Markets Report - 18 July 2022

A daily breakdown of the markets for the 18th July 2022, provided to you by Sterlex.

🇪🇺💶The interest rate policy by the ECB will be the key event this week, which will keep the EURUSD price on the tenterhooks. The asset has displayed a bullish open test-drive price action as a minor downside move after opening found significant bids from the market participants. The pair is scaling sharply higher amid a sell-off in the US dollar index (DXY). The major has comfortably established above Friday’s high at 1.0098 and is expected to extend gains further. The central bank has already concluded the Asset Purchase Program (APP). Energy bills are soaring after the prohibition of oil imports from Russia. EUR/USD closed the third straight week in negative territory but managed to erase a portion of its weekly losses during Friday's rebound. It is worth noting that the ECB has not elevated its interest rates yet. As a rate hike by 50 basis points these days is a new normal now, a similar rate for testing waters could be a decent approach for the ECB. Now, the focus has shifted to interest rate elevation. As of writing, the pair was edging higher toward 1.0150. The central bank is likely to elevate its interest rates as higher inflation rates are resulting in large real income shocks for the households.

🇬🇧💷GBP/USD is capitalizing on the risk-on flows driven by broad US dollar weakness, witnessing an impressive turnaround at the start of the week. The UK Foreign Minister Liz Truss said in an interview with The Independent, Britain is predicted to experience a recession due to Rishi Sunak 's increase in taxes. The UK Consumer Price Index (CPI) is seen higher at 9.3% vs 9.1% recorded earlier. On the UK front, investors are awaiting the release of the employment figures and inflation data. In times, when individuals are facing the headwinds of red-hot inflation, lower earnings will dampen the market mood. This will compel the Bank of England (BOE) to elevate interest rates further. The Unemployment Rate is seen as stable at 3.8%. Also, the core CPI could improve minutely to 6% from the prior release of 5.9%. The focus will remain on the Average Hourly Earnings data.

🇺🇸 🏦Two of the most hawkish FOMC members - Fed Governor Christopher Waller and St Louis Fed President Jim Bullard - said last Thursday that they were not in favour of the bigger rate hike. This, in turn, forced investors to scale back their expectations for a supersized 100 bps Fed rate hike in July, which continued acting as a headwind for the USD. Diminishing odds for more aggressive Fed rate hikes, along with signs of stability in the financial markets, dragged the safe-haven US dollar away from a two-decade high. The consensus is backed by vulnerable oil prices in July and likely lower aggregate demand. The DXY has tumbled to near 107.80 and is likely to extend losses as investors are expecting that the price pressures in the US economy are near their peak levels. Apart from this, a goodish pickup in crude oil prices underpinned the commodity-linked loonie and prompted some follow-through selling around the USD/CAD pair on Monday.