Important calendar events
The dollar remained strong last week, with the dollar index closing near 108.8 on Friday. US Bond yields also climbed, with the US 10-year treasury note climbing above 3.0% last week and reaching 3.1% mid-week boosted by the outcome of the Jackson Hole symposium.
US Preliminary quarterly GDP last week was higher than expected, providing support for the dollar. GDP was at -0.6%, which while showing that the US economy continues to contract, is an improvement over the previous value of -0.9%. US Flash Services and Manufacturing data last week were lower than last month’s indicating that activity in these sectors is declining.
The Core PCE Price Index, the US Federal Reserve’s preferred inflation gauge fell below expectations last week. Core PCE for July fell to 0.1%, which represents a considerable drop from June’s 0.6%. The PCE data confirm the recent CPI data, which showed that the growth of US inflation seems to have stalled. While inflation remains at a multi-decade high of 9.1%, its ascend seems to have been arrested for the time being, mainly due to a slowdown in energy costs.
Cooling inflation shows that the Federal Reserve’s aggressive monetary tightening yields results and removes some pressure on the Fed to increase interest rates. Last week, however, FOMC members indicated that, while rate hikes are data-dependent, the Fed is committed to increasing interest rates until inflation has been brought under control.
In his much-anticipated speech at the Jackson Hole symposium last week, Fed Chair Jerome Powell showed no signs of wavering in the battle against inflation. Powel stated that, while recent inflation data for July offer hope that inflation may have peaked, a single month’s improvement is not enough to affect the Fed’s policy. Powell’s speech was aggressively hawkish, pointing out that inflation remains at 40-year highs and is a long way from the US Central Bank’s target of 2%.
Markets are still pricing in a significant Fed rate hike for September, with market odds wavering between a 50 base point and a 75-bp rate hike. US economic data in the next few weeks are expected to affect the Fed’s interest rate decision. A robust economic outlook is required to enable the Fed to tighten its monetary policy further.
In its latest policy meeting, the US Federal Reserve raised its interest rate by 75-base points in an attempt to rein in inflation. Recent economic data are mixed and indicate that the US economy is still fragile and may not be able to withstand aggressive tightening. The Fed is tasked with battling soaring inflation without the benefit of a strong economic background.
Several economic indicators this week may provide more insight into the US economic outlook and are likely to affect the dollar. CB Consumer Confidence and JOLTS Job Openings are important indicators of financial health and employment. ISM Manufacturing PMI on the 1st is also a leading indicator of economic health and may cause some volatility for the dollar. Important employment indicators are due to be released on the 2nd, such as Average Hourly Earnings, Non-Farm Employment Change, and Unemployment Rate.
FOMC members’ speeches next week are also likely to cause some volatility for the dollar, especially in the wake of Federal Reserve Chair Jerome Powell’s speech last week at the Jackson Hole Symposium.
The Euro continued to decline last week, albeit at a slower pace. EUR/USD fell below the 1.000 parity level early last week, reaching 20-year lows. The currency pair fluctuated around this strong support level all week, finally closing near 0.996 on Friday. EUR/USD is expected to continue testing the parity support level this week. If the currency pair goes up, it may encounter resistance at 1.027 and further up at 1.036. 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. Flash Manufacturing and Services PMI in the Eurozone fell compared to last month’s values, indicating that economic activity in the EU is decreasing.
Minutes of the latest ECB meeting released last week revealed that ECB members were not unanimous in their decision to raise rates by 50 bp. This weakened the Euro, as the next rate hike might not be so steep, even though the record-high inflation rates in the Eurozone are forcing the ECB to take swift action to tackle 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.
Inflation in the EU was expected to cool slightly, as fuel prices went down in July worldwide. 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.
This week, CPI and Core CPI data due on the 31st are expected to affect the Euro. These are leading indicators of inflation in the Eurozone and forecasts show that EU inflation is increasing and may add further pressure on the ECB to continue its hiking cycle.
The Sterling remained strong against the dollar early last week but collapsed later in the week, weighed down by a stronger dollar. GBP/USD plummeted, falling rapidly below the 1.175 support level and finally closing around 1.173 on Friday. If the GBP/USD rate goes up, it may encounter resistance near the 1.219 level, while if it declines, support may be found near 1.140.
Last week, UK PMI data were mixed, with the manufacturing sector performing lower than anticipated, but the services sector exceeding expectations. Data for both sectors, however, were lower than last month’s, indicating that activity in these sectors is decreasing.
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. UK inflation reached double digits in July, with CPI climbing to 10.1% on an annual basis. Soaring energy and food prices put pressure on British households.
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. Soaring inflation rates in the UK however, are forcing the BOE to take more decisive action. Markets are pricing in three 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, as the Tory Leadership race continues.
Only minor economic activity indicators are scheduled to be released this week for the UK, which is not expected to affect the currency significantly. Political developments are more likely to influence the currency, as members of the Conservative Party are due to select a new British prime minister on September 5th.
The Yen was stable against the dollar early last week, but collapsed on Friday, pushed down from the dollar’s rally. The USD/JPY rate climbed, closing near 137.5 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.
Risk sentiment dropped last week, pushed down by hawkish US Fed statements. The safe-haven Yen retreated, although the dollar, which is also a safe-haven asset, was boosted on expectations of further Fed rate hikes. The dollars ascend has been pushing competing currencies, such as the Yen down.
Last week, Flash Manufacturing PMI fell to 51.0 in July, from 52.1 the previous month, indicating that the manufacturing sector in Japan is contracting.
Inflationary pressures are increasing in Japan, mainly due to the high cost of imported energy. Last week, the annual BOJ Core CPI exceeded expectations, rising to 1.8%. Tokyo Core CPI rose to 2.6% on an annual basis, exceeding the BOJ’s 2% target. 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, but these are not expected to cause high volatility for the Yen.
Gold prices rallied early last week, but retreated later in the week, as the dollar rallied, breaking through the $1,754 per ounce level support and closing near $1,737 per ounce on Friday. If gold prices decline, support may be found at $1,675 per ounce, while resistance may be found around 1,813 per ounce and higher up at $1,870 per ounce.
Risk sentiment cooled last week, as hawkish Fed comments increased the odds of a steep rate hike in September. Rising prospects of aggressive economic tightening renewed recession fears, providing support for safe-haven assets like gold.
Gold retreated last week, however, pushed down by the rise of competing assets, such as the dollar and US treasury yields. The dollar recovered late last week, following Fed Chair Jerome Powell’s hawkish remarks at the Jackson Hole symposium. The dollar index rose following Powell’s speech, closing near 108.8 on Friday. US Bond yields also climbed, with the US 10-year treasury note climbing above 3.0%, boosted by the outcome of the Jackson Hole symposium.
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 after Fed Chair Jerome Powell’s hawkish speech at the Jackson Hole symposium, pushing gold prices down.
Oil prices were volatile last week, driven by conflicting market forces, with WTI closing near $93.2 per barrel on Friday. If the WTI price declines further, it may encounter support at the $90 per barrel level and further down near $82 per barrel, while resistance can be found near the $100 per barrel level and higher up at $105 per barrel.
Risk sentiment waned last week, as hawkish Fed comments increased the odds of aggressive rate hikes. US Federal Reserve Chair Jerome Powell, in his much-anticipated speech at the Jackson Hole symposium last week, pointed to further economic tightening.
Economic woes in China also push oil prices down, with the Chinese government announcing last week further economic stimulus amounting to around 1 one trillion Yuan. 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.
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.
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.
On the other hand, signals that OPEC may cut down oil output, boosted oil prices last week. OPEC reportedly intends to cut down production to offset the return of Iranian barrels to oil markets. The organization may curtail oil production in the following months, to keep oil prices high.
Cryptocurrencies plummeted last week, as risk sentiment waned. Risk aversion sentiment grew last week, benefitting safe-haven assets and putting pressure on riskier assets, such as cryptocurrencies. US stock markets declined, amid interest rate hike fears after hawkish US Fed statements. The fall of stock markets pushed cryptocurrency prices down, as crypto markets have been following stock market trends.
Fed rate hike odds increased last week, following hawkish Fed rhetoric. US Federal Reserve Chair Jerome Powell retained an unwaveringly hawkish stance in his speech at the Jackson Hole symposium, even as US inflation seems to cool. 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 below the $20,700 support level last week, reaching $19,500 during the weekend. Further support can be found at the $19,200 level, while resistance may be encountered near $23,000.
Ethereum also plummeted last week, falling below the $1,550 support level to almost $1,400 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 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 toward the merger. The proof-of-stake Beacon chain may now take place ahead of schedule, between September 15 and 16.
BTC/USD 1h Chart
ETH/USD 1h Chart
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