IFX Market Report: Monday 16th May 2022

The dollar remains elevated near its 20-year high against a basket of currencies as investors seek safety amid global growth fears, heightened by weak Chinese economic data released this morning, which lower the Australian dollar. Ongoing geopolitical tensions, ongoing global supply disruptions, a slowing Chinese economy and a hawkish Fed suggest the dollar is likely to remain strong. Markets are pricing in 50 basis point rises in the next two meetings from the Reserve.

Among the most recent events that have helped to strengthen the dollar, we note in particular the fears of seeing Russia cut off gas supplies to Europe, with forecasts announcing that the EUR/USD rate would fall below parity in the event of supply stoppage.

The pound suffered, along with the euro, penalized by weaker than expected first-quarter GDP figures. Britain will record labour market, inflation and consumer confidence data this week. We’re also expecting the Bank of England MPC Treasury Committee hearings this afternoon.

The euro against the Swiss franc corrected its recent rise after failing to break through the 200-period moving average. The latter represents the final hurdle before a return to yearly highs at 1.0612. In the short term, above the 13 and 34 period moving averages the trend remains positive. A return below the polarity zone between 1.0340 and 1.0362 would end this bullish rally and restart the medium-term decline.

Croatia, which aims to become the 20th member of the eurozone in 2023, passed a law on Friday for the introduction of the single currency next January 1, the official Hina news agency reported. The law to replace the Croatian kuna was passed by 117 votes, 13 against and one abstention in parliament, which has 151 members. Under this new law, prices will be displayed in both currencies from September until the following year.

Cable’s downfall continued to show signs of stabilisation on Friday.

GBPUSD was opened at 1.2204 and close at 1.2239 for the weekend.
GBPEUR followed a similar trend on Friday with the pair opening at 1.1734 and closing at 1.1762.
EURUSD also remained relatively stable with a pair that opened at 1.0390 and closed at 1.0409.

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