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EUR/USD exchange rate. The results of the first week of the year: the dollar tried to assert itself, but failed

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EUR/USD exchange rate

The EUR/USD chart looks like a grand piano, where white keys are replaced by black ones. During the first week of 2023 the initiative changed hands: bearish ones, and vice versa replaced bullish daily candlesticks. Formally the round ended in favor of the sellers: last Monday trading started at 1.0704, and on Friday it closed at 1.0645. 

The past week was marked with an important moment: the dollar asserted itself again. Not as well as the dollar bulls would like it to, but it was very revealing. Take a look at the weekly chart of the eur/usd: almost every candlestick in W1 is bullish since the end of October. The pair systematically moved upward with heavy pullbacks, but overcame the path from the parity point to the seventh figure. 

EUR/USD exchange rate — what shapes the trend of the exchange rate? 

The first week of 2023 reflected the inability of buyers to break above 1.0700. The sellers made an attempt to break above the 4-th figure. And though this attempt ended in failure, the alarm bells for the bulls eur/usd sounded. Traders did not decide on the price movement vector and it is too early to write off the greenback. Several fundamental factors played in favor of the strengthening of the American currency.

The minutes of the December meeting of the Federal Reserve System were published last Wednesday, which rhetoric was hawkish. The essence of the document is that the regulator does not intend to turn around a hawkish course this year: rates will remain at a high level and will not be lowered until 2024. 

It will be important for the Fed to keep rates high after it stops raising them. True, it did not answer another question — whether the central bank intended to revise the final rate forecast downward. The minutes did not answer that question either, so the release had limited impact on the pair.

What does the fate of the EUR/USD chart depend on? 

The fate of the EUR/USD pair largely depends on the rhetoric of representatives of the Fed and the European Central Bank (for example, Jerome Powell is expected to speak on Tuesday, January 10). Also next week will be the release of the U.S. inflation growth data. This release will complete the puzzle and either strengthen or weaken the U.S. currency.

The first week of January showed that it is too early to write off the dollar. The greenback is ready to show its character by reacting to the current information flow. At the same time, eur/usd traders are not ready to bet on the U.S. currency, yet — the successes of the dollar bulls are situational and temporary. Market participants need a strong information trigger — inflation report (Thursday, January 12) and/or speech of the head of FRS (Tuesday, January 10).

Earlier we reported that the USD is getting cheaper against most of the major currencies.


Deposits at US banks rise in latest week

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Deposits at U.S. commercial banks jumped last week to their highest since mid-April, Federal Reserve data released on Friday showed, and overall bank credit also rose.

Deposits in the week ending May 31 rose about $190 billion to $17.29 trillion on a non-seasonally adjusted basis, compared with $17.10 trillion a week earlier, the Fed’s weekly snapshot of the U.S. banking system’s assets and liabilities showed. The gains were mostly at the nation’s top 25 banks, though deposits at smaller banks rose about $45 billion on the week.

Bank credit overall rose to $17.33 trillion, from $17.28 trillion a week earlier.

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World shares at 13-month peak as Wall St scales 2023 highs

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U.S. shares struck new highs for the year on Friday and helped lift world stocks to a 13-month peak, as rising bets that the Federal Reserve will skip a rate hike next week overshadowed worries about U.S. markets being drained of cash.

Helped by a surge in Tesla Inc TSLA, which jumped as much as 5.7%, the S&P 500 SPX rose to levels last seen in August before paring gains. It finished higher 0.1%, the best close since Aug. 16. The Nasdaq Composite IXIC added 0.13%, and the Dow Jones Industrial Average DJI rose 0.16%.

Over in Europe, the STOXX 600 SSXXP index lost 0.13%, but MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) jumped 0.74% overnight. Combined with gains on Wall Street, the MSCI’s broadest index of world stocks IIACWI added 0.18% at a 13-month high. For the week, the index for world stocks might notch a 0.6% rise.

“As of today, the S&P 500 is back in a bull market,” said Arthur Hogan, chief market strategist at Briley Wealth, noting that the index finished Thursday with a 20% gain off its recent lows. “The one thing that could tip over the apple cart is an over-aggressive Fed.”

Refinitiv data showed the S&P 500 up 20% from its Oct. 12 closing low. The most commonly accepted definition of a bull market is a 20% rise off a low, and a 20% decline from a high for a bear market, but that is open to interpretation.

Traders now lay 73% odds (FEDWATCH) on the Fed keeping rates steady on June 14, in a range of 5%-5.25%, pausing its most aggressive hiking cycle since the 1980s.

Bets for a pause were supported by data on Thursday that showed the number of Americans filing new jobless claims surged to a more than 1 1/2-year high, indicating a loosening labour market that could further quell inflation.

Investors also hope the Fed will pause its rate rise campaign as a quirk of the U.S. debt ceiling negotiations has posed a potential threat to market liquidity.

The U.S. government is expected to rush to sell short-term debt to replenish its Treasury General Account (TGA), potentially at yields so high that banks raise deposit rates to compete for funding, reducing interest in riskier assets like equities.

“We’re all worried about liquidity,” said Ben Jones, director of macro research at Invesco. The Fed, he added, “still wants to tighten” policy and therefore may allow the TGA rebuild to drain liquidity from markets without stepping in to provide other support tools.

This fear was not dominating trading on Friday, however.

Fed Chair Jerome Powell said on May 19 it was still unclear whether U.S. interest rates will need to rise further, and the risks of overtightening or undertightening had become more balanced.

Uncertainty about the U.S. rates outlook supported Treasury yields.

Two-year Treasury yields (US2YT=RR), which are extremely sensitive to monetary policy expectations, rose to 4.602%, while the yield on benchmark 10-year notes US10YT=RR climbed to 3.743%.

The U.S. dollar index DXY, which measures the performance of the U.S. currency against six others, rebounded 0.21% to 103.47.

The euro EURUSD slipped 0.32% to $1.0748, just below Thursday’s two-week high of $1.0787.

Elsewhere, the Turkish lira USDTRY hit a new record low overnight of 23.54 per dollar, even as President Tayyip Erdogan’s appointment of a U.S. banker as central bank chief sent a strong signal for a return to more orthodox policy.

Erdogan last week put well-regarded former finance minister Mehmet Simsek back in the post. Simsek said this week that the guiding principles for the economy would be transparency, consistency, accountability and predictability.

Leading crypto asset bitcoin BTCUSD dipped 0.2% to $26,450 after crypto exchange Binance said it was suspending dollar deposits and would soon pause fiat currency withdrawal channels following a U.S. Securities and Exchange Commission crackdown.

Crude oil edged higher but gains were tempered by a report that the United States and Iran were close to a nuclear deal, although denials from both parties kept it off the previous session’s lows.

The prospect of a deal, which reportedly included scope for an additional 1 million barrels per day of Iranian supply, initially dented crude prices.

Brent crude futures whipsawed over the course on Friday, and ended down 1.3% at $74.98 a barrel. West Texas Intermediate crude CL1! ALOST LOST 1.3% at $70.38 a barrel.

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Dollar Lost 0.42% to 139.38 Yen

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Dollar/Japanese yen: 139.38 Japanese yen per dollar (0.0072 dollar per Japanese yen).

  • This week the dollar lost 0.42% vs. the Japanese yen
  • Down for two straight weeks
  • Down 0.89% over the last two weeks
  • Largest two-week percentage decline since Friday, March 24, 2023
  • Today the dollar gained 0.33% vs. the Japanese yen
  • Up three of the past four sessions
  • Off 7.17% from its 52-week high of 150.149 hit Thursday, Oct. 20, 2022
  • Up 9.01% from its 52-week low of 127.86 hit Friday, Jan. 13, 2023
  • Rose 3.70% vs the Japanese yen from 52 weeks ago
  • Month-to-date it is up 0.03% vs the Japanese yen
  • Year-to-date the dollar is up 6.30% vs the Japanese yen
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