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USD and other Safe Haven Assets are Thriving as Economists Say that a Recession is a likely scenario
27.07.2022

Almost all currencies have shown negative price movements against the US Dollar 📉 as all countries are witnessing extremely high levels of inflation, 💲 and in some countries even hyperinflation💲💲. As a result, the market’s confidence and risk appetite has hit extremely low levels. After all, inflation tends to hurt people’s pockets. 🤕 Most economists are predicting economic retraction towards the end of the year, or in other words a recession 💸. This has resulted in the market flooding safe haven assets and specifically the US Dollar.

However, the economy is showing signs of being under serious pressure from inflation approaching 10.0% (in June, the figure reached 9.1% YoY compared to 8.6% in May), and the report on the Gross Domestic Product for the second quarter may record an official recession 📉. A recession is known to be confirmed once the economy has declined for 2 consecutive quarters. A similar forecast was voiced by representatives of the Federal Reserve Bank of Atlanta yesterday🏛️. Also, according to a survey conducted by CNBC, 63% of experts are confident that the regulator's efforts to curb the rapid growth of consumer prices will become a catalyst for a downturn in the national economy.

The markets are eager to hear what the Federal Reserve 🏛️ and specifically Chairman Jerome Powells 🥇 has to say about the above. 💭

Currencies - GBPJPY

GBPJPY - 25.07.2022.jpg GBP/JPY 2-Hour Chart on Wednesday, July 27th

The GBP/JPY increased in value throughout this morning’s Asian session 🌅 but then slightly declined after UK investors were introduced to the market. However, even with the slight decline over the past 5 hours ⏱️ the price still remains higher than the market open and is still trading on a higher price wave 🌊. The price has now moved to a level where previous support levels are now acting as resistance. Traders will be monitoring whether the price will remain above moving averages and the volume-weighted average price.

Also, investors are focused on the election campaign for the post of UK Prime Minister. The main candidates so far, radically disagree on the conduct of tax policy and the implementation of the state budget 🧮, so choosing one of them can lead to significant changes in how the fiscal policy looks. Mrs. Truss proposes to reduce duties and increase spending 💵, which should support the growth of industries in a difficult period. On the other hand, Sunak believes that public debt should be reduced, and the collection of payments from citizens should remain the same due to heightened risks of increased inflation. Both have their relevant points, but the two are very different and will have different influences on the Pound.

Meanwhile, yesterday the Japanese federal government, in its latest report on the economic outlook, gave an optimistic assessment 😎 against the backdrop of increased consumer activity. According to the report, indicators and indices are expected to return to growth in the second quarter after falling at the beginning of the year; although the pace continues to be affected by prolonged disruptions in the supply chains of high-tech devices that are exported from the country, rising raw material costs, and fluctuations in financial markets.

On a positive side for the currency, the Japanese government does not intend to re-impose a state of emergency ⛔ that had been in effect in the country during the first two years of the pandemic, citing a low mortality rate soon.

Commodities - XAUUSD

XAUUSD - 25.07.2022.jpg XAU/USD 1 Hr Chart on Wednesday, July 27th.

The price of Gold has increased in value over the past week but gains have subsided over the past 2 days ⚖️. This may potentially be a result of traders awaiting for further clarification from the Federal Reserve 🏛️. Currently, the price remains within the above-illustrated price range ☝️ and traders are waiting to see if the price will be able to form either a bullish or bearish breakout.

Currently, the price has formed a descending triangle potentially indicating that the market is awaiting 🛑 further price drivers.

Although the Gold quotes have been declining for a few months now, the price has fallen only by 3.5% which is much lower than stocks and cryptocurrencies. For example, Nasdaq has lost 28.7% over the same period, and the S&P 500 fell by 19.3%, which, in turn, clearly demonstrates that Gold is coping well as a safe haven asset ⚖️. The question is whether the asset will be able to find significant bullish momentum as a recession is more and more likely to become a reality 💭.

According to the US Commodities Futures Trading Commission (CFTC) the amount of Short positions on Gold still continue to significantly outnumber Long positions by at least 4 to 1.

Key Takeaways

  • British Prime Minister candidates continue to battle for the ultimate vacancy in London.
  • The Japanese economic outlook is predicted to improve.
  • Gold is outperforming the stock market and the cryptocurrencies, and might gain even more traction as a safe haven asset once the US economy officially falls into recession.
  • Short positions on Gold remain much higher as we approach the interest rate alteration.
  • 63% of economists believe the monetary policy will tip the economy into recession.
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