Even with the prospect of a big interest rate hike by the European Central Bank in September rising, the euro has struggled as the bloc’s energy crisis increases recession risks. 

Every time the price of the EUR/USD tries to rebound upwards, the negative impact factors remind investors that the euro will remain weak for a longer period of time.

At the beginning of this week’s trading, it tried to bounce upwards, but its gains did not exceed the level of 1.0030 and then returned to stability around the parity price again, before the announcement of the German inflation figures and the American consumer confidence reading.

At the beginning the week, the US dollar rose to the highest level in 20 years against the other major currencies after Federal Reserve Chairman Jerome Powell indicated that US interest rates will remain high for a longer period of time to reduce rising inflation. Accordingly, the US dollar index DXY, the measure of the US currency against a basket of major currencies, rose to the highest level of 109.48 in two decades.

On the other hand, the euro remained weak near its lowest level in 20 years, even with the tough statements of the European Central Bank, which strengthened the expectations of an interest rate hike in September.

At the end of last week, Powell told the central banking conference in Jackson Hole, Wyoming, that the Federal Reserve will raise US interest rates as high as needed to restrain growth and will keep them there “for some time” to lower the 2% inflation target, which is more than three times the Fed’s rates.

“Powell’s comments supported pricing a higher rate on federal funds for a longer period of time,” said Kenneth Brooks, a currency analyst at Societe Generale Bank, “the assumption that the Fed will start cutting interest rates in mid-2023 is premature,” he added.

The capital markets responded by intensifying bets for a sharper hike in US interest rates in September, with the probability of a 75 basis point hike currently at around 70%. Accordingly, US Treasury bond yields rose, with two-year bond yields reaching their highest level in 15 years at around 3.49%, which strengthened the US dollar. In his speech at the Jackson Hole Symposium, European Central Bank Board Member Isabelle Schnabel, French Central Bank President Francois Villeroy de Gallo and Latvia’s Central Bank Governor Martins Kazak all called for strong or important political actions.

Even with the prospect of a big interest rate hike by the European Central Bank in September rising, the euro has struggled as the bloc’s energy crisis increases recession risks. It is expected that the giant Russian energy company Gazprom will stop natural gas supplies to Europe from August 31 to September 2 due to maintenance.

Overall, the EUR/USD exchange rate has fallen significantly in 2022, and although factors such as the US economy and Fed policy have been an important driver of this decline, it is the rising cost of energy supply disruptions that gives most credence to bearish forecasters for some the other markets. Regarding the expected future for the Euro-Dollar, both “Rabobank” and “Nomura” expected a sustained break below the parity price in the Euro/Dollar rate during the coming months.

Expectations of the EUR/USD:

• The general trend of the EUR/USD currency pair is still downward and the stability below the parity price supports the bears’ control over the trend for a longer period of time.
• The continued concern about the future of energy in the Eurozone will stimulate the bears to further move down and therefore the appropriate support levels for the currency pair may currently be 0.9920 and 0.9845 and 0.9790 respectively.
• On today’s chart, the current performance pushed the technical indicators towards oversold levels.

On the upside and in the same period of time, breaking the 1.0200 resistance pair of the euro will be an opportunity to break the downward trend. Today the euro will react to the announcement of the German inflation figures and the dollar will react to the announcement of the American consumer confidence reading.

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The dollar held steady against the other major currencies on the back of safe-haven flows, while the euro hovered near a two-decade low as Europe grapples with energy supplies and broader concerns about economic growth. The euro currency pair touched the EUR/USD support level at 0.9900, its lowest level since late 2002 and settles around the 0.9945 level at the time of writing the analysis, waiting for anything new.

Russia will cut off natural gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of this month, in the latest reminder of the precarious state of the continent’s energy supplies. And the continent’s heatwaves have already put pressure on energy supplies and fears are growing that any disruption during the winter months could be devastating to business activity.

Commenting on that, Ray Attrill, forex analyst at National Australia Bank NAB, said: “Given the current mood, there are clearly concerns about whether it will be three days or whether it will be three years.” And “will it really just be a three-day maintenance or is this just another example of gas supplies to Europe being weaponized?”

In the same way, the performance of the dollar strengthened. The Japanese yen settled at 137.265 against the dollar after touching a one-month low of 137.705. Conversely, the Australian and New Zealand dollars were relatively flat, which NAB’s Etrile attributed to drawing market attention to the weak outlook for Europe.

Dollar Rises Due to Risk Aversion, Euro Hits the Parity Price

• At the forefront of investors’ minds were quick readings of manufacturing PMIs in the eurozone, UK and US, which will provide more clarity on the growth path for the respective economies.
• Investors are also awaiting the minutes of the European Central Bank’s latest policy meeting on Thursday which is likely to look hawkish even as the continent faces a slowdown in growth.

Another reason investors have turned to the dollar is the growing risk of a hawkish message from the Jackson Hole meeting at the Federal Reserve, which many officials pointed to last week.In this regard, analysts at ANZ said “bonds sold led by the front”. And “this is likely to be an expectation because the President’s (Jerome) Bowl speech on Friday is likely to repeat the hard-line messages.” Accordingly, yields on the standard 10-year Treasury bond rose by about 4 basis points for the week and reached 3.0165% last time. Two-year Treasury bond yields rose by about 5 basis points at 3.3102% as investors kept an eye on inflation and the Fed’s watchdog situation.

Expectations of the Euro Against the Dollar

The control of the bears on the direction of the euro currency pair against the US dollar EUR/USD is still the strongest and despite the movement of the technical indicators towards sell saturation levels, but the continuation of the weak factors of the currency pair portends a stronger downward movement, the closest support levels for the euro dollar are currently 0.9875 and 0.9790 respectively. I expect the downward pressure on the euro against the other currencies to continue until the cutoff and the return of Russian gas to Europe again.

On the upside, there will not be a first break for the last move according to the performance on today’s chart without moving the currency pair above the 1.0200 resistance. The currency pair will react today with the announcement of the readings of US durable goods orders along with pending home sales. Not to mention how willing investors are to risk or not.

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• The bearish stability still dominates the performance of the EUR/USD currency pair since the start of trading this week.
• According to its performance, it fell to the 1.0122 support level before settling around the 1.0180 level at the time of writing the analysis.
•  Performance supported by investors’ appetite to buy the US dollar as a safe haven, in addition to strong expectations for the future tightening of the US Federal Reserve’s policy.

EUR/USD Forecast for Coming Days

The rise of the US dollar will continue and ensure that the euro remains under pressure, according to new research from Swedbank. The Scandinavian bank and investment bank say it is maintaining its EUR/USD exchange rate forecast to stay on course to test the parity rate 1.0 support. Anders Eklöf, chief forex analyst at Swedbank, says, “The notion that the peak of headline inflation in the US would be enough to calm the Fed is wishful thinking. US dollar longs were lowered, and pricing showed less than 50/50 gain of 75 basis points in September. We see continued demand for the US dollar when buying and the challenge, and therefore the future outlook in Europe / China, and the EURUSD is back to parity.”

These forecasts come after a period of respite for the euro that saw its advance against the dollar during most of July and the first half of August. The rise reached its peak on the background of data from the United States of America, which showed that inflation rates have reached their highest levels, and with it the US Federal Reserve interest rate hike cycle.

For the forex and financial markets in general, the Fed’s shift to smaller rate increases will represent a key moment, allowing investors to become increasingly confident of the end of the hiking cycle. Meanwhile, the Fed’s bullish cycle has been the mainstay of the US dollar’s strength, so its demise could mean a turn in the direction of the EUR/USD.

“The long dollar position was further reduced last week after US inflation data, which came in less than expected,” the bank analyst added. The rate-sensitive part of the US economy is slowing but with core inflation running at 5 per cent momentum in the past three months and a tight labor market.” Swedbank economists note that the market is currently priced in for another potential 75 basis point hike in the Fed in September, followed by further hikes to push the money rate to a peak of 3.6% in early 2023.

From there, it is expected to stop before cutting.

However, “we believe the risk if anything is tilted to the upside at this rate, which should support the US dollar,” and in relation to the euro, Swedbank says the challenges facing the eurozone are enormous as the rising cost of living of energy digs Deep holes in real income and it appears that export demand from China remains sluggish. They also say there is a clear risk that Germany will run out of natural gas in the winter.

Therefore, the EUR/USD rally in July-August appears to have faded as Eurozone energy prices rose again and the exchange rate fell again. The lowest level for the EUR/USD pair in 2022 is at the 0.9954 support.

EUR/USD analysis:

The bearish stability still dominates the performance of the EUR/USD pair. The rush towards the parity price is still possible if the current weakness factors. These are the strong economic performance of the United States and a sharp tightening path of the Fed’s policy, in addition to pressure on the euro area due to Russian energy. The current trend hit 1.0000. With the continuation of these factors, any attempts by the Euro-dollar to rebound to the highest opportunity to sell again will remain.

The nearest resistance levels for the EUR/USD today are 1.0230 and 1.0345, respectively. The currency pair will be affected today by the release of inflation figures in the euro zone, the reading of the Philadelphia industrial index and the number of US weekly jobless claims.

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The price of the USD/JPY currency pair may remain stable around its recent gains, following the strong US jobs numbers, until the most important event this week is announced. So far, the Fed’s policy tightening factors are increasing and continuing and US job numbers have dispelled fears of US economic recession even for some time. At the beginning of this week’s trading, the dollar-yen pair settled around its gains of 135.60, waiting for any news.

Future of Japanese Yen

A growing group of analysts says the biggest profits from betting on the yen – one of the hottest macro trades of 2022 – is a thing of the past. Three main pillars of the yen-selling trade are collapsing – a widening interest rate gap between the US and Japan, higher oil prices and the loss of the currency’s status as a haven as mounting recession fears keep a cap on yields, pressure crude oil and return investors to the arms of traditional safe-haven assets. The dollar-yen, which rose 38% from its lows in March 2020 to mid-July this year, is on the decline.

Rodrigo Cattrell, an analyst at National Australia Bank Ltd. In Sydney: “The big short-term yen as we know it this year is over.” And “It is now possible that the dollar-yen peak is behind us.”

Catril is joined by the likes of Rabobank and Daiwa Securities Group Inc. In anticipation of slowing losses for the Japanese currency, the worst performer in the G10 this year. Strategists see the Japanese yen rising to 130 against the dollar on average by the first quarter of 2023, according to data compiled by Bloomberg, a stark contrast to calls that 140 and above await at the peak of the drop in mid-July.

An end to what was threatening to become the currency’s worst-ever decline would be welcomed by businesses to consumers to politicians in Japan, as high import costs weigh on the post-pandemic recovery. It would justify the resolutely hawkish stance of BoJ Governor Haruhiko Kuroda and put pressure on hedge funds that came late to the popular macroeconomic strategies for the short-term yen.

The Japanese yen is closely correlated with moves in US government bonds, as the dynamic of the Bank of Japan keeping interest rates on hold even as the Federal Reserve raises significantly is weighing on the relative attractiveness of Japanese assets. Treasury yields have now slipped from their highs as traders adjust their estimates of peak US Federal Reserve interest rates and reconsider bonds on fears of a US slowdown.

“The monetary policy divergence between the US and Japan won’t be a factor anymore, as the markets have largely priced that,” said Yukio Ishizuki, senior forex analyst at Daiwa in Tokyo. It appears that the selling of the yen has reached its climax.

Benchmark Treasury yields have fallen more than 60 basis points from their June peak to 2.82% on Monday. The yen strengthened more than 3% from its low to around 135.25. “It follows that if the trend of US yields is less than some of the upside pressure that is removed from the currency pair,” said Jane Foley, an expert at Rabobank in London. It expects USD/JPY to trade as low as 130 in the coming months.

It left Japan, a net oil importer, reeling earlier this year as Brent crude futures rose around $140 a barrel. With prices now below the $100 mark, the devastating impact on import costs has eased. Accordingly, Yuki Masujima of Bloomberg Economics predicts that Japan’s trade deficit narrowed in July and that the country’s import bill increased at a slower pace thanks to cheap commodity prices.

Japanese currency is also re-emerging as a safe haven.

The yen jumped 1.3% last Monday when investors learned that US House Speaker Nancy Pelosi would visit Taiwan, raising fears of possible retaliation from China. It has risen more than 4% in the past three weeks as fears of a global recession deepen. “It looks like the Japanese yen has rediscovered its safe haven status,” said David Forrester, senior FX analyst at Credit Agricole CIB in Hong Kong. He added that weaker-than-expected US economic data limits US interest rate hike bets, which “reduce the safe-haven dollar with a high-yield attractiveness, allowing the Japanese yen to reconfirm its appeal as a safe haven.”

Hedge funds seem to be voting with their feet. Recent data from the Commodity Futures Trading Commission showed that leveraged investors cut their negative bets on the yen to the lowest level since March 2021.

Forecast of the dollar against the Japanese yen:

The price of the USD/JPY currency pair may remain stable around its recent gains until the US inflation figures are announced, which complete the picture for the US economy and the path of raising US interest rates. Currently, the nearest resistance levels for the dollar pair are 135.85, 136.20 and 137.00, respectively. On the other hand, on the daily chart, a break of the support 132.25 will be important for the bears to control. The general trend of the dollar-yen is still bullish.

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At the beginning of last week’s trading, the bulls tried to control the direction of the EUR/USD currency pair, but the pace of gains stopped at the resistance level 1.0293. It was subjected to selling after that, in anticipation of the announcement of the US job numbers. The pair reached the support level at 1.0141 after strong numbers for US jobs that will support the path of tightening the policy of the US Federal Reserve. We closed the week’s trading stable around the level of 1.0177. It may continue the downward trajectory this week if expectations of a US interest rate hike increase following Friday’s data.

EUR/USD Fundamental Analysis:

The EUR/USD is trading as the US non-farm payrolls for July exceeded the expected number of jobs at 250K, with a total increase of 528K. On the other hand, the US unemployment rate fell slightly to 3.5% from 3.6% and better than market expectations of 3.6%.

Average hourly wages for the month grew 5.2% from the same month last year, topping the consensus estimate of 4.9%. The growth rate (MoM) of 0.5% was also higher than the 0.3% forecast. Earlier in the week, initial US jobless claims came in last week at 260K, slightly above estimates of 259K, while the previous week’s continuing claims lost 1.37M with 1.416M.

From the EU, retail sales for June missed both expectations (monthly) and (annualized) at 0% and -1.7% respectively with -1.2% and -3.7%.

In general, the US dollar rose against the British pound, the euro and other major currencies after the US Bureau of Labor Statistics said that the increase in jobs led to a decrease in the unemployment rate in the country to 3.5% from 3.6%. The strong numbers will justify the claim of US officials that the US economy is not in a recession, despite printing two negative quarters of growth in the first and second quarters.

Treasury Secretary Janet Yellen said in a recent media appearance: “We have a very strong labor market. When you create close to 400,000 jobs a month, it’s not a recession.” The jobs data will support expectations that the Fed will continue its policy of pursuing aggressive rate hikes, which in turn supports the dollar.

For his part, says Christoph Balz, chief economist at Commerzbank. Fed Chair Powell told reporters following the interest rate hike in July that he would monitor the two employment reports scheduled before the September meeting. “It will help determine whether the Fed should continue to apply the brakes aggressively,” he added. The first two of these data points have now been published – and it shows the labor market is still hot,” and “calls for a rate hike are likely to rise another 75 basis points at the FOMC.”

EURUSD Technical Analysis:

In the near term and according to the performance on the hourly chart, it appears that the EUR/USD is trading within a choppy neutral channel formation. This indicates a fierce battle between bulls and bears. Therefore, the bulls will target short-term rebound profits at around 1.0205 or higher at 1.0236. On the other hand, the bears are looking to extend declines towards 1.0142 or lower to 1.0110.

In the long term and according to the performance on the daily chart, it appears that the EUR/USD 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 downside move towards the 1.0004 support or lower to 0.9815. On the other hand, the bulls will target long-term profits at around 1.0345 or higher at 1.0534.

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Amid bearish momentum, and for three trading sessions in a row, the USD/JPY currency pair is settling in narrow ranges between the support level of 135.56 and the level of 136.90, which is stable around it at the time of writing the analysis. As I mentioned at the beginning of this week’s trading, the dollar-yen pair will continue to move in a narrow range until the US Federal Reserve announces the decision to raise US interest rates today. It will also announce the US economic growth rate and the Fed’s preferred inflation reading, and the personal consumption expenditures price index. These data and events are important to predict the path of the US dollar against the rest of the major currencies in the coming days.

The US Federal Reserve has raised its benchmark short-term interest rate three times since March. Last month, the Federal Reserve raised the interest rate by three-quarters of a percentage point, its largest rise since 1994. The Fed’s policy-making committee is expected to announce another three-quarter point increase on Wednesday.

Important Events to Affect US Economy

Economists are now concerned that the Fed, having played down inflation, will overreact and raise rates ever higher, putting the US economy at risk. They are warning the Fed against tightening credit too hard.

Prices in Japan are showing more signs of a rally on a larger scale as higher commodity prices and a weaker yen force companies to charge consumers higher costs not seen in decades. Multiple measures of deeper inflation trend reached record levels in June, according to data from the Bank of Japan. The contracting average, a measure of price growth based on the largest gains and declines, was up 1.6% from the previous year. This was the fastest rate of increase in data since 2001, according to the bank.

The weighted average, a price measure that gives more importance to key items, also hit a new record high. Meanwhile, the share of increasing items in the consumer price basket rose to 71.3%, the highest on record. While the indicators show that price dynamics in Japan are cooler than the sharp growth in the United States and Europe, they indicate a widening trend of inflation within the economy. This would make the rally in prices more likely to continue and influence policy.

BoJ Governor Haruhiko Kuroda has repeatedly stressed the need for sustainable inflation before he considers adjusting the easing stance. The Bank of Japan has become the leading party among the major central banks as they rush to raise interest rates. Kuroda insisted that higher wages was needed to turn cost-push inflation into permanent price growth.

Another report from the Bank of Japan earlier showed that rates for services among businesses rose 2% from a year earlier in June. Excluding the impact of the sales tax increase, this is the largest gain since May 1992, although the gains were driven by transportation and postal services, a segment directly affected by higher fuel prices. Other changes in price trends were also monitored. Some BOJ board members reported signs of a shift in Japanese consumers’ mindset about prices, according to the minutes of the June policy meeting, also released earlier on Tuesday.

USD/JPY Forecast:

There is no change in my technical view of the performance of the USD/JPY currency pair. Despite the recent performance, the currency pair still has an opportunity in the upward direction, especially if it returns to the top of the resistance 138.20, which in turn supports the move towards the historical psychological resistance level of 140.00, respectively. On the other hand, according to the performance on the daily chart, moving towards the support level 134.40 will be important for the bears to have a stronger control over the trend.

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The trading of the last week of June was harsh for the price of the euro/dollar pair, as it fell to the 1.0365 support level and settled around the 1.0435 level at the beginning of this important week’s trading. This included announcing the contents of the minutes of the last meeting of the US Federal Reserve, ending with the announcement of US job numbers. The price of the euro was not very happy with the shift of the European Central Bank’s policy towards tightening. I mentioned before that the US Federal Reserve is still racing and strongly in the path of raising interest rates throughout 2022.

The recent Forum on Central Banking in Sintra, Portugal, provided insight into the thinking of the European Central Bank (ECB), Bank of England (BoE) and Federal Reserve (Fed) while providing clues on what will be important to them. The heads of the European Central Bank, the Bank of England and the Federal Reserve were joined on the last day of the ECB’s annual conference on central banks by BIS Managing Director Augustus Carstens and Bloomberg’s Francine Laqua for a discussion session last Wednesday.

Both were questioned about everything from expectations of economic growth and inflation to interest rates and the merits of current market expectations of the path of borrowing costs over the coming months as part of this policy panel. The biggest benefit to the markets was that neither European Central Bank President Christine Lagarde nor BoE Governor Andrew Bailey came close to endorsing current market expectations like Fed Chairman Jerome Powell.

For her part, ECB Governor Lagarde said, “Our reaction function is what matters, and as long as that is understood, the fact that we are on this path of normalization, that we will be gradual but optional, and the fact that we have made very clear what could happen in July. What is likely to happen in September? And the way we’re going, yes I think the markets have a full understanding and appreciation for what we’re doing.”

She added, “We need to look at how clear the uncertainty is looming, and I think in that regard what’s happening on the energy front, what’s happening on the war front unfortunately, what’s happening in terms of wage negotiations and how inflation expectations are.” Continuing to remain firmly established just as it has re-established are some of the elements that we will consider very carefully at the job we have to do.

President Lagarde chose no bones with European interest rate expectations while saying nothing that would encourage financial markets to go further than they already did when he bet recently that the deposit rate in Europe is likely to rise from -0.50% to 1%. before the end of the year. She also reminded on two occasions, in what may be pertinent remarks, of the “option” that the ECB is seeking on the timing and size of any changes in interest rates after the 0.25% rise in July which was already announced as part of a policy decision June.

However, there were no details, and few comments on the widely awaited and eagerly anticipated plans for a new instrument aimed at staving off instability in southern European government bond markets, as European Central Bank interest rates rose for the first time since the sovereign debt crisis in the eurozone.

EUR/USD forecast today

The contrast between the future of policy tightening for both the European Central Bank and the Federal Reserve continues to be a strong reason for the EUR/USD pair’s decline throughout 2022. The general trend of the Euro-dollar is bearish, and stability will remain below the 1.0500 support, which will continue to support the bears’ continuous and stronger control of the trend for the time being. The most important support levels for the trend will be 1.0410, 1.0380 and 1.0290, respectively, which are sufficient to push the technical indicators towards oversold levels.

On the upside, any attempts to rebound will not be strong, and if they occur, selling will occur again. The closest resistance levels for the euro are $1.0485, 1.0550 and 1.0630, respectively.

The Japanese central bank and the US Federal Reserve continue to raise the pace of US interest rates sharply this year, supporting the bulls’ control over the direction of the USD/JPY currency pair. It is stable around its highest in 24 years. As for the closing last week, the dollar-yen pair has been stabilizing since the start of the week’s trading around the 135.50 resistance. This may remain until interaction with the content of the testimony of US Central Bank Governor Jerome Powell this week.

Coinciding with the start of trading this week, the Japanese Prime Minister and BoJ chief reiterated on the united front on foreign exchange matters after a meeting that followed the Japanese yen’s plunge last week to a 24-year low against the dollar. Japanese Prime Minister Fumio Kishida said Bank of Japan Governor Haruhiko Kuroda expressed concern about the Japanese currency’s movements during the meeting, a comment that briefly boosted the yen. For his part, Kuroda said that the government and the BoJ will continue to monitor the performance of the forex market closely and cooperate to act appropriately.

The governor added that Kishida did not make any specific comments during the talks, a remark indicating tacit government approval of the BoJ’s decision last week to maintain ultra-low interest rates, even if it was contributing to the currency’s weakness. The meeting is the latest expression of concern about moves in the forex markets by policy makers in Japan as they seek to limit the pace of the yen’s slide through verbal warnings rather than direct action.

Commenting on what was reported, Marie Iwashita, chief market economist at Daiwa Securities, said, “The government and the Bank of Japan should have shown their cooperation again” ahead of next month’s elections. “The fact that they said they would work together and act appropriately” means there is room left for policy responses, she added.

Weekend polls have shown a further drop in popular support for the Japanese prime minister as public concern mounts over price hikes ahead of the July 10 upper house elections. Kishida is almost certain to win the vote given the divided nature of the opposition but will want to do well to bolster his leadership of the ruling party. Overall, the BoJ’s insistence on maintaining easing to support the Japanese economy and fuel stable inflation contrasts with the wave of interest rate hikes sweeping the world’s central banks as they try to tackle the accelerating rates. The BoJ’s dovish policy stance compared to the hawkish Federal Reserve was contributing to the currency’s decline.

According to the technical analysis of the pair: the stronger bulls dominate the general trend of the USD/JPY currency pair, and stability around the top in 24 years confirms this. So far, investors will not care about the arrival of technical indicators towards overbought levels after the recent gains. There is much interest in the path of tightening the global central bank policy led by the US Federal Reserve, which supports the US dollar continuously. Jerome Powell will determine the path for this week. The closest targets for the bulls are currently 135.75, 136.20 and 137.00, respectively.

According to the performance on the daily chart, there will not be a break in the general trend of the dollar / yen pair without breaching the 130 support level again.

During last week’s trading, the EUR/USD exchange rate rose again from the edge of a five-year low last week. With escalating local headwinds and technical resistance looming almost just above the market, the euro could struggle at any time. At the beginning of this week’s trading, the euro-dollar moved in narrow ranges amid an American holiday, between the support level of 1.0473 and the level of 1.0545. It settled around the level of 1.0507 in the beginning of Tuesday’s trading. The European single currency, the euro, could benefit early in the week’s trading from Monday’s rally by the closely-linked renminbi, which followed the already expected decision of the People’s Bank of China (PBoC) to leave some various interest rates unchanged.

The Chinese yuan was the top performing major on Monday in what was a favorable start for the euro against the dollar, although the European currency will also have to weather a number of headwinds that may limit its ability to recover further this week. These include market concerns for the global economy and risks arising from last week’s cut in Russian gas flows to Germany and Italy, which led to a sharp increase in gas prices on international markets. Commenting on this, Ludovico, an economist at Barclays, says, “The abundance of headwinds facing the eurozone economy has convinced us that a technical recession early in the year is highly likely, in the absence of a respite in geopolitical tensions and/or significant financial interventions, both of which we consider unlikely.”

Russia’s decision this week to cut off some of its gas exports to Germany, Italy and France may herald a complete halt to gas flows. Accordingly, the analyst added, “In this case, we expect the euro area to witness an earlier and deeper recession.” Higher gas prices will increase inflation in Europe and beyond, but it comes at a point when financial markets have already been bullish on the outlook for the global economy in part due to expected interest rate responses from central banks.

According to experts, it is time to take the risks of a recession more seriously. Global asset markets are in turmoil. The combined withdrawal of stock and bond markets now exceeds the nominal decline during the financial crisis. The biggest risk to the outlook and the current economic cycle is that central banks will continue to rise too high for too long, and a recession is inevitable.

This is partly why European Central Bank President Christine Lagarde’s appearance in the European Parliament will be closely watched and will be a highlight of the European calendar ahead of Thursday’s S&P Global PMI surveys for Europe’s services and manufacturing sectors. These appearances come after the European Central Bank called an unscheduled meeting last week and asked bank staff to “accelerate the completion of the design of a new anti-fragmentation instrument for Governing Council consideration” due to the collapse in some bond markets in southern Europe. The bond sale in Europe came on the heels of the European Central Bank’s announcement earlier this month that it expected to start a rate hike in July, which would mark a serious start to a broader process of withdrawing the extraordinary monetary stimulus provided to the eurozone through sub-zero interest. rates and quantitative easing over a number of years.

Financial markets will be particularly interested in President Lagarde’s testimony after the European Central Bank asked bank staff last week to “accelerate the completion of the design of a new anti-fragmentation instrument for Governing Council consideration”. This week will be devoid of major economic data for the Euro and the market focus is likely to see the emergence of Federal Reserve Chairman Jerome Powell who will present his semi-annual monetary policy report to the US Congress on Wednesday and Thursday.

According to the technical analysis of the pair: There is no change in my technical view of the price performance of the euro against the dollar EUR/USD, as the general trend is still bearish. Stability below the support 1.0500 supports the bears’ control of the trend and warns of a stronger bearish move and the closest to the trend is currently the support levels 1.0475 and 1.0380, respectively.  On the upside, the bulls will move towards the resistance levels 1.0775 and 1.0835 to make a first breach of the trend. Otherwise, the trend will remain bearish, and I expect relatively calm movements today as well, in the absence of catalysts for a strong move.

The stronger and continuous control of the bulls on the price performance of the USD/JPY currency pair pushed it towards the 135.20 resistance level, the highest for the currency pair in 20 years. It is settling around the 134.50 level at the time of writing the analysis, and the move may remain stable around its gains until the US central bank policy is updated tomorrow, Wednesday. Expectations of a sharp rise in US interest rates throughout 2022 guarantee the US dollar strong gains in the forex currency market.

In the view of Barclays experts, “We believe that the FOMC now has good reason to surprise the markets by walking more strongly than expected in June. Accordingly, we have changed our forecast to call for a 75 basis point increase.” The Federal Reserve is widely expected to raise US interest rates via a massive 50 basis point increase, which would bring the Fed funds rate to a range of 1.25% to 1.5%, although US inflation data on Friday increased the risks of the bank going forward this week.

That data suggests that US inflation could remain above the Fed’s 2% target for much longer than the bank had projected, and so may ultimately leave the Fed with little choice but to continue raising rates in larger-than-normal increases.

This could lead to the Federal Reserve raising US interest rates to 3% or more by the end of the year, which would be very supportive of the dollar, and another drag on the other currencies. “Inflation is very high in major developed markets, and central banks need to tighten financial conditions to slow the economy and bring down inflation,” says Zach Bundle, forex analyst at Goldman Sachs.

“At some point financial conditions will tighten enough and/or growth will weaken enough that the Fed can stop taking a walk.” “But we are still far from that point, which indicates upside risks to bond yields, continued pressure on risky assets, and the potential for broad strength in the US dollar for the time being,” the analyst said.

A measure of US dollar strength rose to its highest level since the early months of the pandemic as investors bet that the Federal Reserve would ramp up monetary policy tightening. Accordingly, the Bloomberg Dollar Spot Index, which measures the performance of the US currency against a basket of ten leading global currencies, rose 0.8% to the highest level since April 2020. The measure is on track for its largest gain in two sessions since March 2020. The last stage of data was stimulated US inflation came in higher than expected on Friday, prompting traders to bet on faster rate increases. They are now pricing in a full 75 basis point hike by September, which would be the US central bank’s biggest hike since 1994.

According to the technical analysis of the pair: There is no change in my technical view of the price performance of the USD/JPY currency pair, as the general trend is still bullish. It may maintain its gains around the highest in 20 years until the US Central Bank announced on Wednesday the closest targets for the bulls. According to the current performance, the resistance levels are 134.85, 135.20 and 136.00, respectively.

On the other hand, according to the performance on the daily chart, it will be important to break the 130.65 support level to start controlling the bears. The US dollar will be affected today by the announcement of inflation readings from the producer price index.