FXTM Market Analysts

USDJPY briefly touched the 131 level for the first time since 2002, before the currency pair was resisted at that psychologically-important handle.

The dovish Bank of Japan’s statement today had wrought more weakness on the Japanese Yen, which fell against all of its G10 and Asian peers today.

The equally-weighted JPY Index is now in the midst of erasing most of its gains from the past week.

Note that the JPY index measures the Yen’s performance against:

• US dollar
• British Pound
• Euro
• Swiss franc
• Australian dollar
• New Zealand dollar

… all in equal weights.

What did the Bank of Japan say?

The BOJ stuck with its dovish guns at its policy meeting today.

That means the central bank is pledging to keep buying Japanese bonds in order to keep those bond yields low, specifically preventing the 10-year bond yields from rising above 0.25%.

This is important because it underscores how much the Bank of Japan is deviating from the rest of the world (with China’s central bank being another notable exception to the global trend of policy tightening).

Most other central banks are trying to raise interest rates and wind down their bond purchases (letting their yields rise in the process) – all in the name of combatting swelling inflation.

Another major signal out of the BOJ today: central bank governor Haruhiko Kuroda said Japan’s interest rate could go even lower if Covid-19 continues to hamper the Japanese economy!

Keep in mind that the BOJ’s policy balance rate is currently at negative 0.1%, already at odds with the rate hikes happening around the world.

(Another notable exception in the negative rates camp: the European Central Bank’s deposit rate is at minus 0.5%, although the ECB is getting ready to join the rate-hikes bandwagon as well).

The policy and yields chasm is widening between the BOJ and most other central banks.

With yields on 10-year US Treasuries now above 2.8%, investors are sending their money across the Pacific towards the US dollar as they chase those higher returns/yields, at least higher than what Japan has to offer.

Dollar rush post-dovish BOJ sends waves across FX universe

As investors swarm to the US dollar, that is also weighing on most other currencies’ respective performances against the greenback too.

Note how the benchmark dollar index (DXY) soared to a 5-year high, going past its pandemic peak and attaining the 103.7 mark not seen since January 2017.

^{Note that the Japanese Yen accounts for 13.6% of the DXY.}

Where to next for USDJPY?

With more demand for the US dollar and less demand for the Japanese Yen comes potentially greater heights for USDJPY, barring a move by Japanese policymakers to curb the yen’s decline.

Consider how even back in 2002, when USDJPY surpassed 135, Japanese policymakers didn’t intervene.

Tokyo may be willing to tolerate such weakness in the Yen, despite making imported goods and services more expensive for Japanese households and businesses, and policymakers might instead prefer other measures than currency intervention to support the domestic economy.

With that in mind, a weekly close above 130 could all but pave the way to 135 for USDJPY as long as this policy and yields divergence continues, unless Japanese policymakers start intervening.

Until then, according to CFTC data, asset managers have recently extended their record amount of short bets on the Japanese Yen, expecting more weakness for JPY ahead.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Shifting expectations for the next policy moves by major central banks remain a key theme across global financial markets, as investors and traders digest these major data releases and events in the week ahead:

Monday, April 25

• EUR: Euro to react to Sunday’s French presidential election results
• EUR: Germany April IFO business climate

Tuesday, April 26

• JPY: Japan March unemployment
• USD: US April consumer confidence
• Alphabet Q1 earnings

Wednesday, April 27

• AUD: Australia weekly consumer confidence, 1Q CPI
• CNH: China March industrial profits
• US crude: EIA weekly US crude inventories
• Meta Platforms Q1 earnings

Thursday, April 28

• JPY: Bank of Japan policy decision, March retail sales and industrial production
• EUR: Germany April CPI, Eurozone April economic confidence, ECB economic bulletin
• USD: US weekly initial jobless claims, 1Q GDP
• Nasdaq 100: Amazon, Apple, Twitter Q1 earnings

Friday, April 29

• EUR: Eurozone April CPI, 1Q GDP
• USD: US March personal income and spending, PCE deflator, April consumer sentiment
• Exxon Q1 earnings
• Chevron Q1 earnings

The Bank of Japan is set to go into action, or rather the lack thereof, as the central bank is widely expected to stick to its ultra-loose monetary policy stance.

The BOJ has kept its policy rate floored at negative 0.1% and buying up even more bonds, which is in stark contrast to what other major central banks are doing (bar China). Most central banks around the world are already raising interest rates and starting to curb their bond purchases in an apparent race to quell skyrocketing inflation.

This policy divergence between the Fed and the BOJ in particular has sent USDJPY racing towards a 20-year high, closing in on the psychologically-important 130 mark.

Still, it’s ascent is on a breather at this point in time, with the 14-day relative strength index suggesting that the currency pair is trying to clear some of the froth and attempting to recover from overbought conditions.

READ MORE: Why is the Yen so weak?

Markets will be closely monitoring if BOJ Governor Haruhiko Kuroda will make any adjustments to policymakers’ stance on keeping bond yields capped at 0.25% and tolerating a weaker yen.

If the BOJ chief stays staunchly dovish, that could well pave the way for USDPJY to run towards its 2002 peak around 135. This climb could be further accentuated if the incoming GDP and PCE deflator data out of the US shows that the world’s largest economy could do with more Fed rate hikes - widening the policy divergence between the Fed and the BOJ.

However, any hints that a change in tack is forthcoming could translate into the unwinding of gains for USDJPY, potentially moving it closer to the previous cycle’s peak of 125.10.

French presidential election: Macron win could aid EURUSD recovery

The euro recently resurfaced back above the 1.08 mark against the US dollar as markets return to their bets that the European Central will be forced to lean harder into its hawkish pivot. 

Still, the recovery in the bloc currency proved fleeting, with EURUSD's downside bias still evident at the time of writing.

While the ECB policy outlook remains a major influence over the euro’s performance, traders and investors will also be digesting the results out of the presidential elections between incumbent Emmanuel Macron and nationalist challenger Marine Le Pen when markets reopen for the new trading week.

A win for Macron, which should ensure policy continuity amid a trying time for the Eurozone, could result in further relief for the euro.

However, a surprise Le Pen victory, which injects policy ambiguity into an already uncertain economic outlook in light of the still-raging war in the Ukraine, may drag EURUSD further below 1.08 as a knee-jerk risk-off reaction.

Big Tech earnings boost needed to stem losses for Nasdaq 100

Surging US Treasury yields in recent months have earned the scorn of tech stocks, with the Nasdaq 100 dragged further below 14,000 this week.

The prospects of higher US interest rates and the accompanying rise in borrowing costs have soured the outlook for growth companies.

Having a year-to-date drop of almost 16% (before US markets open on Friday, 22 April), it’s up to illustrious names such as Amazon, Apple, Alphabet, Meta and Twitter to provide an earnings beat to shore up the declines in the Nasdaq 100 (though Twitter’s earnings call will likely be dominated by the latest developments surrounding the much-hyped takeover bid by Elon Musk).

Note that the 5 companies mentioned above have a combined market cap of more than US$6.4 trillion, which is almost 40% of the entire market cap of the Nasdaq 100.

In other words, those 5 companies carry a lot of heft that could move the entire index.

These Big Tech companies are expected to see decelerating growth last quarter, given the heightened competition and the tough comparisons with a stellar Q1 2021. 

Still, any positive surprises out of these earnings calls (barring another shock move by Mr. Musk) could offer some relief for the Nasdaq 100, though the index is expected to remain capped by its 50-day simple moving average as the prospects of more incoming Fed rate hikes loom closer.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Two words: policy divergence (read on to find out more).

But first, let's take a look at just how dismal the Yen's performance has been so far in 2022.

The Japanese Yen is now trading around a 20-year low against the US dollar.

Last Tuesday, USDJPY posted its biggest single-day climb since November 2020, only to then take a breather for the time being.

^{(Note: weaker Yen versus the US dollar = USDJPY climbs higher).}

FUN FACT: The last time USDJPY traded at these levels just below 130, Eminem had just released his hit 2002 track, “Without Me”.

In fact, JPY is the worst performer against the US dollar amongst all G10 currencies ... by far.

And the Yen’s woes aren’t just limited to its performance against the US dollar alone.

Consider how the JPY Index has weakened by almost 9% so far this year.

Note that the index shown above comprises a basket of currency pairs measuring the Yen against its G10 peers, all in equal weights: 

• NZDJPY
• GBPJPY
• CHFJPY
• EURJPY
• AUDJPY
• USDJPY

The Yen also has a year-to-date decline against all its major Asian counterparts as well.

So why is the Yen so weak?

The main reason is because of monetary policy divergence.

Let’s break it down.

Firstly, monetary policy is the way a central bank achieves its goals for the economy (e.g. maximum employment, stable prices, etc.), using tools like interest rates, money supply, and even currency levels.

And where’s the divergence?

The Bank of Japan is still using its monetary policy to support its economy.

This is in stark contrast to what most other central banks around the world are doing = pulling back that support. They do this by raising interest rates/easing back on bond purchases.

The goal of such policy-tightening (not what the BOJ is doing) is to reduce money supply and demand levels in an economy = less money chasing after scarce goods = to lower consumer prices/inflation.

Monetary policy: Comfort food vs. a regular diet

Consider when a child is feeling down, his/her parents may have no qualms treating the child to some ice cream, candy, or chocolate bars.

Such sweet indulgences are meant to make the child feel better in a jiffy, but is (hopefully) just a short-term fix and also (again, hopefully) far different from the regular diet the child consumes as part of the daily routine.

Similarly, when the economy was suffering during the pandemic, central banks rolled out record-low interest rates and printed money out of thin air to keep financial markets supported.

Low interest rates = cheaper for households/businesses to borrow money = they have money to spend in the economy = the economy gets better

But now that economies are recovering and even posting red-hot inflation numbers, they no longer need record-low interest rates and unlimited bond purchases

Hence, central banks are returning to their economy’s “regular diet” by tightening policy = paring down bond purchases/reducing the supply of money in the economy/raising interest rates.

Who’s already hiking rates?

Within the G10 space alone:

• Bank of New Zealand – raised its benchmark rate by 125 basis points (1.25%) since Q3 2021
• Bank of Canada – raised its benchmark rate by 75 basis points so far this year
• Bank of England – raised its benchmark rate by 65 basis points since December
• US Federal Reserve - raised rates by 25 basis points in March, perhaps another 50-basis point hike in May

But not so the Bank of Japan.

It’s keeping Japan’s benchmark interest rate at a record low of negative 0.1%, while buying up even more bonds.

Hence, the divergence in monetary policy.

How is policy divergence playing out in markets?

This divergence is evident in the widening gap in yields between Japanese bonds and its global counterparts.

Firstly, what are yields? 

Yields are a way to measure how much money you could earn on an investment over a set period of time.

In the case for bonds, it’s calculated in terms of how much interest one would get paid if they held on to that bond till it matures/reaches the end of its tenure.

For context, bond yields have been climbing around the world.

This is because investors are selling off bonds in tandem with central banks that are reducing their balance sheets.

And when bond prices drop, their yields rise.

Here are the benchmark 10-year yields for these other countries (at the time of writing):

• US = 2.88%
• Canada = 2.87%
• China = 2.82%
• UK = 1.95%
• Germany = 0.89%

Contrast the numbers above with Japan’s 10-year yields, which are capped at 0.25%.

As a policy, the Bank of Japan is buying even more bonds to keep bond prices elevated and limit its benchmark 10-year yields to no higher than 0.25% (this process is also known as "yield curve control").

The goal for capping those yields is to keep borrowing costs low in Japan so that households/businesses can still borrow to stimulate the economy.

^{Government bond yields are often used as the benchmark by which other banks/financial institutions calculate the interest to charge the customers who borrow money.}

Here are two charts that show how the widening gap/spread between US benchmark yields vs. Japan's benchmark yields (10-year government bonds) correspond with the USDJPY's performance:

See how those two lines are moving in sync with one another?

In essence, the wider the gap between US and Japan's yields, the higher USDJPY goes (the weaker the Japanese Yen against the US dollar).

How are Japan’s capped yields affecting the yen?

The lower yields on offer in Japan suggests that investors would get more bang for their buck by buying bonds in other countries that are now posting higher yields (again, yields in this case are a measure of how much one could earn from investing in that particular bond).

At risk of oversimplifying matters:

• Less demand for Japanese assets = less demand for the Japanese yen.
   
• And when there’s lower demand = prices fall (all else equal).
   

Hence, the Yen has been falling as investors shun Japanese bonds.

From a fundamental perspective, markets are getting the sense that the Japanese economy is still too fragile – or at least the Bank of Japan thinks so of its own economy – and is nowhere near strong enough to be able to do without the ‘comfort food’ from the central bank.

But of course all that could change, as the BOJ faces increasing pressure to follow suit with other central banks in tightening policy … or perhaps even just to stem the Yen’s weakness.

Which brings us to this final point ...

Will the Yen eventually rebound?

As a market cliche goes … nothing lasts forever.

So yes, theoretically the Yen could eventually rebound.

But one of two things may need to happen first:

1) The Bank of Japan has to signal that its willing to abandon its ultra-loose monetary policies.

Policymakers need to be convicted that Japan’s economic recovery is sustainable, and that inflation is being fuelled by robust demand (a.k.a. demand-pull inflation) as opposed to cost-push inflation.

To be clear, this seems unlikely for a while more, at least through the end of 2022.

Still, look out for the Bank of Japan policy meeting next week (April 28th).

The slightest clue that the BOJ is ready to tweak its policy stance could trigger a big move in the Yen.

2) Policymakers intervene to curb Yen weakness

This has been done before, but not for quite some time.

The last time the Japanse government propped up the yen was back in 1998, when USDJPY traded above 140 and peaked at 147.66 in September 1998.

However, back in 2002 even when USDJPY surpassed 135, the government sat on its hands and didn’t intervene.

So it remains to be seen at what level Japanese policymakers will tolerate before trying to stop the Yen from weakening further.

Keep in mind that a drastically-weaker Yen causes its own problems for the economy.

Japan is a net importer of energy, which are widely denominated in US dollars. The weaker Yen forces Japan to spend more of its currency to buy the same amount of fuel, not to mention the other imported goods (e.g. food) and services that it now has to spend more money on. If the imported costs become too great and weigh on businesses/households, then the Japanese government may be forced to pay for subsidies to ease the pain. That’s money out of the Japanese government’s pocket that could be spent on other things.

So until either of the above scenarios happen, shorting the Yen has remained a popular bet.

Last week, asset managers raised their short bets on the Yen to the most ever on record, according to CFTC data.

Overall, as long as this policy and yields divergence continues to play out between Japan and other major economies, that’s likely to keep the Yen on its weakening path for longer.

That is, unless the BOJ or Japan’s Finance Ministry switches tact and, in intervening to halt the Yen's weakness, might do so while dropping bars from Eminem's monster hit from 2002 ... 

"Now this looks like a job for me
So everybody, just follow me
'Cause we need a little, controversy
'Cause it feels so empty, without me"

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

As mentioned in our Week Ahead outlook (posted on Fridays), gold was expected to rise on a souring outlook for the global economy.

The precious metal duly started off the week by rising to within a whisker of the psychologically-important $2000 mark.

Gold’s climb is all the more remarkable in light of the advances seen in the US dollar and Treasury yields.

Typically, gold has an inverse relationship with those two (when the Dollar/yields rise, gold falls, and vice versa).

Instead, the precious metal has been able to break off the shackles from that inverse relationship to climb alongside the greenback as well as Treasury yields.

Why is gold climbing again?

A big reason for this surge in gold prices is due to investors sending money into exchange-traded funds (ETFs) that track gold.

With such inflows, the ETF then buys up more gold, driving prices higher.

So far this year, bullion-backed ETFs have made net purchases of 8.77 million ounces of gold, which is 9% more since the start of the year. At 106.6 million ounces, that’s the most amount of gold being held by these ETFs since February 2021. Last week alone, the amount of money sent into ETFs that track commodities (including gold) have tripled, with most of that money going into precious metal ETFs.

In short, there’s a lot of money chasing after bullion.

Why are investors/traders flocking to gold?

1) Demand for safe havens amid fears of a recession

Just a couple of hours ago, the World Bank revised downwards its global GDP forecast to 3.2% for 2022. That is lower than its previous 4.1% forecast made in January, and also slower than 2021's 5.7% growth.

This past Sunday, Goldman Sachs, a highly influential bank on Wall Street, forecasted a 35% chance of a recession in the US over the next two years. Such headlines across the financial news wires fuelled more demand for safe havens – assets which can protect investors’ wealth in times of great fear and uncertainty.

READ MORE: What are safe haven assets?

Also, markets are concerned that the prolonged lockdowns in China could mean a challenging 2022 for the rest of the world, despite China announcing a better-than-expected Q1 GDP print earlier today.

Then there’s also the war in the Ukraine that’s driving up global inflation and investors’ fears. With inflation already at eye-watering heights, a drastic pullback in spending (because consumers can no longer afford those sky-high prices) could mean slower economic growth, or worse, a recession.

2) Gold as an inflation hedge

Gold has long been seen as a way to preserve investors wealth against rising consumer prices. In light of the red-hot inflation figures seen around the world, this narrative is getting louder and attracting more believers, which is sending gold prices higher.

READ MORE: Inflation everywhere! What does it mean for markets?

Where to next for gold prices?

$2000 seems imminent for gold.

If it crosses above that psychologically-important mark, which appears likely at this stage, then there’s little resistance on the way back to the $2070 region.

Gold bulls will be looking to launch another assault at the $2074.87 record high that was recorded in August 2020. After all, they came tantalizingly close back in March, coming to within less than five dollars of the precious metal’s highest-ever peak.

The fact that gold was able to punch past a key resistance level, being the 23.6% Fibonacci retracement line from the August 2021 through March 2022 ascent, may just have paved the way for $2000 gold this week.

However, a note of caution …

Looking at the past two times when gold broke above $2000, it wasn’t able to hold its head above that level for long.

And such an episode may play out again for a third time.

With the 14-day relative strength index looking to surpass the 70 threshold which typically denotes overbought conditions, such a technical event could trigger a swift pullback in gold prices.

What needs to happen this week to send gold prices ...

• above $2000?

From a fundamental perspective, markets have to be fed even more negative headlines about a global economy or inflation that’s becoming worse.

The IMF (International Monetary Fund) is expected to make a downward revision to its forecast for how much the global economy can grow this year. This is due in part to the ongoing war between Russia and the Ukraine, which is keeping commodity prices elevated and threatening a recession in other countries.

More dire warnings about the global economy by the IMF could encourage gold bulls.

• back down to the mid-$1900s?

On the other hand, gold could be met with a moment of reckoning if we see even more hawkish talk out of Fed officials.

Note that these central bankers are about to enter a period of radio silence (no public statements) before the next FOMC meeting in the first week of May.

Hence, this week would be the last chance market participants can get more clues about whether the Fed will hike by 50-basis points in May, which would be double the usual adjustments of 25 basis points at a time.

If markets are surer that larger-than-usual Fed rate hikes are in store, that should send Treasury yields even higher, with yields on 10-year Treasuries moving even closer to the psychologically-important 3% mark.

Typically, the higher Treasury yields go, then demand for gold weakens. 

This is usually because investors might pivot towards the higher yields that Treasuries offer compared to gold which offers zero yields (the precious metal doesn’t offer payments in return for holding it).

While as pointed out at the start of this report that the inverse relationship between Treasury yields/dollar and gold prices has been broken for a while, it could still come back with a vengeance and foil gold bulls’ attempt to post a new record high in the immediate future.

Such a pullback could see gold then retesting support around the $1980 mark, with stronger support potentially arriving at the February peak of $1974.42, followed by the previous cycle high of $1966.20.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

More Fed speak …

more US earnings …

and the freshest updates to the global economic outlook (via the latest IMF projection and GDP figure for China, the world’s second largest economy) …

Investors and traders can feast on these major data releases and events scheduled for the week ahead:

Monday, April 18

• CNH: China Q1 GDP, March industrial production and retail sales
• Bank of America 1Q earnings
• USD: St. Louis Fed President James Bullard speech
• UK, European, Hong Kong markets closed

Tuesday, April 19

• JPY: Japan February industrial production (final)
• Gold: IMF releases updated world economic outlook
• Netflix 1Q earnings
• USD: Chicago Fed President Charles Evans speech

Wednesday, April 20

• JPY: Japan March external trade
• CNH: China loan prime rates
• EUR: Eurozone February industrial production
• CAD: Canada March CPI
• US crude: EIA weekly US crude inventories
• Tesla 1Q earnings
• USD: Fed releases Beige Book, speeches by San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans

Thursday, April 21

• NZD: New Zealand Q1 CPI
• EUR: Eurozone March CPI (final), April consumer confidence (advance)
• USD: US weekly initial jobless claims
• EURUSD: Fed Chair Jerome Powell and ECB President Christine Lagarde take part in IMF discussion

Friday, April 22

• American Express 1Q earnings
• EUR: Eurozone April PMIs
• GBP: UK March retail sales, April consumer confidence and PMIs, BOE Governor Andrew Bailey speech
• CAD: Canada retail sales

Monday’s data dump out of the China should give investors a better idea of what 2022 has in store for the world.

Here’s what economists are forecasting:

• Q1 GDP = 4.2% growth compared to Q1 2021 (year-on-year); faster than the 4.0% y/y posted in Q4 2021
• March industrial production = 4.0% y/y, lower than December’s 4.3% and the 7.5% posted for the January-February 2022 period.
• March retail sales = -3%, compared to 1.7% y/y growth in February

The contraction in March retail sales is particularly telling, considering that the tail-end of the month saw lockdowns imposed in Shenzhen and Shanghai, China’s financial hub.

Given that China is the world’s second largest economy and also the largest trading partner for many countries, any slowdown in growth there will reverberate around the world.

The International Monetary Fund (IMF) is also set to lower its forecast for 2022’s global growth, with the Russia-Ukraine war raising the risk of a recession.

If investors are given more cause for alarm out of these economic data or the IMF’s outlook, that could spur more demand for safe havens such as gold.

Such a fear-ridden narrative may push spot gold closer to the psychologically-important $2000 mark. However, gold bulls must first overcome and secure a daily close above the immediate resistance line at a key Fibonacci retracement level from gold’s August through March ascent.

However, this precious metal could be met with a moment of reckoning should real Treasury yields cross over into positive territory in the coming week. Note that real-yields are now just 9 basis points away from crossing that crucial threshold, and have come a long way from the negative 1.25% mark seen back in November.

Further gains in Treasury yields, both nominal and real, could ultimately weaken the resolve of gold bulls, given that bullion offers zero yield.

Powell vs. Lagarde divergence could heap more pain on euro

We saw this week how the euro was dragged lower by a dovish European Central Bank, which appeared to be needing more time before it wants to join other central banks in raising interest rates.

EURUSD fell to its lowest since April 2020 (remember the early days of the Covid-19 pandemic?) before paring some of its losses at the time of writing.

With Fed Chair Jerome Powell and ECB President Christine Lagarde set to both feature on the same panel discussion on Thursday, hosted by the IMF, the gap between the Fed and the ECB could be made more evident in this debate on the global economy.

To be clear, both central banks are battling red-hot inflation; but the Fed is perceived to be doing more about it than their European counterparts at present.

The Fed already raised interest rates by 25 basis points in March, with a 50-basis point hike widely expected in May.

Meanwhile, the ECB may only hike sometime in the third quarter.

Should markets perceive an even-wider gap between those two influential central banks, in terms of how quickly they’re reacting to subdue skyrocketing consumer prices, that could ensure a weekly close below 1.08 for EURUSD in the coming week.

Such price action could all but pave the way towards 1.06 for EURUSD by the middle of the year, with perhaps a pit stop at the April 2020 low of 1.07269.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.