Important calendar events
The dollar edged higher last week but retreated towards the end of the week. The dollar index climbed to 106.1 but dropped to 105.9 on Friday. US treasury yields gained strength, providing support, with the US 10-year bond yielding 4.40% at the end of the week.
Several important US fundamentals were released last week, causing volatility in the dollar price. Traders especially awaited the release of Core PCE Price index data on Friday as this is the Fed’s preferred inflation gauge. Core PCE Price index, however, was in line with expectations and the dollar remained steady after its release. Core PCE rose by 0.1% in May as anticipated. April’s print, however, was revised upward to reflect 0.3% growth. Annual Core PCE cooled to 2.6% in May from 2.8% in April indicating that price pressures in the US are easing.
Final GDP data released on Thursday for the first quarter of the year showed that the US economy expanded by just 1.4%, which was in line with expectations and just above the initial estimate of 1.3%. Economic growth in the EU 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.
Durable Goods Orders in May rose by 0.1% versus forecasts of a 0.5% contraction. However, Core Durable Goods Orders, which exclude transportation items, dropped by 0.1% in May falling short of estimates of 0.2% growth and lagging behind April’s print of 0.4%.
US consumer confidence data released on Tuesday exceeded expectations, boosting the dollar. The CB Consumer Confidence index in June exceeded expectations with a print of 100.4 versus 100.0 anticipated. This is an indicator of financial confidence and is a leading indicator of consumer spending. Tuesday’s data, however, showed that US Consumer confidence declined in June from 101.3 in May.
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.
FOMC policymakers feel that more evidence of cooling inflation is required before a policy change can be considered. Fed chair Jerome Powell has stated that the progress of disinflation was slow in the first quarter of the year resulting in a delay in rate cuts.
Hawkish Fed rhetoric boosted the dollar last week. FOMC member Michelle Bowman stated that she did not expect any Fed rate cuts this year. Bowman is known for her hawkish stance, but her unyielding statements drove Fed rate cut expectations down, boosting the dollar.
Odds of a rate cut in September are currently below 70% while a rate cut by November is fully priced in. The uncertainty around Fed rate expectations is likely to continue in the coming months causing volatility in Forex markets.
US CPI data for May showed that disinflation in the US is finally progressing. Monthly inflation remained the same in May, after rising by 0.3% in April and against expectations of a 0.1% rise. Headline inflation eased to 3.3% year-on-year in May from 3.4% in April, dropping below expectations of a 3.4% print. Core inflation, which excludes food and energy, rose by just 0.2% in May versus 0.3% anticipated. Annual Core CPI came in at 3.4% versus 3.6% expected, its lowest reading in three years.
This week’s economic calendar is packed with news and fundamentals that may affect the dollar. US manufacturing PMI data on Monday and service PMI data on Wednesday will provide important information on the overall state of the US economy.
Throughout the week important US labor data will be released, starting with JOLTS Job Openings on Tuesday and US unemployment claims on Wednesday. Non-farm payrolls, or NFPs as they are called, are due on Friday, and they are the most highly anticipated fundamentals of the week. NFPs provide estimates on the number of jobs created in the US and are indicators of economic growth.
EUR/USD traded sideways last week, oscillating around the 1.071 level. If the EUR/USD pair declines, it may find support at 1.067, while resistance may be encountered near 1.075.
The Euro has been under pressure since political turmoil in France led to the announcement of national elections. French President Emmanuel Macron has decided to dissolve the parliament and announce a snap election on the 30th of June, putting pressure on the Euro. The latest polls showed on Tuesday that Marine Le Pen’s far-right Party is currently in the lead. Le Pen’s National Rally party, however, is unlikely to win with an outright majority required to form a government, and concerns of political instability in France have been dragging the Euro down before the first round of national elections.
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.
ECB’s Olli Rehn gave a dovish interview to Bloomberg, putting pressure on the Euro. Rehn stated that two more cuts this year seemed reasonable and that Eurozone inflation would eventually settle to the ECB’s 2% target.
On the data front, German business morale unexpectedly fell in June according to data released on Monday. The German IFO Business Climate index dropped to 88.6 in June from 89.3 in May, disappointing expectations of an 89.4 print.
Headline inflation in the Euro Area accelerated to 2.6% year-on-year in May up from 2.4% in April and exceeding the forecast of 2.5%. Core CPI, which excludes food and energy, rose to 2.9% on an annual basis in May from 2.7% in April against expectations of a 2.7% print. Inflationary pressures in the Eurozone are not easing as fast as anticipated, which might hold up the ECB’s plans to lower interest rates.
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.
GBP/USD exhibited high volatility early last week but settled at the 1.264 level on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.274, while support may be found near 1.260.
In the coming weeks, we expect to see high volatility in the price of the Sterling especially ahead of the UK elections on July 4th. Hopes of political stability fuelled by expectations that the Labour Party will win the elections in July with a large majority have been supporting the sterling.
The British economy is showing signs of improvement reducing the odds of a dovish pivot by the BOE. Final GDP data released on Friday showed that 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.
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.
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.
The BOE had updated its inflation outlook earlier this year, predicting that inflation would drop to the BOE’s 2% target in the second quarter of the year. The BOE’s forecasts were realized in May relieving the pressure on the BOE to maintain a restrictive monetary policy. 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.
The Yen continued to decline last week, defying threats of an intervention and touching fresh all-time lows. USD/JPY rose above the key 161.0 level on Friday but pared some losses towards the end of the day, closing near 160.8. If the USD/JPY pair declines, it may find support near 158.6. If the pair climbs, it may find resistance near the psychological level of 162.0.
BOJ officials have been attempting to boost the Yen, with BOE Governor Kazuo Ueda repeatedly warning traders against speculative short selling of the currency. Masato Kanda, Japan's top currency diplomat, stated on Monday that authorities will take appropriate steps if there is excessive foreign exchange movement and that the addition of Japan to the US Treasury's monitoring list would not restrict their actions. Masato issued an even more stern warning on Wednesday, stating that he is seriously concerned about the recent rapid weakness of the Yen and hinting at an imminent intervention to support the currency.
Threats of an intervention to support the Yen, 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 kept all policy settings unchanged at its meeting in June. The minutes of the meeting were released on Monday and showed a rather hawkish bias, boosting the Yen. Two BOJ members appeared to be in favor of a rate hike soon, hinting at raising interest rates in July. Other BOJ members, however, appeared to be more cautious, wanting to wait for more evidence of rising inflation before raising interest rates.
The BOJ has 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, have not given any specifics for paring back their bond-buying program. Market expectations of a hawkish shift were disappointed after the BOJ policy meeting, putting pressure on the Yen.
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 were volatile last week, dropping below the key $2,300 per ounce level mid-week, then paring losses and closing near $2,330 per ounce on Friday. If gold prices rise, resistance may be encountered near $2,380 per ounce, while if gold prices decline, support may be encountered near $2,290 per ounce.
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 edged higher last week but retreated towards the end of the week. The dollar index climbed to 106.1 but dropped to 105.9 on Friday. US treasury yields gained strength, supporting the dollar, with the US 10-year bond yielding 4.40% at the end of the week.
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.
Odds of a Fed rate cut in September are currently below 70%, while a rate cut by November is fully priced in. The uncertainty around the US Fed rate outlook is causing volatility in gold prices. US Core PCE Price index data on Friday indicated that price pressures in the US are easing. This is the Federal Reserve’s preferred inflation gauge and increased rate cut expectations boosted gold prices last week.
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. Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.
Oil prices edged higher last week, with WTI price rising to $81.8 per barrel at the end of the week. If oil prices drop, they may encounter support near $77.3 per barrel, while resistance may be found near $84.7 per barrel.
US crude oil inventories released on Wednesday showed a surprise build in US crude stockpiles, putting pressure on oil prices. The US Energy Information Administration reported that weekly crude stocks rose by 3.6M barrels for the week to June 21st, exceeding expectations of a draw of 2.6M barrels and following a 2.5M barrels draw the week before.
Supply concerns provide support for oil prices, as global geopolitical risks mount. 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. Tensions are rising on the Israel-Lebanon border as Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.
Oil prices continued to gain strength this week on the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices.
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.
Odds of Fed rate cuts have become more moderate, putting pressure on oil prices, as policymakers have stated that they do not intend to start reducing interest rates until there is more evidence of disinflation. Odds of a Fed rate cut in September are currently below 70%, while a rate cut by November is fully priced in.
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 plummeted below the key $60,000 level early last week but rallied later in the week, reclaiming the $62,000 level over the weekend. If BTC price declines, support can be found at $58,200, while resistance may be encountered at $64,700.
Ethereum also dipped early last week, touching the $3,200 level but recovered later in the week, trading around the $3,430 level over the weekend. If Ethereum's price declines, it may encounter support near $3,200, while if it increases, resistance may be encountered near $3,540.
Crypto markets have been under pressure in the past week and the global crypto market cap has dropped from $2.32 to $2.28 trillion.
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. Odds of a Fed rate cut in September are currently below 70%, while a rate cut by November is fully priced in.
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. Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.
BTC/USD 1h Chart
ETH/USD 1h Chart
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