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Weekly Market Outlook For July 11th To July 15th

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Written by:
Myrsini Giannouli

11 July 2022
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Forex

Important calendar events

  • July 10, JPY: Upper House Elections
  • July 11, JPY: Core Machinery Orders, M2 Money Stock, BOJ Gov Kuroda Speech
  • July 11, EUR: Italian Retail Sales, German WPI, Eurogroup Meetings, German Buba President Nagel Speech
  • July 11, GBP: BOE Gov Bailey Speech
  • July 12, GBP: BRC Retail Sales Monitor, 10-y Bond Auction, BOE Gov Bailey Speech
  • July 12, EUR: ZEW Economic Sentiment, German ZEW Economic Sentiment, German Buba President Nagel Speech, ECOFIN Meetings
  • July 13, GBP: GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, Manufacturing Production
  • July 13, EUR: French and German Final CPI, Industrial Production, German 30-y Bond Auction
  • July 13, USD: CPI and Core CPI, Crude Oil Inventories, Beige Book, Federal Budget Balance
  • July 14, USD: PPI and Core PPI, Unemployment Claims
  • July 15, USD: Retail Sales and Core Retail Sales, Empire State Manufacturing Index, Industrial Production, Preliminary UoM Consumer Sentiment, Preliminary UoM Inflation Expectations

 

USD

Robust financial and employment data show that the US economy is not at imminent risk of recession, increasing the chances of a steep rate hike in July. 

The dollar climbed to 20-year highs last week, with the dollar index rising above the 107.2 level, before closing at 106.9 on Friday. Global recession concerns are propping up the safe-haven dollar, while competing assets, such as the Euro and the Sterling, are pushed down. US Bond yields also rallied last week, with the US 10-year treasury note yielding approximately 3.1% on Friday.

The global economic outlook is poor, with a recession threatening many countries. Rampant inflation, combined with tightening monetary policy creates a toxic economic mix. Recession fears and geopolitical risks increase risk aversion sentiment, boosting the safe-haven dollar. 

Financial indicators released last week for the US created a positive economic outlook, boosting the dollar. Robust financial and employment data show that the US economy is not at imminent risk of recession, increasing the chances of a steep rate hike in July. 

US jobs data released on Friday exceeded expectations, indicating that the labor market is improving. Unemployment in the US remained at 3.6%, the same as last month. Non-farm employment change was at 372K jobs, significantly higher than the projected 260K for this month, as US employers hired far more workers than expected in June.

US Employment and Trade Balance data released on Thursday were mostly neutral, having a limited effect on the dollar. In addition, FOMC members Bullard and Waller delivered speeches on Thursday, which were overall hawkish, supporting the dollar. 

US Final Services PMI data released on Wednesday, which are important for business activity, far exceeded expectations, boosting the dollar. The US Final Services PMI indicator climbed to 52.7 in June, compared to 51.6 in May. ISM Services PMI data released on Tuesday were slightly lower than last month’s, but still exceeded expectations. 

In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, taking aggressive action against inflation. High US inflation rates are forcing the Fed to tighten its monetary policy. PPI in June climbed 0.8% for the month and 10.8% on an annual basis, driven by rising costs of food and energy. Another rate hike of 75 base points is expected for July and is already been priced in by markets, catapulting the dollar to record highs. As markets have mostly priced in a steep interest rate hike this month, hawkish Fed rhetoric may need to continue with renewed vigor to boost the dollar further.

This week, CPI and Core CPI data are scheduled to be released on the 13th, while PPI and Core PPI data are scheduled to be released on the 14th. Together, the CPI and PPI data are expected to paint a clear picture of the current inflation conditions in the US. These data are expected to affect dollar prices, as they are key indicators of consumer inflation and may play a decisive role in determining the level of fiscal tightening that the Fed is going to decide on this month. US Core Retail Sales and Retail Sales data, as well as Consumer Sentiment indicators, are scheduled to be released on Friday the 15th and may provide information on the US economic outlook this month. TRADE USD PAIRS

EUR 

Struggling Eurozone economies, rampant inflation, and a looming energy crisis in the EU create a toxic combination, raising concerns that the EU may tip into recession.

The euro hit a fresh two-decade low against the dollar last week, with the EUR/USD rate descending to the 1.007 level for the first time in 20 years, before closing near 1.018 on Friday. The Euro has been pushed down by weak EU economic data and a rising dollar. If the currency pair goes up, it may encounter resistance at 1.078. If the EUR/USD continues to fall, it may find support near the 20-year low of 0.985.

Increasing signs that the Eurozone economy is slowing down and may tip into recession have pushed the single currency down. Struggling Eurozone economies, rampant inflation, and a looming energy crisis in the EU create a toxic combination. 

The crisis has been felt within the ECB, as the United Front that ECB President Christine Lagarde has been constructing seems to be cracking under the pressure. Last week, the head of the German Bundesbank, Joachim Nagel, warned against ‘fatal’ assumptions in the ECB crisis tool and does not support the ECB’s plan to aid indebted EU member states. 

As the ECB announced the end of the quantitate easing program in July however, worries about high debt levels in some Eurozone countries were revived. The ECB is struggling to deal with financial fragmentation in the EU caused by the wide range of lending rates across Eurozone states, limiting the ECB’s monetary tightening options.

Stagnating the Eurozone economy increases the odds that the ECB may be forced to moderate its plans for raising interest rates to combat high inflation. In contrast, the Fed’s steep rate hikes in the past few months, emphasize the gap between ECB and Fed policies, putting pressure on the Euro. Eurozone inflation in June has reached a record high of 8.6%, an increase from 8.1% in May, driven primarily by rising food and energy costs. 

The Euro has also been under pressure by increased fears of a potential energy crisis in the Eurozone. EU members have recently announced a gradual ban on Russian oil imports, while Russia has retaliated by limiting its natural gas exports to certain EU countries. Last week, a strike of Norwegian oil and gas workers intensified concerns of an energy crisis in the EU.

Economic data released last week for the Eurozone were disappointing, indicating that the EU economic outlook is poor. Eurozone Retail Sales data released on Wednesday fell short of expectations, indicating that economic health in the EU is still poor. German 10-year Bonds yielded 1.22% on Wednesday’s bond auction, lower than last month’s 1.33%, signaling that their appeal as an investment is declining.

Spanish, Italian, French, and German Services PMI, as well as Eurozone Final Services PMI released on Tuesday, were overall disappointing for the state of the EU economy, pushing the Euro down. French Services PMI and Industrial Production data, in particular, fell below expectations, indicating that the French economy is sluggish. Eurozone Services PMI data were slightly improved compared to last month’s, but fell within expectations, failing to provide support for the Euro. 

Disappointing economic data for the EU on Monday pushed the Euro down. Eurozone PPI, which is an indicator of economic health, dropped below expectations, falling to 0.7% from 1.2% last month. Investor Confidence also retreated compared to last month’s data and German Trade Balance data were unexpectedly low, plummeting to -1.0B from 4.2B expected. 

Several economic indicators are scheduled to be released this week for the Eurozone and may affect the Euro. In addition, Eurogroup meetings on the 11th and ECOFIN meetings on the 12th may cause volatility in the Euro price.

Two speeches by German Buba President Nagel this week, on the 11th and the 12th are also expected to attract the attention of market participants. Nagel has raised a dissenting voice within the ECB, disapproving of the Central Bank’s plan to deal with financial fragmentation within the EU.

eurusd 1hour chart

TRADE EUR PAIRS

 

GBP 

Markets reacted favorably to Johnson’s resignation and the Sterling gained strength, as the climate of political uncertainty in the UK had been reducing investor confidence in the currency.

The Sterling retreated against the dollar earlier last week but edged higher at the end of the week, even as UK PM Boris Johnson announced his resignation. The GBP/USD rate traded above the 1.200 level after Boris’ resignation, closing at 1.203 on Friday. If the GBP/USD rate goes up, it may encounter resistance near the 1.240 level, while if it declines, support may be found near 1.140. 

The British PM, Boris Johnson, had been struggling to keep his seat for some time, with political instability pushing the Sterling down. On Tuesday, UK Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid announced their resignations from Boris Johnson’s government. This was the last straw for Boris’ ailing administration, finally forcing the British PM to announce his resignation on Thursday, although Johnson will continue to serve until a new leader is in place. Markets reacted favorably to Johnson’s resignation and the Sterling gained strength, as the climate of political uncertainty in the UK had been reducing investor confidence in the currency. Johnson’s resignation was considered to be a matter of time and had already been largely priced in by markets.

Deteriorating economic health in the UK however, is keeping the currency down, while global recession fears are putting pressure on the risk-sensitive Sterling. Soaring inflation rates add more pressure on the BOE to continue increasing its interest rates. UK inflation has risen to 40-year highs in June touching 9.1% annually, driven primarily by the high cost of energy imports, putting pressure on UK households.

UK Construction PMI data released on Wednesday fell below expectations. Construction PMI data for June fell to 52.6, a considerable drop from 56.4 in May. These are key indicators of economic health and their decline shows that the British economy remains sluggish. 

MPC member Pill delivered a speech on Wednesday that was less hawkish than expected, putting pressure on the Sterling. Pill spoke in favor of a more cautious economic policy, stating that steep rate hikes are disturbing to markets, and advocating for a steady-handed approach. MPC member Cunliffe on the other hand stated on Wednesday that the BOE needs to take forceful action against inflation.

Several financial indicators were released on Tuesday, including Final Services PMI, BOE Financial Stability Report, FPC Meeting Minutes, and FPC Statement. UK Final Services PMI data exceeded expectations, rising to 54.3 from last month’s 53.4, but failed to provide support for the Sterling. The BOE Financial Stability Report released on Tuesday was bleak, with the Bank of England issuing a warning about the global economic recession. BOE Governor Andrew Bailey told a news conference following the release of the report, that lenders need to prepare for a ‘deteriorated economic outlook’.

Britain’s uncertain economic outlook limits the BOE’s ability to shift towards a more aggressively hawkish policy. 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 BOE is adopting a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy. With the Fed moving at an aggressively hawkish pace, the divergence in monetary policy between the Fed and the BOE is highlighted, putting pressure on the Sterling. 

This week, several important economic data are scheduled to be released for the UK, especially on the 12th and the 13th. In addition, BOE Governor Andrew Bailey is due to deliver speeches on the 11th and the 13th. His speeches may affect the currency considerably, as the BOE policy direction comes again into focus, against a backdrop of political instability and poor economic outlook. 

gbpusd 1hour chart

TRADE GBP PAIRS

JPY

Market sentiment fell on Friday, as the assassination of former Japanese Prime Minister Shinzo Abe created economic ripples throughout the world, triggering a risk-aversion sentiment. 

The Yen continued to retreat against the dollar last week, with the USD/JPY pair climbing to the 136.6 level. If the USD/JPY declines, support might be found near the 134.2 level and further down at 131.7. If the pair climbs it may find resistance at the 136.7 level and further up at the 1998 high of 147.7. 

Market sentiment fell on Friday, as the assassination of former Japanese Prime Minister Shinzo Abe created economic ripples throughout the world, triggering a risk-aversion sentiment. The Yen retreated following the assassination of the ex-prime minister, who was campaigning for the upcoming elections when he was shot.

Rising global recession fears sparked a risk-aversion sentiment last week, boosting safe-haven assets. The dollar’s impressive rally, however, has weighed down competing currencies, such as the Yen. Oil prices retreated last week, providing relief for the economy of Japan, which is a net energy importer.

The economic outlook for Japan remains poor, as economic health does not seem to be improving. On Friday, financial indicators released fell below expectations, driving the Yen down. Household spending data were considerably lower than expected, as Japanese households face the worst income squeeze in decades. Economic sentiment was also lower than expected, dropping to 52.9 this month from 54.0 in May, indicating that the economic outlook in Japan is pessimistic. 

Leading indicators for the state of the economy in Japan that was released on Thursday fell within expectations but were lower than last month’s indicating that economic growth in Japan is slowing down.  Economic data released on Tuesday for the Yen were also weak, with Average Annual Cash earnings dropping to 1.0% from 1.3% last month and falling short of the 1.5% projections. 

Japan’s 30-year bond yielded 1.23 at Thursday’s bond auction, while Japan’s 10-year bond yielded 0.25 at Tuesday’s bond auction. 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 over 3%, 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.

The BOJ has kept its benchmark interest rate unchanged, despite the rising inflation rates in Japan. While other countries are moving towards quantitative tightening, Japan continues to pour money into the economy and maintains its negative interest rate. The difference in interest rates with other major Central Banks puts the Yen at a disadvantage, driving its price down. 

Inflation in Japan remained above the BOJ’s 2% target in June, reaching 2.1% on an annual basis. The combination of a weak currency and rising inflation is burdening Japanese households. 

Several important indicators are scheduled to be released this week for Japan and may highlight the direction of the Japanese economy. The most important economic data for Japan are scheduled to be released on Monday and may cause some volatility in the Yen price. In addition, BOJ Governor Haruhiko Kuroda is due to deliver a speech on the 11th at the Branch Managers Meeting, in Tokyo.

Political developments are also expected to affect the Yen this week, following the assassination of the former Japanese Prime Minister. In addition, the Japanese elections for the Upper House of Parliament will take place on Sunday and the outcome of the elections may affect the currency this week.

USDJPY 1 HOUR CHART

TRADE JPY PAIRS

Gold 

Rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets, but the dollar’s impressive rally is weighing down competing currencies, such as gold.

Gold price dipped to a nine-month low last week, as the dollar climbed to a 20-year high. Gold plummeted below the $1,752 per ounce support, trading as low as $1,732 per ounce. If gold price declines further, support may be found at $1,675 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.

The dollar climbed to 20-year highs last week, with the dollar index rising above the 107.2 level, before closing at 106.9 on Friday. US Bond yields also rallied last week, with the US 10-year treasury note yielding approximately 3.1% 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. 

Last week, rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets. The dollar’s impressive rally, however, is weighing down competing currencies, such as gold. At the beginning of the year, the global economy was on the road to recovery from the effects of the pandemic. The war in Ukraine however, has set economic growth back, with prices of energy and food rising and inflation reaching peak levels, crippling economic growth. Even though recession fears traditionally provide support for safe-haven assets, the gold price is retreating, as interest rate assets become a comparatively more appealing choice.

A strong dollar and US bond yields have been putting pressure on gold prices in the past few weeks, while increased rate hike expectations also dampen the appeal of gold. Major Central Banks, including the Fed and the BOE, aim to tighten their fiscal policies further this year to rein in inflation. The Fed has been signaling a strong rate hike again this month, which is also supported by signs of economic recovery in the US. Another rate hike of 75 base points is expected for July and is already been priced in by markets, catapulting the dollar to record highs and pushing gold price down.

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. High inflation, however, is a two-edged sword for the price of gold, as it increases the chances of Central Banks raising their interest rates, which reduces the appeal of gold. 

This week, gold prices are likely to be driven by signs of strong rate hikes from major Central Banks and especially the Fed. As markets have already priced in a steep interest rate hike this month in the US, hawkish Fed rhetoric may need to continue with renewed vigor to boost the dollar further. Important US inflation CPI and PPI indicators, scheduled to be released on the 13th and 14th respectively, may also affect the gold price. 

XAUUSD I HOUR CHARTTRADE GOLD

Oil 

Stalling economic growth combined with fiscal tightening and soaring inflation, gives rise to fears of recession, halting the ascend of oil prices. 

Oil prices were under pressure last week, as recession fears mounted. WTI price plummeted during the week, dropping below the $100 per barrel psychological level and below the $98 per barrel support level, before paring some of its losses and closing near $105 per barrel on Friday. If the WTI price retreats, support can be found near $103 per barrel and further down at $98 per barrel, while resistance can be found near the $115 per barrel level and higher up at $121.2 per barrel. 

Heightened global recession fears have recently reduced the oil demand outlook, putting pressure on oil prices. Concerns that interest rate hikes could slow global economic growth and reduce energy demand have pushed oil prices down. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. Stalling economic growth combined with fiscal tightening and soaring inflation gives rise to fears of recession, halting the ascend of oil prices. 

Oil demand is increasing in China though, as the strictest zero-Covid lockdowns have ended. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. Covid restrictions are still in place in China, but not as stringent as they were in the past few months. Reports that China plans to stimulate its economy via a large stimulus package towards the end of last week, have boosted the oil demand outlook, spurring a small rebound for oil prices.

In addition, oil supplies remain tight, further supporting oil prices. Many OPEC members continue to underperform, raising doubts about whether the organization can maintain its output goal, and adding to supply concerns. Sanctions against Russia limit Russia’s oil output, while unrest in Libya has led protestors to block the country’s main oil export ports. Last week, a strike of Norwegian oil and gas workers also intensified concerns of an energy crisis, especially in the EU. Oil prices were also boosted by rising US inventories last week. US inventories unexpectedly rose for the first time in three weeks, reaching 8.2M barrels.

In their latest meeting, OPEC+ members discussed output goals for August but refrained from setting a goal for September’s production. OPEC+ maintained its output policy and kept its production goals for August to the same levels agreed in its previous meeting, raising its output by approximately 648,000 barrels a day. 

It remains to be seen, however, whether the bans on Russian oil will allow the organization to reach its output quotas. Further sanctions on Russian oil exports have been discussed by G7 leaders, possibly by enforcing a price cap on Russian oil exports. In addition, the latest package of EU sanctions against Russia includes a ban on Russian oil imports that will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil. 

wti 1 hour chart

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Bitcoin and major cryptocurrencies

Market sentiment has been uncertain, with fluctuations in risk sentiment causing volatility in cryptocurrency prices.

Crypto markets were slightly bullish last week, after plummeting the weeks before. Market sentiment has been uncertain though, with fluctuations in risk sentiment causing volatility in cryptocurrency prices.

Market sentiment fell on Friday, as the assassination of former Japanese Prime Minister Shinzo Abe created economic ripples throughout the world, triggering a risk-aversion sentiment. Overall, stock markets edged higher last week, providing support for crypto markets. Cryptocurrency prices have been following stock market trends and the recent pressure on stocks has been transferred to cryptos.

A steep cryptocurrency selloff was triggered at the beginning of June, as bearish tendencies have prevailed in crypto markets. The crypto industry has been under pressure since the beginning of the year and the results are becoming apparent, with mounting layoffs in crypto firms and huge losses in trading volumes. Bitcoin and Ethereum have suffered heavy losses, plummeting to prices that haven’t been seen since the beginning of 2021.

Global recession fears are promoting a risk-aversion sentiment, pushing cryptocurrency prices down. An increasing number of major Central Banks, such as the Fed and the BOE are moving towards a tighter fiscal policy to tame soaring inflation rates. The Fed has been signaling a strong rate hike again this month, which is also supported by signs of economic recovery in the US. Another rate hike of 75 base points is expected for July and is already been priced in by markets, catapulting the dollar to record highs and pushing gold price down. Stalling economic growth combined with fiscal tightening gives rise to fears of recession, promoting a risk-aversion sentiment and putting pressure on cryptocurrencies.

On the other hand, many market participants are seeking opportunities to buy cryptocurrencies at low prices, with expectations that they have reached the bottom. Bitcoin whales are buying the dip for major cryptocurrencies, preventing crypto markets from crashing. 

Bitcoin started the week below the key $20,000 level, but climbed during the week, as whales propped up the cryptocurrency. During the weekend, Bitcoin traded above the $21,500 level. If the Bitcoin price declines, support may be found at the $19,200 level, and further down at the psychological level of $15,000, while resistance may be found near $21,800 and $23,000. 

Ethereum price also rose during the week, from just above $1,000 to $1,200 during the weekend. If Ethereum's price declines, it may encounter support at the $1000 level, representing its lowest price since January 2021 and further down at the psychological level of $500, while resistance may be encountered at $1,280 and higher up at $2.000.

 

BTC/USD 1h Chart

BTCUSD 1 HOUR CHART

 

ETH/USD 1h Chart

ETHUSD 1 HOUR CHART

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

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