Important calendar events
The dollar plummeted after the release of the US inflation report last week and the dollar index dropped to 104.2. US treasury yields also dipped, on increased rate cut expectations, with the US 10-year bond yielding approximately 4.29%.
The dollar slipped last week after US inflation surprised on the downside, registering its lowest reading in three years. Headline inflation cooled to 3.0% year-on-year in June from 3.3% in May against expectations of a 3.1% reading. Monthly inflation shrank by 0.1% in June against the 0.1% growth expected. Core inflation, which excludes food and energy, rose by just 0.1% in June from 0.2% in May dropping below expectations of 0.1% growth. Signs that inflationary pressures are easing might induce the Fed to start cutting interest rates in September.
Producer price index (PPI) data, however, exceeded expectations, indicating that the disinflation process in the US may not be so smooth. PPI rose by 0.2% in June, beating expectations of 0.1%, after remaining steady in May.
US consumer sentiment fell to an eight-month low in July, with the Preliminary UoM Consumer Sentiment index dropping to 66.0, against 68.5 anticipated. Preliminary UoM Inflation Expectations improved, with yearly inflation estimated to fall to 2.9%.
One of the key factors that are driving the dollar right now is the US rate outlook. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Federal Reserve has held interest rates steady since last July.
Fed chair Jerome Powell testified on the Semi-Annual Monetary Policy Report before the US Senate Banking Committee on Tuesday and Wednesday. In his testimony on Tuesday, Powell stated that the Fed remains focused on ensuring price stability in the US. Powell’s testimony on Wednesday was more dovish, boosting the dollar. He stated that inflationary pressures in the US are easing and warned that keeping rates at restrictive levels for too long could weaken the economy, hinting at a rate cut in September.
Markets were anticipating a more dovish stance, however, and odds of a rate cut in September dropped from 75% to 70% after Powell’s speech. Rate cut expectations in September, however, were catapulted above 90% after the release of the US inflation report, putting pressure on the dollar. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in Forex markets.
On the data front, Final GDP data showed that the US economy expanded by just 1.4% in the first quarter of the year, which was in line with expectations. Economic growth in the US is slowing down, falling considerably below the 3.4% expansion registered in Q4 of 2023. The US economy is expanding at an increasingly slower pace putting pressure on the dollar, as GDP data have shown expansion by 4.9% in the third quarter of 2023.
EUR/USD moved in an uptrend last week, touching the 1.090 level on Friday as the dollar weakened. If the EUR/USD pair declines, it may find support at 1.066, while resistance may be encountered near 1.091.
The Euro has been under pressure since political turmoil in France led to national elections. The first round of French national elections took place on June 30th and the second round on July 7th. Marine Le Pen’s far-right party was expected to win the French national elections on July 7th. Instead, the Left-wing coalition gained the most seats in the National Assembly but did not win an outright majority required to form a government, leading to a hung parliament.
This week the European Central Bank is meeting on July 18th under a climate of political instability in France, one of the Eurozone’s leading economies.
The ECB is expected to keep interest rates steady this week, but also to prepare the ground for a rate cut in September. Traders this week will focus on the ECB’s forward guidance, which is expected to point to another rate cut in September.
The ECB lowered its Main Refinancing Rate by 25 basis points to 4.25% in June. Eurozone inflation remains sticky and may slow down the pace of future rate cuts. ECB President Christine Lagarde has stated that the central bank’s policy will remain data-driven.
German CPI data released on Thursday were in line with expectations and did not affect Euro price significantly. Inflation in the Eurozone’s leading economy remained steady in June, rising by 0.1% as expected.
Eurozone inflation eased to 2.5% in June from 2.6% in May putting pressure on the Euro. Core CPI, which excludes food and energy, however, rose by 2.9% on an annual basis in June against expectations of a 2.8% print.
The Eurozone economy expanded by 0.3% in the first quarter of the year, which was in line with preliminary estimates. GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero. The EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.
The Sterling benefitted from the dollar’s weakness last week and GBP/USD rose to a four-month high of 1.296. If the GBP/USD rate goes up, it may encounter resistance near 1.313, while support may be found near 1.261.
The Sterling gained strength after the Labour Party achieved a landslide victory at the British national elections in June. The Labour Party’s decisive victory is raising hopes of political stability in the UK boosting the sterling.
The BOE kept interest rates steady at its latest monetary policy meeting in June. The BOE maintained its official rate at a 16-year high of 5.25. The BOE's Monetary Policy Committee voted 7-2 to keep rates on hold with two members voting to cut interest rates by 25 basis points.
Markets are pricing in a rate cut in September with approximately 70% probability, while a rate cut by November is fully priced in. Rate cut expectations have shifted from two rate cuts and a total of 50 basis points of rate cuts in 2024 to approximately 35 bp reduction in rates within the year.
BOE chief economist Huw Pill stated on Wednesday that price pressures in the UK remain persistent. BOE rate cut odds dropped after Pill’s comments, boosting the Sterling.
GDP data released on Thursday showed that the British economy is showing signs of improvement, further reducing the odds of a dovish pivot by the BOE. GDP data showed that the British economy expanded by 0.4% in May following stagnation the month before and against expectations of 0.2% growth. Moreover, the British economy expanded by 0.7% in the first quarter of the year against initial estimates of 0.6% growth. The UK slipped into recession last year as the economy contracted by 0.3% in the final quarter of 2023.
Price pressures in the UK are easing, raising the odds of a BOE rate cut by September. British headline inflation eased to 2.0% on an annual basis in May from 2.3% in April, which was in line with expectations. Annual Core CPI, which excludes food and energy, fell to 3.5% in May from 3.9% in April. British inflation dropped to the BOE’s target for the first time in nearly three years indicating that the BOE’s hawkish monetary policy has been paying off.
USD/JPY moved precariously close to the key 162.0 level last week but plummeted to the 158.0 level at the end of the week, raising intervention speculation. If the USD/JPY pair declines, it may find support near 155.1. If the pair climbs, it may find resistance near the psychological level of 162.0.
The Yen spiked on Thursday after the release of the US inflation report and USD/JPY dropped sharply by over 400 pips in half an hour. Even though the dollar weakened against all rivaling currencies, the drop in the USD/JPY was steep enough to raise intervention speculation. The currency rate had been trading close to a 38-year high earlier in the week, fueling reports that the Japanese government has once again intervened to support the currency. So far Japanese officials have not commented on those rumors, but many analysts believe that the sudden reprieve in the Yen’s downfall was engineered by the BOJ.
BOJ officials have been attempting to boost the Yen, warning traders against speculative short selling of the currency. Threats of an intervention, however, have been issued for many months now and no longer have a significant impact on markets. The BOJ intervened to support the Yen in 2022 and again this year in late April and early May, when USD/JPY surged above the 160.0 level.
The Yen has been under pressure since the BOJ disappointed expectations of a hawkish shift at its latest meeting. The BOJ pivoted to a more hawkish policy at its meeting in March, ending its negative interest rate policy and raising the benchmark interest rate into the 0% - 0.1% range. The Yen continues to weaken as there is still a significant disparity between interest rates offered by the BOJ and those from other major central banks.
BOJ Governor Kazuo Ueda has hinted that the central bank would ease its bond purchasing at the next meeting in July. BOJ officials, however, had not given any specifics for paring back their bond-buying program till now. The BOJ released on Tuesday a summary of opinions collected in a survey of bond market participants. The BOJ’s summary of opinions reflects the market’s inclination to curtail the central bank's bond-purchasing program. A growing demand among bond market participants for tapering of BOJ bond purchases might induce the central bank to pivot to a more hawkish policy.
On the data front, inflation in Japan remains weak but rising. Headline inflation rose to 2.5% year-on-year in May from 2.2% in April. BOJ Core CPI rose to 2.1% on an annual basis in May from 1.8% in April, exceeding expectations of 1.9%. Rising inflation in Japan increases the odds of another BOJ rate hike later in the year. Tokyo Core CPI rose to 2.1% year-on-year in June from 1.9% in May against estimates of a 2.0% reading.
Preliminary GDP data for Q1 of 2024 for Japan showed that the country has slipped into recession. Japan’s economy shrank by 0.5% in the first quarter of the year against expectations of a 0.3% drop. Japan’s economy registered a small expansion by 0.1% in the final quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months.
Gold prices benefitted from the dollar’s decline last week, rising to the $2,420 per ounce level. If gold prices rise, resistance may be encountered near $2,450 per ounce, while if gold prices decline, support may be encountered near $2,290 per ounce.
Gold prices surged last week as US inflation surprised on the downside, boosting the odds of a Fed rate cut in September. Headline inflation cooled to 3.0% year-on-year in June from 3.3% in May against expectations of a 3.1% reading. Monthly inflation shrank by 0.1% in June against the 0.1% growth expected. Core inflation, which excludes food and energy, rose by just 0.1% in June from 0.2% in May dropping below expectations of 0.1% growth.
Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected.
Signs that inflationary pressures are easing might induce the Fed to start cutting interest rates in September. Rate cut expectations in September were catapulted above 90% after the release of the US inflation report, boosting gold prices. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in gold prices.
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted after the release of the US inflation report last week and the dollar index dropped to 104.2. US treasury yields also dipped, on increased rate cut expectations, with the US 10-year bond yielding approximately 4.29%.
Fed chair Jerome Powell testified on the Semi-Annual Monetary Policy Report before the US Senate Banking Committee on Tuesday and Wednesday. Powell stated that inflationary pressures in the US are easing and warned that keeping rates at restrictive levels for too long could weaken the economy, hinting at a rate cut in September.
China's central bank, the People’s Bank of China has halted gold purchases for the second consecutive month. The Bank of China has been buying gold over the last 18 months and the sudden absence of an important buyer has been driving gold prices down.
Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high.
Oil prices were volatile last week, with WTI prices fluctuating around the $82.5 per barrel level. If oil prices retreat, they may encounter support near $80.5 per barrel, while resistance may be found near $84.6 per barrel.
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result.
Renewed rate cut expectations propped up oil prices this week. Fed Chair Jerome Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Rate cut expectations in September were catapulted above 85% after the release of the US inflation report on Thursday, boosting oil prices.
US crude oil inventories released on Wednesday showed an unexpected drop in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 3.4M barrels for the week to July 5th, against expectations of a 0.7M barrel build and following a larger draw of 12.2M barrels the week before.
Oil prices are supported by the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices. Market estimates that oil demand will peak in July are boosting oil prices.
Concerns that hurricane Beryl would damage oil-producing infrastructure in Texas boosted oil prices in the past few days. As the US oil-producing hub in Texas remained largely intact after the hurricane, however, oil supply concerns eased, putting pressure on oil prices.
Supply concerns provide support for oil prices on global geopolitical risks. The ongoing crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. Hopes of a ceasefire deal in Gaza, however, are putting pressure on oil prices.
OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025.
Bitcoin price gained strength last week after the release of the US inflation report, rising to the $61,000 level over the weekend. If BTC price declines, support can be found at $53,300, while resistance may be encountered at $66,500.
Ethereum gained strength last week, rising to the $3,200 level during the weekend. If Ethereum's price declines, it may encounter support near $2,820, while if it increases, resistance may be encountered near $3,620.
Fluctuating risk sentiment is causing volatility in crypto markets. Cryptocurrency prices are affected by central banks’ interest rates. High interest rates are restricting economic growth putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve kept interest rates unchanged at its latest policy meeting, within a target range of 5.25% to 5.50%, as expected.
Rate cut expectations in September were catapulted above 90% after the release of the US inflation report, providing support for risk assets. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in crypto markets.
Crypto markets have been under pressure by the war in Gaza. Fears that the war will spread in the Middle East are promoting a risk aversion sentiment putting pressure on risk assets such as cryptocurrencies. Hopes of a ceasefire deal in Gaza, however, boosted cryptocurrency prices this week.
BTC/USD 1h Chart
ETH/USD 1h Chart
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