The general mood is improving in the short term and the euro is recovering after a spectacular fall against the US dollar.

The general mood is improving in the short term and the euro is recovering after a spectacular fall against the US dollar.

— July 21, 2022

With a value that has not been observed since November 1981, the annual inflation rate in the United States reached 9.1% in June against 8.6% in May, which represents a rate higher than the 8.8% previously expected by the market.

At the start of the week, the prevailing mood remained unchanged. Market players are on their guard despite limited risk. In response to accelerating inflation, markets are expecting a big interest rate hike of 75 basis points at the US Federal Reserve meeting next week. However, investors believe that a rise of 75 points may not have a significant impact on the current level of inflation.

Elsewhere, the European Central Bank will raise interest rates by 25 basis points on Thursday. So far, talk of a half-basis-point hike has given the euro a boost and helped the common currency recover from its brief dip below the US dollar last month.

Last week for the first time since 2002, Europe’s gas supply remains a danger facing the euro as supplier Gazprom has told customers in Europe that it cannot guarantee gas supplies due to “extraordinary” circumstances. Oil, which is also struggling to find a clear direction edged higher, gaining 5%.

In the currency market, the dollar index fell 0.3% to 107.100, well off last week’s high of 109.29, a level last seen in September 2002. The Japanese yen remained stable.

Bitcoin advanced and broke through the $22,000 levels.

With the major event of the week being the ECB interest rate decision on today Thursday, what direction will the markets take and how will the euro react if the decision is unexpected?

Written By Steve Keutcha  –  Head of Trading