Markets Report - 04 July 2022

A daily breakdown of the markets for the 4th July 2022, provided to you by Sterlex.

🇪🇺💶The EUR/JPY pair is experiencing stiff resistance from 141.00 in the Asian session. "We should continue with a further hike of 50 basis points in September," Muller added and noted that the rate path was in line with most other ECB officials' views. European Central Bank (ECB) Governing Council member Madis Muller told Bloomberg that it would be appropriate for the ECB to hike its policy rate by 25 basis points in July. As natural gas prices rise, recession risks will increase putting downward pressure on the euro.”. The cross is expected to see more downside after slipping below the intraday low at 141.84. On a broader note, the asset is declining from the past week after sensing offers while testing June 22 high at 144.25. In the view of economists at MUFG Bank, “Our near-term view for EUR to drift lower is also based on the primary risk for near-term growth in the eurozone – a further spike higher in natural gas prices.

🇬🇧💷Over the weekend, foreign ministers of Germany and Ireland said in a joint statement there was no legal or political justification for the UK to unilaterally change the terms of the Northern Ireland Protocol. In the latest development, the UK House of Commons last week voted in favour of a bill that would unilaterally overturn part of Britain's divorce deal from the EU. Furthermore, concerns about fresh UK-EU tensions over the Northern Ireland Protocol of the Brexit agreement should hold back traders from placing bullish bets around the British pound. GBP/USD is trading modestly higher on the day above 1.2100 in the European morning.

🇺🇸 🏦The dollar, in the meantime, remains well supported by the Fed’s divergence vs most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors suggesting a stronger dollar in the next months.

The index trades within a tight range at the beginning of the week against the backdrop of marginal trading conditions in response to the inactivity in the US markets due to the Independence Day holiday. In the meantime, and while a 75 bps rate hike by the Fed at the July meeting looks almost fully priced in, the dollar is expected to follow market chatter around a probable US recession and alternating risk appetite trends. Renewed risk-off sentiment motivated the index to reclaim the area around the 105.00 zone in past sessions, all in spite of declining US yields. Later in the week, all the attention will be on the publication of the FOMC Minutes and US labour market, as the ADP report and Initial Claims are due on Thursday ahead of the more relevant Nonfarm Payrolls for the month of June on Friday.