FX.co ★ 27.06.2022: USD consolidating. Powell revives risk appetite … (USD, USD/JPY, AUD/USD)

The question is whether investors gave up their short positions or they were overwhelmed by sudden optimism that will be dispelled in the near future. Grave market fears such as further aggressive rate hikes, and a recession threat have not gone away. Obviously, traders have already priced in a rate hike of 75 basis points in July. The next point for an accurate forecast is to identify inflation peaks in the US.

Let me remind you that the annual consumer price index leapt to an alarming 8.6% in June, having surpassed the forecast for an increase to 8.3%. The data proved the dismal fact that the US inflation has not reached its peak yet. The market had a faint hope that consumer prices hit the peak at 8.5% in March after the CPI slipped to 8.3% in April. However, the revised CPI is due on July 13, so investors are poised to be optimistic. In fact, oil prices went down. Global inflation is mainly fed by growth in commodity prices.

As a matter of fact, growing risk appetite on stock markets reduced the demand for the US dollar. Besides, the greenback lacks support from US Treasuries. While investors are evaluating prospects of further rate hikes in the US and the likelihood of a recession, yields of US Treasuries remain low. In this context, the US dollar index declined to the lowest level since June 17 at about 103.83. Today, its index is oscillating at around 103.9. It is testing 104.00 points and consolidating in the intraday range between 103.79 and 104.12 in the Asian session with a bearish bias.

Japan’s monetary authorities also voice concern about uncertainty in the economy in an odd way. The third largest global economy is sticking to its ultra-loose monetary policy aiming to keep its national currency weak. Following the June policy meeting, the Bank of Japan reiterated its dovish agenda. Being on full alert, the regulator is worried about gyrations in the yen. However, the policy statement reads that Japan’s financial system remains stable. This is confirmed by the consumer price index. It stayed flat in May at the annual rate of 2.5% as in April, the strongest score in 7 and half years. The CPI surpassed the target level of 2% for the first time since September 2008.

Soaring energy and food prices fueled by the Russia – Ukraine crisis are keeping inflation in Japan at elevated levels for the most part of 2022. The Bank of Japan made a rare statement referring to the currency market whose influence should be allowed for economic activity and consumer prices. It means that the monetary authorities are determined to avoid erratic moves in the yen. Amid the difference between yields of US Treasuries and Japan’s government bonds, analysts predict a further climb in the dollar/yen pair. While the US dollar is consolidating, the yen is enjoying buoyant demand. In the Asian session, the currency pair was making a downward correction. It was trading at about 135.05 at the moment of recording this video. The market sentiment is changing in favor of the US dollar. The intraday corridor for the pair is seen between 134.52 and 135.27.

The same is true about the AUD/USD pair. With the temporary weakness of the US dollar, the aussie has a slim chance of recovery. The greenback is taking a pause while investors are pondering whether US stocks have bottomed out or are extending a downtrend. Meanwhile, commodity prices are going down. Besides, China has not recovered from the COVID aftermath. Today, the aussie is gaining ground, trading in the corridor between 0.6908 and 0.695. At the moment of recording this video, the AUD/USD pair was trading at nearly 0.6935. Perhaps, the pair is making an upward correction as it is trading below the historical resistance of 0.7000 that has rejected the price down lots of times.

Traders are alert to the US data that is due tonight: durable goods orders for May, pending home sales, and Dallas Fed manufacturing business index for June. Beware of high volatility in US markets. Following developments in financial markets on InstaForex TV channel! Stay tuned!