 and 135.00, respectively. On the upside the bulls won’t get back in control without moving above the 140.00 psychological resistance and so far I still prefer selling EURJPY from every bullish level.

In the middle of this week’s trading, the euro fell 1.47% against the dollar and became vulnerable to more losses, says analyst Fouad Razakda of City Index. He said that it is no secret that the Eurozone economy is not doing well, with the outlook looking bleaker by the day. And the fact that the EUR/USD pair is trading at its lowest levels since 2022, reflects this miserable overall outlook. The losses of the EUR/USD pair extended to the 1.0161 support level, its lowest since 2002, and is stable around its losses in the beginning of Thursday’s trading.

The reason for the euro’s decline… is the weakness caused by rampant inflation, concerns about energy and rising borrowing costs. We have seen consumer, corporate and investor sentiment all take a big hit, with the PMIs also falling. Coupled with this, persistent tensions between Europe and Russia over natural gas supplies mean that business sentiment in Germany in particular is unlikely to improve any time soon. This will keep the manufacturing sector under pressure. Meanwhile, the European Central Bank’s determination to fight inflation will continue as interest rates rise. This will have a price, but they have no other choice. Overall, it is a vicious cycle. The threats of waning economic growth and stubborn inflation are supposed to undermine risky assets.

This is exactly why German investor sentiment has hit a new record. That’s what the latest Sentix poll revealed on Monday. And there was more bad news from Germany. The eurozone’s largest economy reported its first monthly trade deficit in three decades. Clearly, higher import prices had the biggest impact, with prices for energy, food and parts used by manufacturers up more than 30% in May compared to a year ago.

But it also points to weak demand from abroad, which comes as no surprise given how much the economic outlook has deteriorated in recent months.

The question now is: Where is the next for the EUR/USD pair?

It is clear that the overall stronger trend for the EUR/USD is to the downside and we could soon talk about 1.02, then 1.01 and so on. And something has to change fundamentally to turn the tide. Any recovery we get in the meantime will be primarily driven by short coverings. The major resistance now forms the basis for today’s breakout and former support around the 1.0350 region.

Looking ahead, the focus will shift to the US as we delve deeper into the first full week of July and the third quarter. The highlight in the middle of the week’s trading was the announcement of the minutes of the last meeting of the Federal Open Market Committee (FOMC) which is in sharp focus as investors try to discover exactly how optimistic each member is and how they see interest rates developing in the coming months. Then, on Friday, the monthly US non-farm payrolls report will put the dollar and gold in focus. The non-farm payrolls report has become less important to the markets as the focus has shifted to inflation and economic growth rather than employment. Thus, the only thing that will be important from the jobs report is the wage portion. Workers will demand higher wages to keep up with inflation.

EUR/USD Technical Outlook

The general trend of the EUR/USD pair is still stronger to the downside. Investors will not care about the arrival of technical indicators towards oversold levels as far as interacting with the factors of the gains of the US dollar and the continued faltering of the euro. As I mentioned before, the Russian-Ukrainian war will remain an extension of the negative pressure factors on the euro for a longer period as long as the war continues. The closest bearish targets are currently 1.0135 and then the parity price for the currency pair.

On the other hand, bulls need to gain momentum as soon as moving towards the 1.0600 resistance as is the performance on the daily chart below to make a first breakout of the current trend. The euro-dollar will be affected today by the announcement of the US jobless claims and the statements of a number of US monetary policy officials.

Despite US Federal Reserve Governor Jerome Powell’s emphasis on the Fed’s determination to keep raising US interest rates until there is clear evidence that inflation is steadily declining – a high-risk effort that carries the risk of eventually causing a recession – the USD/JPY was sold off. The pair reached the level of 128.00, near which it is stable at the beginning of trading today, Thursday.

The Fed’s increases in its benchmark short-term rate, in turn, usually raise borrowing costs for consumers and businesses, including mortgages, auto loans and credit cards. “What we need to see is inflation coming down in a clear and convincing way,” Powell said in remarks to the Wall Street Journal conference. “And we’ll keep pushing until we see that.”

The US central bank governor, who was confirmed by the Senate last week for a second four-year term, has suggested that the Fed will consider raising interest rates faster if rate increases fail to moderate. “What we need to see is clear and convincing evidence that inflation pressures are easing and inflation is declining,” Powell said. And if we don’t see that, we’ll have to think about moving more aggressively. And if we see that, we can consider moving to a slower pace. ”

He added that the Fed would “not hesitate” to push the benchmark interest rate to a point that would slow the economy if necessary. While it’s unclear what the level might be, Fed officials hold it at around 2.5% to 3%, roughly three times its current position.

Powell’s comments on Tuesday followed others he made that indicated the Fed is carrying out a series of rate hikes that could amount to the fastest credit tightening in more than 30 years. At a meeting earlier this month, the Federal Reserve raised its key US interest rate by half a point – double the usual increase – for the first time since 2000, to a range of 0.75% to 1%. At a post-meeting press conference, Powell suggested that Fed officials continue to raise rates by half a point, at the June and July meetings.

The Federal Reserve Chairman seemed unconcerned this week about the sharp decline in the US stock market over the past six weeks. Those declines partly reflect concern on Wall Street that the Fed’s efforts to rein in inflation, which is at its highest levels in 40 years, could weaken the economy as much as lead to a recession. Stock prices often also fall as interest rates rise, increasing the yield on bonds.

When asked whether a rate hike by the Fed could disrupt financial markets, without necessarily lowering inflation, Powell replied, “I don’t expect that to happen.”

The USD/JPY currency pair has not exited the path of its ascending channel, and according to the performance on the daily chart below, this may happen if the currency pair moves towards the support levels 126.80 and 125.00. On the other hand, and in the same time period, stability above the psychological resistance 130.00 will be important for the bulls to regain control of the trend again. The US dollar pairs will be affected today by the weekly jobless claims, Philadelphia manufacturing index and US existing home sales.

GBP/USD’s rebound from early March lows faltered around 1.33 and around a notable level of technical resistance on the charts last week, leaving it vulnerable to a deeper setback over the coming days. At the beginning of this week’s trading, the pair collapsed to the vicinity of the support 1.3066, before settling around the 1.3100 level at the time of writing the analysis. The British pound rose strongly from the opening last week before being forced to retreat when the dollar stabilized after the comments of Federal Reserve Chairman Jerome Powell and with the pound weakening in the wake of the February inflation figures.

Inflation in the UK surprised the upside of market expectations when it rose from 5.5% to 6.2% despite the decline in the GBP/USD and other GBP pairs during the following trading session. This response could be a symptom of uncertainty over whether the Bank of England (BoE) will meet market expectations of a bank interest rate in the coming months. There is uncertainty emerging as the Federal Reserve increasingly warns that it may raise rates. The US market will be faster than the market expects in the near future.

The dollar found its feet against the British pound, the euro and the Japanese yen after Chairman Jerome Powell told the National Association of Business Economics conference last Tuesday that the Federal Reserve may raise the US interest rate by 0.50% on more than one occasion in the coming months. Since then, prices in the swap markets have shifted to imply a high probability of a Fed funds rate hike from 0.5% to 1% in May, but stopped short of indicating that this is uncertain, which is a lingering bullish risk for the dollar.

Jerome Powell said, “I don’t have a test here to see what that’s going to lead to, but the expectation going into this year was that we’ll see inflation peak in the first quarter and maybe level off and then see a lot of progress in the second half.” He added, “That story has really broken down.” To the extent that my colleagues continue to disintegrate, I may come to the conclusion that we will need to move more quickly, and if that is the case we will.”

Expectations for the federal funds rate may be sensitive to Thursday’s core PCE price index for February, the Fed’s preferred measure of inflation and its final reading is likely to appear before the Russian invasion of Ukraine. The invasion has sharply raised global energy and food costs, is widely expected to push up inflation further worldwide in the coming months and has proven to be a headwind for the sterling price as well.

According to the technical analysis of the pair: On the daily chart below, it seems clear that the bears may head in the price of the GBP/USD currency pair towards the 1.3000 psychological support level again unless the sterling gains momentum to stop the pace of its losses. A dollar from each ascending level is the most prominent performance in light of the continuation of the Russian war and its negative repercussions on the global and European economy in particular. Breaking the 1.3000 support will increase the pair’s suffering and therefore move strongly to the downside. On the other hand, and over the same period, the resistance 1.3335 will be important for the upward trend.

Now fears over the logistics of actually distributing the vaccine are taking over the market, which may dwindle the enthusiasm for risky assets.

The last couple of weeks have not been the best for precious metals enthusiasts, as volatility dominated the markets.

So far, gold futures have given up last week’s gains, going down by 4.50 percent. Last week, gold attempted to recover, adding 3.82 percent, mainly aided by the fall of the US dollar which fell by 1.92 percent against a bundle of its main competitors. So far this week, the dollar has been recovering from last week’s losses, as the US Dollar Index climbed by 0.78 percent. Silver futures have also lost ground this week, going down by 5.03 percent and giving up some of last week’s 8.53 percent gains.

The sudden weakness of precious metals could be explained by the optimism that took over the market after Pfizer’s announcement of a coronavirus vaccine, bringing up risk appetite and boosting the performance of risky assets such as stocks. Right now, several countries are in negotiations with Pfizer  to secure doses of the vaccine, which according to the company’s early data is more than 90% effective.

Precious metals were surging since the pandemic began, as the rise of risk aversion across the markets has been pushing traders and investors towards safe-haven assets. Many also fear high inflation, as international central banks are considering imposing negative interest rates and having balance sheets that are hitting record highs.

Those fears are now being reinforced by governments’ decision to provide fiscal stimulus in order to keep the economy afloat, given the pernicious effects of the restrictions that were enacted to stop the spread of the coronavirus. Because of this, governments are currently piling on record amounts of debt, which could have negative effects in the long run, at least according to conventional wisdom.

In any case, the recent victory of the democratic candidate Joe Biden boosted the hopes for additional stimulus in the United States, which at this point is necessary and would have a positive effect in the short and mid terms. Moreover, the fact that the pandemic continues surging around the world signals that stimulus efforts are not ceasing anytime soon.

As COVID-19 continues to spread, it has already infected around 52,564,762 individuals and killed 1,291,785. The United States is the most affected country, with 10,708,728 total cases as well as 247,398 total deaths, followed by India, Brazil, and France. Many countries are considering an additional general lockdown, while others (like the United Kingdom and Israel) have already implemented it. Sweden, once praised for its unique approach, is now also considering additional restrictions given the recent rise in cases.

Now fears over the logistics of actually distributing the vaccine are taking over the market, which may dwindle the enthusiasm for risky assets. This is already affecting the stock market’s performance and could favor precious metals in the near future.