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FX.co ★ 22.06.2022: USD benefitting from fears and prospects, JPY plumbing new depths(DXY, USD/JPY, AUD/USD)

22.06.2022: USD benefitting from fears and prospects, JPY plumbing new depths(DXY, USD/JPY, AUD/USD)

Hi, dear traders! As we expected yesterday, the upward move of key stock indices was short-lived in Asian markets. The correctional rally was a breather between sell-offs. Investors are again overwhelmed by recession fears. So, Asian markets could not sustain the Wall Street rally and dropped.

Most major central banks have embarked on the cycle of monetary tightening. Meanwhile, most investors are mulling over crucial questions: whether inflation has reached its peak or further acceleration is still ahead, how sharp the US Fed will raise interest rates next time, whether actions of major central banks delay or prompt recession, and how to revise investment portfolio. Judging by the American session, traders are full of optimism after a long weekend. The US stock market recovered more than 2% as investors assume that economic prospects might not be as dismal as expected. Nevertheless, cautious market sentiment in Asia did not encourage a rally. Fears about a crash in the global economy pushed stock indices down.

A rate hike always puts a strain on any economy, making businesses lose profits. In the environment of high interest rates, stocks are less reliable than safe haven assets like the US dollar. After a brief retreat, the greenback is again winning favor with investors. In the Asian-Pacific session, the US dollar index was growing amid investors’ fears. The intraday corridor for the index is defined between 104.40 and 104.95 but it could widen today and test the 20-year high above 105. The index is trading at about 104.67 at the moment of recording this video, not far away from the landmark 105 points.

The polar opposite policies of the dovish Bank of Japan and the extremely aggressive Federal Reserve is gaping wide yields of government bonds. Yields are zero in Japan and they exceed 3% in the US. Being sensitive to this factor, the yen is giving in to the firm US dollar. However, the yen managed to gain ground against the greenback today in light of statements by the Bank of Japan. In the Asian session, the dollar/yen pair declined from resistance at 136.71 to the intraday support at 136.02. The pair is trading roughly with a bearish bias. Analysts expect the dollar/yen pair to surpass resistance at 140. The weak yen is sure to cause trouble to the domestic economy and businesses.

In Australia, policy moves of the central bank have already entailed consequences. Due to fast rate hikes, the Australian economy is stunting its growth. The next policy meeting of the Reserve Bank of Australia is scheduled for July 5. It could end up with another rate hike. Experts say that Australian GDP is growing worse than expected. Thus, aggressive monetary tightening as a measure against inflation acts as a culprit for a slowdown in economic growth. Besides, the Australian market is suffering from the COVID resurgence in China. Mining companies in Australia incur heavy losses because of sluggish supplies to Chinese steel plants.

The Australian dollar is extending its weakness. Its direct correlation to the US stock market pushes the aussie down. Even the risk-on mood did not lend a helping hand to the Australian currency. The aussie has no chance to recover on the back of a slowdown in the domestic economy, economic restrictions in China, and declining oil prices. At the same time, the US dollar is likely to assert strength after the testimony of the Fed’s leader. The intraday corridor for the AUD/USD pair is seen between 0.6886 and 0.6975.

To sum up, markets are anticipating a testimony of the Fed Chairman in front of Congress. Today and tomorrow, he is expected to shed light on further policy moves to combat inflation. Analysts suppose that the regulator will raise the official funds rate by 75 basis points in July and by 50 basis points in September. Our analysts are waiting for your comments and questions! Stay tuned!

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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