Important calendar events
The dollar has been slipping for the past couple of weeks, with the dollar index retreating from 102.7 to 101.3 last week, before paring some of its losses and closing near 102.1 on Friday. Bond yields firmed last week though, with the US 10-year treasury note yielding above 2.9% on Friday.
The dollar has been retreating for the past couple of weeks, pushed down by a mix of negative US economic data and unstable market sentiment. The USD had been trading in overbought territory and its high price has tempted traders to close long positions, realizing their profits.
Last week, the dollar exhibited high volatility, as US economic data were mixed and Fed rhetoric remained hawkish but cautious. On Friday, US employment data showed that 390,000 jobs were added in May, although the unemployment rate exceeded expectations, remaining at 3.6%. PMI services data released on Friday, which are important indicators of economic health, were overall mixed for the state of the US economy showing that the sector is not expanding as expected.
On Thursday, US ADP Non-Farm Employment Change and Revised Nonfarm Productivity data also fell below expectations, putting pressure on the dollar, as the jobs sector has a considerable impact on Fed policy. US payrolls increased far less than expected in May, indicating that demand for labor is slowing.
US Manufacturing PMI data released on Wednesday though, were higher than expected, showing that the US economy is moving in a positive direction and that the manufacturing industry is expanding. In addition, JOLTS Job Openings employment data also released on Wednesday revealed that job openings exceeded expectations, although they were lower than last month.
On Tuesday, Consumer Confidence slipped concerning last month, but fell less than expected, boosting the dollar. Other US economic data released on Tuesday were mostly positive, showing economic growth.
The dollar has been boosted by hawkish Fed policy for the past couple of months. Fed member Mester in her speech last week emphasized the need for multiple rate hikes of 50 bps each, confirming that the Fed intends to move at a steady but decisive pace in the coming months. FOMC members Bullard and Williams also delivered hawkish speeches last week, providing support for the dollar. Bullard emphasized in his speech that it is rate hikes must follow expectations, as markets have already priced in several rate hikes. In addition, Fed Governor Christopher Waller stated that the Fed should raise its interest rate by 50 base points at every meeting from now on to tackle soaring inflation in the US.
In its latest monetary policy meeting, the US Federal Reserve raised its benchmark interest rate by 50 base points to 1%. Fed rhetoric has become more cautious though, as inflation woes were balanced out by recession fears. FOMC members point to a series of rate hikes of 50 base points each, confirming that the Fed intends to move with a gradual but steady pace towards monetary policy normalization.
Continued Russian hostilities against Ukraine have increased risk-aversion sentiment, providing support for the safe-haven dollar. As there is still no end in sight to the crisis, the dollar’s appeal as an investment remains high, although risk appetite seems to be gradually returning to markets.
This week, several important US economic indicators are scheduled to be released and may have a significant impact on the dollar. The most important are the monthly CPI and Core CPI data, which are strong indicators of consumer inflation and can affect the Fed’s future monetary policy.
The Euro traded sideways against the dollar last week, with the EUR/USD rate closing near 1.071 on Friday. If the currency pair goes up, it may encounter resistance at 1.093. If the currency pair falls, it may encounter support at the 1.036 level which represents the 2016 low, and further down near a 20-year low of 0.985.
Several economic and employment indicators were released last week for the Eurozone. Overall, the data were mixed for the EU economy, indicating that economic growth in the EU has stalled. Even though the ECB has pointed clearly to a shift towards a more hawkish policy, stagnating Eurozone economies limit the ECB’s flexibility to increase interest rates to combat high inflation.
On Friday, services PMI data for some of the Eurozone’s leading economies and the Eurozone as a whole were mostly in line with expectations, although they remain low, with German PMI data declining. In addition, retail sales data fell below expectations, indicating that the EU economy is still sluggish.
Manufacturing PMI data were also released on Wednesday for some of the Eurozone’s leading economies and the Eurozone as a whole. PMI data are important indicators of economic health but were overall mixed for the EU economies. German sales data and Eurozone PMI were weak, failing to support the Euro.
Several economic indicators released on Tuesday were also negative for the state of the EU economy, dragging the currency down. CPI estimates, which are leading indicators of consumer inflation, were also released on Tuesday and showed that EU inflation is on the rise. Inflation in the Eurozone climbed to record highs, reaching 8.1% in May, driven by rising food and energy costs.
EU members have finally reached an agreement on banning Russian oil imports. Reports that Russia might retaliate by cutting off natural gas supplies in the EU are fueling fears of a potential energy crisis in Europe. Concerns about rising energy costs in the EU that would bring inflation even higher up are driving the Euro down.
The Euro has been regaining some of its lost ground against the dollar, as ECB and Fed policies seem to be converging gradually. The ECB has been hinting heavily at a July rate hike, while the Fed grows hesitant about moving forward with a more aggressive monetary policy. Rising inflation rates in the EU increase the chances that the ECB will go forward with a rate hike in July. The Eurozone economy, however, is still trying to recover from the pandemic and recession fears are growing in the EU.
Clear indications from the ECB that it would move towards a more hawkish policy this year, have boosted the Euro. Markets are now pricing in up to 105 base points rate hikes throughout the year. ECB President Christine Lagarde has pointed to rate hikes in Q3 of this year, which would bring the ECB’s interest rate at least to her, and possibly to positive territory. ECB members are starting to agree on a more hawkish policy starting in the third quarter of the year and the consensus between them seems to be that the ECB will perform its first rate hike in decades at its next policy meeting in July.
This week, all eyes are going to be on the ECB meeting on Thursday and the announcement of its main refinancing rate. Even though the EU Central Bank is not expected to change its benchmark interest rate at this meeting, the ensuing Monetary Policy Statement is going to be scanned closely by traders and will likely cause some volatility for the Euro. The ECB is not expected to raise its interest rate until July, although some market participants expect a rate hike on Thursday and markets are pricing in the possibility of a small, 10-base points rate hike this week. In case the ECP Policy Statement is more dovish than expected, the Euro may fall again.
The sterling remained weak last week, even as the dollar struggled to regain strength, with the GBP/USD rate closing near 1.248 on Friday. If the GBP/USD rate goes up, it may encounter resistance near the 1.308 level, while if it declines, support may be found near the two-year low at 1.206.
In the past couple of weeks, the sterling had been supported by a weakening dollar. Last week, however, the dollar regained its strength. The pound, on the other hand, fell on weak UK economic data, indicating that the economic outlook for the UK remains discouraging. Several financial indicators were released last week for the UK, showing the British economy is still sluggish. Consumer spending and confidence are declining, driving the sterling down. Thursday and Friday were Spring Bank Holidays and the sterling exhibited low volatility.
Headline inflation in the UK rose to 9% in April, while core inflation hit 6.2%. Headline inflation reached a new 40-year high, highlighting the need for legislative action to tame soaring inflation rates. The cost of living in the UK has been increasing, driven primarily by the high cost of energy imports, putting pressure on UK households. Stagflation is a risk for the UK economy, as for many other countries, as economic stagnation coupled with rising inflation creates a toxic mix for the economy.
The British finance minister Rishi Sunak recently announced a £15 billion package to assist low-income households with the costs cost of living due to rising food and energy costs. The package aims to support ailing British households and provide some leeway to the BOE to move towards a tighter fiscal policy.
The sterling has been losing ground against the dollar due to the divergence in monetary policy between the Fed and the BOE. Although the BOE started the year with a strong hawkish policy, it has recently backed down and moderated its stance, weighted down by the still fragile British economy. In its latest monetary policy meeting, the Bank of England raised its benchmark interest rate by 25 base points, bringing its rate to a 13-year high of 1%.
This week, only minor UK financial indicators are scheduled to be released, which are not expected to have a significant impact on the Sterling. UK Services and Construction PMI are among the most important data due this week and will be released on June 7th and 8th respectively.
The Yen plummeted last week, with the USD/JPY pair rising above the 129.8 resistance level at the end of the week, before closing near 130.86 on Friday. If USD/JPY rises, it may find resistance at 131.35. If the USD/JPY declines, support might be found near the 127 level and further down at the 121.3 level.
The Yen slipped last week on weak economic data for Japan, while the dollar recovered, making the Yen less appealing to investors.
Minor economic indicators released on Thursday were overall positive for the economy in Japan, providing some support for the currency. BOJ policy remains firmly dovish though, pushing the currency down. BOJ member Seiji Adachi indicated on Thursday that the Bank’s accommodative policy is set to continue, despite Japan’s CPI breaching the BOJ’s 2% target, reaching 2.1% for the first time in seven years. Japan’s rising inflation rates are mainly due to commodity and energy price rises rather than the result of a growing economy, burdening Japanese households.
The primary driver of the Yen over the past few months has been the BOJ’s fiscal policy, with the BOJ following an ultra-easy monetary policy to support the struggling economy. While other countries are moving towards quantitative tightening to return to pre-pandemic fiscal policies, Japan continues to pour money into the economy and maintains its negative interest rate. The difference in interest rates with other major Central Banks, especially with the Fed, puts the Yen at a disadvantage, driving its price down.
Bond yields have fallen across Japan’s treasury curve due to low demand. Japan’s 10-year government bond yielded a 0.24% interest rate at the bond auction on Thursday with a low number of bids made per bid accepted. The BOJ continues to buy an unlimited amount of Japanese treasury bonds, defending their current low yield. In contrast, the respective US 10-year bond is offered with a yield of approximately 2.8%, more than an order of magnitude higher than the Japanese bond. The large divergence in bond yields makes the low-yielding Yen less appealing to investors than the dollar, pushing its price further down.
Several financial indicators are scheduled to be released this week for Japan, especially on June 7th and 8th. These indicators are expected to provide information on the state of the Japanese economy and may impact the Yen.
Gold traded mostly sideways last week, exhibiting low volatility, with its price depending largely on the dollar’s price. Gold prices rose at the beginning of last week, as the dollar slipped. Towards the end of the week, gold prices fell, closing near $1,850 per ounce on Friday, as the dollar rallied. If the price of gold decreases, support may be found at $1,786 per ounce, while resistance may be found at around 1,920 per ounce and higher up at $2,000 per ounce.
The price of gold is balanced between conflicting market forces, supported by risk aversion sentiment but pushed down by high dollar and real yields.
As the dollar and US bond yields rise, competing assets, such as gold, become less appealing as an investment. The dollar has been slipping, with the dollar index retreating from 102.7 to 101.3 last week, before paring some of its losses and closing near 102.1 on Friday. Bond yields firmed last week though, with the US 10-year treasury note yielding above 2.9% on Friday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. As however, the crisis drags on, and risk sentiment is slowly returning to markets, undermining gold price.
High inflation rates are also known to support the price of gold, which is often used as an inflation hedge, and with global inflationary pressures increasing, the gold price is boosted. This week, US CPI inflation data are scheduled to be released on June 10th and may affect the gold price.
Stalling global economic growth also gives rise to fears of recession, further supporting the price of gold. Concerns about the state of the economy in China, after the extensive Covid lockdowns in Shanghai and other cities, also boost the gold prices.
Oil prices rallied last week, with WTI climbing above the $118.3 per barrel resistance and testing the $121 per barrel resistance on Friday. If the WTI price drops again, support can be found at $110 per barrel and further down at $94.5 per barrel, while further resistance can be found near $130 per barrel.
Last week, EU members agreed on a new package of sanctions against Russia, including a ban on Russian oil imports. Several EU members, such as Hungary, have been opposing the plan, as they depend heavily on Russian oil imports. The European Council agreed on a compromise on Tuesday, allowing temporary Russian oil flows to Hungary, Slovakia, and the Czech Republic. This plan will effectively reduce EU oil imports from Russia by 90% by the end of the year. Oil prices spiked after the announcement of the ban on Tuesday, amid supply worries.
In addition, the Biden administration has hinted that they do not rule out restricting US oil exports to combat tight supply, driving oil prices up. US officials have stated that the Biden administration is preparing new sanctions on Russian oil imports that aim to cripple the Russian economy. If implemented, such bans have the potential to drive oil prices further up.
OPEC-JMMC, known as OPEC+ held its monthly meeting on Thursday, to set production quotas for July. The OPEC+ meeting caused high volatility in oil prices, with WTI and crude oil prices climbing after the meeting. Reports that OPEC+ production fell short of its output goals last month pushed prices up. Market investors doubt whether OPEC can meet its production targets and deliver its promised output.
The OPEC+ meeting on Thursday came in the wake of the EU ban on Russian oil imports. Before the meeting, it was reported that OPEC was planning to exempt Russia from its production output goals as a result of the embargo and the war with Ukraine. Russia is the world’s third-largest oil producer and exclusion from the production deal would allow other members to raise their production quotas. Instead, the organization and its allies have decided to accelerate production, raising their output by almost 648,000 barrels a day in July and August. Countries such as Saudi Arabia and the United Arab Emirates will have to pump up more oil to compensate for the decrease in Russia’s supplies. Even though the decision to raise oil output should allay fears of oil shortages somewhat, oil prices jumped up after the meeting.
The oil demand outlook has increased, as the extended Covid lockdown in Shanghai ended on Wednesday and the large commercial hub has resumed its operations. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. As Covid lockdowns in China end, however, oil prices are climbing back up. Global recession fears are rising, however, checking oil price rallies. The economy in China has taken a big hit from the prolonged Covid lockdowns.
Cryptocurrencies struggled to rebound last week, as unstable market sentiment drove cryptocurrency prices down. Bulls tried to push cryptocurrency prices higher at the beginning of the week but failed to overcome strong crypto market bearish tendencies, triggered by stock market uncertainty.
A strong risk-off sentiment has prevailed over the past few months due to geopolitical tensions, driving investors to safer assets and dampening the appeal of cryptocurrencies. As however, the crisis drags on, and risk sentiment is slowly returning to markets, causing volatility in cryptocurrency prices.
Renewed market risk sentiment boosted stock markets early last week, supporting cryptocurrency prices. Global stock markets extended gains, pushing cryptocurrency prices up. Stock markets dropped on Friday though, driving cryptocurrency prices down through the weekend. Crypto markets have been known to follow the overall trends of stock markets and especially of tech stocks.
Bitcoin tested the $30,000 key psychological support level on Friday, dropping below this level during the weekend. If Bitcoin price declines, support may be found further down near $26,700, while resistance may be found at $40,000 and further up near $48,200.
Ethereum price also retreated during the weekend, dropping below climbing to $1,800. If the Ethereum price declines, support may be found near $1,720, while resistance may be encountered near $2.960 and higher up at $3,174.
The shift of major central banks towards a more hawkish fiscal policy has been putting pressure on cryptocurrencies over the past few months. Most major Central Banks are turning towards a tighter policy and a return to pre-pandemic interest rates, driving cryptocurrency prices down.
The Fed has raised its benchmark interest rate by 50 base points and the BOE also increased its interest rate by 25 bp. The ECB has also indicated that it will move towards a more hawkish policy, increasing market expectations that it will raise its interest rates in July. This week, the ECB’s monetary policy meeting on June 9th is expected to affect crypto markets as well.
BTC/USD 1h Chart
ETH/USD 1h Chart
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