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Daily Wrap Up 19 July 2022

19 Jul 2022 04:53 PM

Euro rallies on 0.5% hike hopes

Stock markets are enjoying a rally as traders have shrugged off concerns there might be an energy shortage in Europe. Yesterday, Gazprom said it might not be able to meets it obligations with respect to delivering gas to Europe. Possibly because there is a heatwave across Europe now, the prospect of a small gas shortage is not weighing on sentiment but come winter, it could be a different story. The positive sentiment in the US is boosting European indices too. Last night, the S&P 500 closed in the red as it was reported that Apple intend to slow its hiring process. The negative mood was short lived as the US index is up almost 1.9%, and it has recouped all of yesterday’s losses.

Last week EUR/USD made headlines for all the wrong reasons as it fell below parity, for the first time in 20 years. Since then, we have seen a major pullback in the US dollar as traders are a little less fearful about the possibility of a 100-basis point hike from the Fed later this month. This morning, it was reported the European Central Bank will discuss a 50 basis points hike at the meeting on Thursday. The euro was starting from a low base so the story tiggered buying. In recent weeks, the ECB gave a clear message they intend to lift rates by 25-basis points this month, but then again, the bank might want to play catch up with its peers.

The pound is mixed in the wake of the not-so-impressive UK employment report. The unemployment rate held steady at 3.8%, meeting forecasts. The claimant count fell by 20,000, which was less than the 34,700-fall registered in the previous update. Average earnings cooled from 6.8% to 6.2%, this highlights the problems suffered by UK workers, as wages are growing at a slower rate than inflation, leaving them net worse-off. GBP/USD is up due to the broad fall in the US dollar, but sterling is lower versus the Swiss franc and the euro.

The Canadian dollar is down this afternoon due to the 0.9% decline in the oil market. Canada’s economy has a relatively large oil and gas sector, so the movements in the energy market often push around the “Loonie”. Last week, the Bank of Canada upped the ante by lifting interest rates by 1%, a bigger hike than expected. Economists had predicted a 0.75% increase. Traders sat up and took notice of the BoC because of move and should the bank continue to take a tough line against inflation, that could make the Loonie more attractive.

Silver is down 0.5% despite the sizeable fall in the US dollar. Concerns about demand for industrial metals linger as there are creeping fears China could be heading for a recession.

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