FX Market Overview for May 12: EURJPY by Market_Vision1 — TradingView

The first really big news was that Spirit Airlines declared bankruptcy. The issue was partly expected, as starting in early May the company began canceling flights and discussing returning funds to travelers and transferring bookings to other companies. But the question is: Will the U.S. government intervene and save the country’s largest low-cost airline?

It is now clear that the answer is no. Bankruptcy proceedings have been officially launched.

This question is more important than it seems. Because Spirit Airlines is not just an ordinary company, but a major player in the U.S. budget airline market, like Ryanair or Wizz Air in Europe. The company relies only on very cheap flights and basic services, and such companies are immediately affected by significant cost increases.

In the same bankruptcy statement, the company directly linked the crisis to the war in Iran and rising energy prices. Frankly, it makes sense. Oil prices rose strongly, but aviation fuel rose even more, almost doubling the previous period. The impact of the crisis in the Strait of Hormuz directly affects airlines.

So if you’re traveling or vacationing soon, don’t be surprised if air ticket prices start to rise significantly in the coming period. Many companies may have to completely reprice flights.

The problem is that budget airlines operate on very thin profit margins. Spirit Airlines has been saddled with significant debt since the start of the pandemic, and with fuel prices now rising, the situation has stretched beyond its capabilities. I don’t think this is the last bankruptcy we might see if energy prices continue to rise.

Also in the United States, political pressure on Trump is also increasing. The latest polls show his approval rating has dropped to around 35%, and even parties that are usually tolerant of him are starting to give him weaker support than before.

We have important inflation data today, and if the numbers are high, as has been the case recently in many developed countries, it will add more pressure on the White House and negotiations related to Iran and energy.

At the same time, we are seeing many central banks starting to talk about raising interest rates again. Europe is moving in this direction, and now even Japan is starting to send clear signals that it may continue to raise interest rates.

This is important for global markets because for years Japan has been a source of cheap funding that investors around the world have relied on. Any additional rate hikes would mean less liquidity and more stress on financial markets.

As for Iran, Trump returned home yesterday with aggressive remarks and said that the possibility of continuing the armistice was very slim, and Iran’s actions may push the situation into military escalation again.

But frankly, this approach has become very common. Every time we hear a strong threat, negotiations start anew. Therefore, the matter currently appears to be closer to negotiation pressure than an actual decision to escalate.

Finally, despite all the talk, the ceasefire remains and that is the most important thing right now.

We’ll continue to monitor the latest news and I’ll send you live updates as soon as there are any important developments.

Pay close attention to the release period of inflation data before today’s market opening, as fluctuations may be strong. Then we go into the market already knowing how the market receives this data.

Otherwise, we’ll just work as usual. Have a great day and strong trading, and we’ll see you in the session.