Important calendar events
The dollar rallied last week, with the dollar index climbing above the 108 level, supported by hawkish FOMC members’ statements. US Bond yields also climbed, with the US 10-year treasury note yielding above 2.9% at the end of the week.
FOMC meeting minutes released last week indicated that Fed members are still committed to raising interest rates. Fed members’ speeches last week reaffirmed the need for further interest rate raises to bring high inflation under control, pointing to a steep rate hike in September. The Fed’s hawkish stance last week provided a major boost for the dollar, which had retreated following the release of the latest US inflation data.
Inflation seems to have cooled down in July, aided by the aggressive efforts of the Federal Reserve. US inflation remains at a multi-decade high of 9.1%, but its ascend seems to have been arrested for the time being. Cooling inflation removes some of the pressure on the Federal Reserve to increase interest rates.
Markets moderated their expectations of a Fed rate hike after the release of the US inflation data, as the sudden drop in inflation may induce the Fed to hold back from an aggressive monetary tightening. Last week, however, FOMC members pointed out that price pressures remain intense, necessitating aggressive tightening. Fed rhetoric was more hawkish than expected, not ruling out the possibility of a 75-bp rate hike in September.
In its latest policy meeting, the US Federal Reserve raised its interest rate by 75-base points in an attempt to rein in inflation. The Fed is tasked with battling soaring inflation without the benefit of a strong economic background. A robust economic outlook is required to enable the Fed to tighten its monetary policy further. Economic data, however, indicate that the US economy is still fragile and may not be able to withstand aggressive tightening.
Several economic indicators this week may provide more insight into the US economic outlook and are likely to affect the dollar. US Flash Services and Manufacturing PMI due on the 23rd are key indicators of economic health. Quarterly Preliminary GDP data are scheduled to be released and may affect the dollar, as they may provide indications on the direction of the US economy. Important economic indicators are due on the 26th, and most importantly the Core PCE Price Index, which is the Federal Reserve's primary inflation measure and may influence dollar price considerably.
FOMC members’ speeches next week are also likely to cause some volatility for the dollar, as well as the 3-day Economic Policy Symposium, known as the Jackson Hole Symposium, on August 25-27th. Federal Reserve Chair Jerome Powell is due to deliver a speech at the symposium on the 26th and his speech will be scrutinized by traders for hints into the Fed’s future policy.
The Euro plummeted last week, as the dollar rallied. EUR/USD fell below the 1.010 level support, closing near 1.004 on Friday. If the currency pair goes up, it may encounter resistance at 1.027 and further up at 1.036. If the EUR/USD withdraws, it may find support at 1.010 and further down at the parity level of 1.000.
This week, it is likely that the EUR/USD pair will flirt with the parity level of 1.000 again. The currency pair breached the parity level briefly a few weeks ago but then rallied. The parity level is strong psychological support, which is not easy to overcome.
Economic indicators released last week for the Eurozone were disappointing, showing that the EU economic outlook is lower than expected. Quarterly GDP fell below expectations, dropping to 0.6% from 0.7%. Eurozone economic growth was less robust in the second quarter than forecasted, but employment rose again.
In addition, Eurozone inflation continues to rise. Last week, the ECB warned that the inflation outlook in the EU has not improved. As fuel prices went down in July worldwide, inflation in the EU was expected to cool slightly. The EU however is facing an energy crisis, increasing price pressure.
Rising Eurozone inflation is expected to figure largely in determining the future ECB monetary policy. Soaring inflation in the EU adds more pressure on the ECB to continue increasing interest rates. The ECB seems to be finally pivoting towards a more hawkish direction, aiming to rein in Eurozone inflation.
In its latest policy meeting, the ECB raised its interest rate by 50 base points. This was the ECB’s first rate hike raise since 2011, bringing its benchmark interest rate from -0.50% to 0%. The ECB’s interest rate remains low, especially compared to the Fed’s 2.50% interest rate.
Currently, market participants are setting their sights on the September ECB policy meeting, with odds in favor of another 50-bp rate hike. Struggling Eurozone economies, rampant inflation, and a looming energy crisis in the EU create a toxic combination though, pushing the Euro down.
Several economic activity indicators are scheduled to be released this week for the Eurozone. Key among those are Services and Manufacturing PMI data on the 23rd. Gram GDP data on the 25th may also affect the Euro, as well as several economic indicators for Germany on the 26th.
The Sterling collapsed last week, weighed down by a stronger dollar. GBP/USD plummeted, falling rapidly below the psychological 1.200 level and the 1.192 support level mid-week and finally closing around 1.182 on Friday. If the GBP/USD rate goes up, it may encounter resistance near the 1.219 level again, while if it declines, support may be found near 1.175.
The past week was particularly tough on the Sterling, as the hardships faced by the British economy took their toll on the currency. UK inflation reached double digits for the first time, with CPI climbing to 10.1% in July on an annual basis. Soaring energy and food prices put pressure on British households.
The latest UK GDP data have shown that the British economy is contracting, confirming the BOE’s forecast of reduced economic growth. The BOE has warned that recession is expected to hit the UK in the fourth quarter of this year, and is forecasted to last for five quarters, until the end of 2024, with GDP falling to 2.1%. Predictably, UK consumer confidence last week remained at historic lows.
Britain’s grim economic outlook is preventing a more hawkish fiscal policy and is hampering the BOE’s attempts to bring inflation down. In its latest monetary policy meeting, the Bank of England decided to raise its interest rate by 50 base points, bringing the total interest rate up to 1.75%. The BOE has adopted a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy.
Last week’s inflation data, however, increased the odds of a more hawkish fiscal policy until the end of the year. Markets are pricing in three aggressive rate hikes of at least 50 bp each, at the remaining BOE policy meetings in September, November, and December.
Political instability after British PM Boris Johnson’s resignation is also keeping the Sterling down. The Tory Leadership race continues, with Foreign Secretary Liz Truss appearing to be ahead in the polls from fellow candidate Rishi Sunak.
Several UK economic activity indicators are scheduled to be released this week. Flash Services and Manufacturing PMI data are due to be released on the 23rd and may provide information on the economic outlook of the UK.
The Yen withdrew last week, pushed down from the dollar’s rally. The USD/JPY rate climbed throughout the week, closing near 136.8 on Friday. If the USD/JPY declines, support might be found at 134.2. If the pair climbs it may find resistance near 139.4 and further up at the 1998 high of 147.7.
The dollar recovered last week, as hawkish Fed rhetoric increased the odds of a steep rate hike in September. The dollar’s rally caused competing assets, such as the Yen, to retreat.
Last week, the economic activity data released for Japan were weak. Quarterly GDP data fell below expectations, indicating that economic growth is not as robust as expected. National Core CPI rose to 2.4% on an annual basis, exceeding the BOJ’s 2% target. Inflationary pressures are increasing in Japan, mainly due to the high cost of imported energy. The combination of a weak currency, low wages, and rising inflation is burdening Japanese households.
The recent drop in fuel prices, however, is providing some support for the Yen. Japan is a net energy importer and the reduction in energy costs is providing some relief to the economy.
The BOJ maintains its ultra-easy monetary policy, keeping its main refinancing rate at -0.10%. Japan continues to pour money into the economy, while other countries are adopting a tighter fiscal policy. The difference in interest rates with other major Central Banks puts the Yen at a disadvantage, driving its price down.
Several minor economic indicators are scheduled to be released this week for Japan. Flash Manufacturing PMI and BOJ Core CPI data are due on the 23rd, while Tokyo Core CPI data are scheduled to be released on the 26th.
Gold prices retreated last week, as the dollar rallied, breaking through the $1,754 per ounce level support and closing near $1,746 per ounce on Friday. If gold prices decline, support may be found at $1,675 per ounce, while resistance may be found at around 1,813 per ounce and higher up at $1,870 per ounce.
Gold retreated last week pushed down by the rise of competing assets, such as the dollar and US treasury yields. Risk aversion accelerated last week though, providing support for the safe-haven gold.
The dollar rallied last week, with the dollar index climbing above the 108 level, supported by hawkish Fed rhetoric. The Fed’s hawkish stance last week provided a major boost for the dollar, which had retreated following the release of the latest US inflation data. US Bond yields also climbed, with the US 10-year treasury note yielding above 2.9% at the end of the week.
The pivot of most major Central Banks toward a tighter monetary policy to combat rising inflation rates is putting pressure on the price of gold. Assets yielding interest become a more appealing investment compared to gold, as interest rates rise. Last week, odds of a steep 75-bp Fed rate hike increased, pushing gold prices down.
This week, US economic data may provide indications into the state of the US economy, affecting both dollar and gold prices. The Core PCE Price Index, which is the Federal Reserve's primary inflation gauge, is due to be released on the 26th and may affect the price of gold. The 3-day Economic Policy Symposium, known as the Jackson Hole Symposium, on August 25-27th is also an important economic event next week that may influence gold price and especially Federal Reserve Chair Jerome Powell’s speech at the symposium on the 26th.
Oil prices were volatile last week, with WTI dropping to $85 per barrel mid-week, before rallying and closing just above the $90 per barrel level support level on Friday. This week, WTI is expected to continue testing the $90 per barrel support. If the WTI price declines further, it may encounter support at $82 per barrel, while resistance can be found near the $100 per barrel level and higher up at $105 per barrel.
The global economic slowdown and recession fears kept oil prices down last week. The oil demand outlook decreased, putting pressure on oil prices. Hawkish Fed rhetoric increased the odds of a steep rate hike in September, pushing oil prices down.
Last week, data released by the Energy Information Administration showed that US commercial crude oil inventories decreased by 7.1 million barrels for the week to August 12, providing support for oil prices.
In its latest meeting, OPEC+ agreed to increase production by only 100,000 barrels per day in September. Lingering recession fears have induced the organization to hold back from a more significant raise in its output goal.
Reports of an impending deal between the EU, aided by the US, and Iran are also adding pressure to oil prices. The EU has proposed to restore the 2015 Joint Comprehensive Plan of Action, effectively lifting sanctions on Tehran. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.
Uncertainty over China’s oil demand is also causing fluctuations in oil prices. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand. China’s weak economic outlook is raising concerns over the demand outlook for oil, pushing prices down.
Cryptocurrencies plummeted last week paring the gains of the last few weeks. Risk aversion sentiment grew last week, benefitting safe-haven assets and putting pressure on riskier assets, such as cryptocurrencies. US stock markets ended the week lower, amid interest rate hike fears after hawkish commentary from US Federal Reserve officials. The fall of stock markets pushed cryptocurrency prices down, as crypto markets have been following stock market trends.
An increasing number of major Central Banks are moving towards a tighter fiscal policy, fuelling concerns of a shrinking economic outlook. Fed rate hike odds increased last week, following hawkish Fed rhetoric. Severe rate hikes stifle economic activity, putting pressure on cryptocurrencies. Markets are pricing in a Fed rate hike of at least 50 bp in September, with a 75 bp increase still on the table.
Bitcoin price fell almost to the $20,700 support level last week, and this week it may test this support level if it continues to decline. Further support can be found at the $19,200 level, while resistance may be encountered near $23,000.
Ethereum also plummeted last week, falling briefly below the $1,550 support level, before climbing to $1,600 during the weekend. If Ethereum's price declines, it may encounter support near $1,300 and further down at the $1000 level, representing its lowest price since January 2021, while resistance may be encountered at $1,800 and higher up at $2.000.
Ethereum's price has been boosted in the past month in anticipation of the so-called ‘merge’, which has been set to launch on September 19th. The Merge from the Proof-of-Work to the Proof-of-Stake method will be a significant network upgrade that is expected to lead to an increase in demand for Ethereum. Last week, the Ethereum price received a further boost from reports that the Ethereum Foundation is making significant progress towards the merger. The proof-of-stake Beacon chain may now take place ahead of schedule, between September 15 and 16.
This week, the release on the 26th of the Core PCE Price Index, which is the Federal Reserve's primary inflation gauge, may affect cryptocurrency prices. The 3-day Jackson Hole Economic Policy Symposium on August 25-27th is also an important economic event that may influence crypto markets. Federal Reserve Chair Jerome Powell’s speech at the symposium on the 26th is of particular importance as it may provide insight into the Fed’s future direction.
BTC/USD 1h Chart
ETH/USD 1h Chart
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