Choose country & language:

Weekly Market Outlook For July 18th To July 24th

Home >  Weekly Outlook >  Weekly Market Outlook For July 18th To July 24th

Written by:
Myrsini Giannouli

18 July 2022
Share the article

`Forex 

Important calendar events

  • 18/07, GBP:  Rightmove HPI, MPC Member Saunders Speech
  • 19/07, GBP: Average Earnings Index, Claimant Count Change, Unemployment Rate, BOE Governor Bailey Speech
  • 19/07, EUR: EU Final CPI and Core CPI
  • 20/07, GBP: Annual CPI and Core CPI, PPI Input and Output, RPI
  • 20/07, USD: Existing Home Sales, Crude Oil Inventories
  • 21/07, JPY: Trade Balance, BOJ Outlook Report, BOJ Press Conference, Monetary Policy Statement, BOJ Policy Rate
  • 21/07, EUR: Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference
  • 21/07, USD: Philly Fed Manufacturing Index, Unemployment Claims
  • 22/07, JPY: National Core CPI, Flash Manufacturing PMI
  • 22/07, GBP: Retail Sales, Flash Manufacturing PMI, Flash Services PMI
  • 22/07, EUR: French Flash Services and Manufacturing PMI, German Flash Services and Manufacturing PMI, Eurozone Flash Services and Manufacturing PMI
  • 22/07, USD: Flash Services and Manufacturing PMI

USD

The dollar spiked last week, boosted by soaring US inflation rates, with the dollar index rising above 109.2 and setting a fresh 20-year high. 

The dollar spiked last week, boosted by soaring US inflation rates, with the dollar index rising above 109.2 and setting a fresh 20-year high before closing near 108 on Friday. US Bond yields remained strong during the week, with the US 10-year treasury note yielding approximately 3%.

US Core Retail Sales and Retail Sales data released on Friday were positive for the US economy. Core Retail sales increased by 1.0% this month compared to 0.6% last month, while Retail Sales went up by 1.0% compared to -0.1% last month. Consumer Sentiment indicators were also very encouraging, exceeding expectations. US economic outlook seems to be improving, while inflation rates continue to rise, bolstering expectations of a high increase in the interest rate this month.

PPI and Core PPI data released on Thursday, combined with Wednesday’s CPI data, paint a clear picture of US inflation conditions. The Producer Price Index rose by 1.1% in June, exceeding expectations and rising above the 0.8% level reached last month. On an annual basis, the PPI in June reached 11.3% showing that US consumer inflation is accelerating. 

CPI and Core CPI data released on Wednesday showed that US inflation in June hit a 40-year high of 9.1% on an annual basis. Monthly CPI data spiked to 1.3% from 1% last month, exceeding expectations. Core CPI data, which exclude food and energy, was also higher than expected, reaching 0.7% from 0.6% last month. Collectively, the CPI and PPI data indicate that US inflation continues to rise at an alarming rate, increasing the chances of a steep Fed rate hike this month.

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. 

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. Another rate hike of 75 base points is expected for July and is already been priced in by markets and even a 100 bps rate hike is anticipated by several market participants, catapulting the dollar to record highs. 

Several important US financial indicators are scheduled to be released this week, more notably the Philly Fed Manufacturing Index and Unemployment Claims on the 21st and the Flash Services and Manufacturing PMI on the 22nd.

TRADE USD PAIRS

EUR

The EUR/USD pair briefly breached the parity level last week for the first time in 20 years, before paring some of its losses and climbing back above the parity level.

The Euro lost strength last week, pushed down by the rising dollar. The EUR/USD pair briefly breached the parity level last week for the first time in 20 years, before paring some of its losses and climbing back above the parity level, closing near 1.008 on Friday. The 1.000 level is a psychological support level and the EUR/USD pair is currently testing this support. If the currency pair goes up, it may encounter resistance at 1.050 and further up at 1.078. If the EUR/USD continues to fall past the parity level, it may find support near the 20-year low of 0.985.

Soaring US inflation rates boosted the dollar to 20-year highs last week, driving down competing assets such as the Euro. The US PPI and CPI data released last week show that inflation in the US continues to rise at an alarming rate, forcing the Fed to tighten its monetary policy further.

On the other hand, 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. Week economic data in the Eurozone indicate that EU economies are still struggling and may be unable to withstand severe fiscal tightening.

German and French Final CPI data on Wednesday were both unchanged from last month at 0.1% and 0.7% respectively and were in line with expectations. EU Industrial Production data climbed to 0.8% from 0.5% last month, exceeding expectations. 

On Tuesday, ZEW Economic Sentiment and German ZEW Economic Sentiment data were especially disappointing, showing that the Eurozone economy is slowing down. German ZEW Economic Sentiment plummeted to -53.8, from -28 last month, while ZEW Economic Sentiment fell to -51.1, from -28 last month. These results show a pessimistic outlook for the EU economy, pushing the Euro down. 

Eurogroup meetings were held on Monday but did not cause high volatility in Euro price. Italian sales data released on Monday exceeded expectations, providing a little support for the currency.

Concerns of an imminent energy crisis in the Eurozone also keep the Euro down. After the EU announced a gradual ban on Russian oil imports, Russia retaliated by limiting its natural gas exports to certain EU countries. On Monday, the Nord Stream 1 gas pipeline was shut off for routine maintenance until the 21st of July. This is Germany’s biggest single gas pipeline, supplying the country with most of its imported natural gas from Russia. Gas supplies via this pipeline from Russia have already been reduced to 40% and reports that Russia might use the maintenance period to cut off completely gas supplies are pushing the Euro down. In addition, a strike of Norwegian oil and gas workers last week has intensified fears of an energy crisis in the EU.

Political turmoil in Italy is adding pressure on the Euro. Last week, the ruling coalition in Italy fell apart and Prime Minister Mario Draghi offered his resignation, although Italian President Sergio Mattarella did not accept Draghi’s resignation.

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. 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. 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. 

This week, the eagerly-awaited ECB Policy meeting on the 21st will determine the Euro’s future direction. The ECB is expected to raise its benchmark interest rate this week for the first time since 2011. A rate hike of 25 base points is widely expected, which would still keep the ECB rate in negative territory, from -0.50% to -0.25%. 

Markets have already priced in a 25 bps ECB rate hike this week, and if, market expectations are fulfilled, it is doubtful whether a modest rate hike will provide any support for the Euro. In contrast, a Fed rate hike of at least 75 bps this month is priced in by markets, emphasizing the gap between ECB and Fed policies, and putting pressure on the Euro. 

The ECB is also likely to detail its plan to deal with fragmentation in the Eurozone at Thursday’s meeting. There are dissenting voices within the ECB on the anti-fragmentation tool that is being prepared to balance out economic differences between EU member states.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Deteriorating economic health in the UK is keeping the Sterling down, as Britain’s uncertain economic outlook limits the BOE’s ability to shift towards a more aggressively hawkish policy.

The Sterling retreated against the dollar last week, with the GBP/USD rate dropping to 1.177, before closing near 1.186 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. 

Renewed risk-aversion sentiment and soaring US inflation rates boosted the dollar last week, driving down competing currencies. Global recession concerns are putting pressure on the risk-sensitive Sterling. Deteriorating economic health in the UK is also keeping the currency down, as 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 is coupled with rising inflation. 

BOE Governor Andrew Bailey testified on the Bank of England Financial Stability Report before the Treasury Select Committee last week. Bailey warned British homeowners of the imminent rise of home mortgages in the UK, as a result of the increase in BOE interest rates. 

After a series of disappointing economic data for the UK in the past few weeks, the economic outlook in the UK seems to be improving. Several economic indicators were released last week for the UK, such as GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, and Manufacturing Production. These are indicators of economic health and activity in the UK and overall, the data released exceeded expectations. GDP in particular climbed to 0.5% from -0.2% last month, far exceeding expectations.

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% on an annual basis, driven primarily by the high cost of energy imports, putting pressure on UK households.

The BOE is adopting a moderate stance, trying to strike a balance between battling inflation and supporting the sluggish economy. The Fed, on the other hand, is moving at an aggressively hawkish pace, spurred by soaring US inflation rates. A Fed rate hike of at least 75 bps this month is priced in by markets, highlighting the divergence in monetary policy between the Fed and the BOE and putting pressure on the Sterling. Other major Central Banks are also tightening their monetary policy, with the Bank of Canada hiking by 100 base points on Wednesday.

Political instability in the UK is also putting pressure on the pound, after British PM, Boris Johnson’s resignation last week. Johnson’s resignation was considered to be a matter of time and had already been largely priced in by markets. As however, the matter of his succession will have to be decided soon, and there is renewed political uncertainty adding pressure on the Sterling. The governing party’s main opposition, the Labour Party put forward a motion for a no-confidence vote in Johnson's government on Tuesday, but the motion was blocked by the British Government.

Several economic indicators are scheduled to be released this week for the UK. Some key indicators are the Annual CPI and Core CPI inflation data, which are due to be released on the 20th. Flash Manufacturing PMI and Flash Services PMI data are also important indicators of economic health and are due on the 22nd

In addition, Bank of England Governor Andrew Bailey is due to deliver a speech on the 19th, which may cause volatility in the price of the Sterling. Political turmoil in the UK is also expected to affect the currency, as developments on the subject of Boris’ succession are expected within the week. 

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

The dollar has been outperforming competing currencies such as the Yen as most investors opt for the safety of the US currency, threatening the Yen’s safe-haven status.

The Yen retreated last week, as the dollar reached fresh 20-year highs. The USD/JPY pair pushed past the 136.7 level resistance and was catapulted above the 139 level for the first time since August 1998. 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 1998 high of 147.7. 

Rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets. The dollar has been outperforming competing currencies, however, such as the Yen. Investors shy away from riskier assets, opting for the safety of the US currency. Even the Yen which has been traditionally considered a safe-haven currency is retreating heavily this year and is considered by many traders to be losing its safe-haven status. Oil prices retreated last week though, providing relief for the economy of Japan, which is a net energy importer.

The assassination of former Japanese Prime Minister Shinzo Abe ahead of the elections in Japan has affected the political climate in the country and has sent 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. 

Japan’s ruling block achieved a sweeping victory last week for the Upper House of Parliament. The strong win could help Japan PM Fumio Kishida consolidate his rule and push forward his economic agenda. Kishida has not been a supporter of Abenomics, the economic system established by former PM Abe to boost the economy in Japan. 

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.

Inflation in Japan remained above the BOJ’s 2% target last month, reaching 2.1% on an annual basis, and is expected to rise even further this month. National Core CPI for Japan is going to be released on the 22nd, and it is estimated that inflation in Japan will climb above 2.2%. The combination of a weak currency and rising inflation is burdening Japanese households. 

The main event that is likely to draw the attention of JPY traders this week is the BOJ policy meeting on the 21st. The BOJ is going to announce its main refinancing rate and issue a statement describing its fiscal policy.  So far, the BOJ has kept its benchmark interest rate unchanged and is expected to maintain its negative interest rate at this week’s meeting. Japan continues to pour money into the economy, while other countries are adopting a tighter fiscal policy. 

The Fed is expected to raise its interest rates again considerably this month to tackle skyrocketing US inflation. A 75 bps Fed rate hike has been priced in by markets, with several market participants expecting even a 100 bps rate hike this month. Other major Central Banks are also tightening their monetary policy, with the Bank of Canada hiking by 100 base points last week and the ECB expected to raise its interest rate by 25 bps this week. The difference in interest rates with other major Central Banks puts the Yen at a disadvantage, driving its price down.

GBPUSD 1hr chart

TRADE JPY PAIRS

Gold 

Soaring US inflation rates increase rate hike expectations dampening the appeal of gold, with a Fed rate hike of at least 75 bps priced in by markets this month, putting pressure on the gold price.

Gold prices plummeted last week, hitting a nine-month low and moving close to a yearly low. Gold prices fell below the $1,700 per ounce psychological level last week. 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.

The dollar gained strength last week, propped up by soaring US inflation and steep Fed rate hike expectations, with the dollar index rising above 109.2 and setting a fresh 20-year high before closing near 108 on Friday. US Bond yields remained strong during the week, with the US 10-year treasury note yielding approximately 3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

US PPI in June reached 11.3% showing that US consumer inflation is accelerating. CPI data released last week showed that US inflation in June hit a 40-year high of 9.1% on an annual basis. Collectively, the CPI and PPI data indicate that US inflation continues to rise at an alarming rate, increasing the chances of a steep Fed rate hike this month.

Soaring US inflation rates increase Fed rate hike expectations, dampening the appeal of gold. A Fed rate hike of at least 75 bps is priced in by markets this month, putting pressure on the gold price. Other major Central Banks are also tightening their monetary policy, with the Bank of Canada hiking by 100 base points last week and the ECB expected to raise its interest rate by 25 bps this 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. 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.

XAUUSD 1hr chart

TRADE GOLD

Oil

Concerns that interest rate hikes could slow global economic growth reducing energy demand have pushed oil prices down, as the Fed prepares for another raise in its interest rate this month.

Oil prices declined last week, with WTI dropping below the $100 per barrel key level. WTI price continued to retreat, going as low as $90.5 per barrel, before paring some of its losses and closing near $98 per barrel on Friday. If WTI continues to decline, it may encounter support near $90 per barrel, while resistance can be found near the $105 per barrel level and higher up at $112 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 reducing energy demand have pushed oil prices down. The Fed is expected to raise its interest rates again considerably this month to tackle skyrocketing US inflation. A 75 bps Fed rate hike has been priced in by markets, with several market participants expecting even a 100 bps rate hike this month. Stalling economic growth combined with fiscal tightening and soaring inflation gives rise to fears of recession, halting the ascend of oil prices. 

Uncertainty over China’s oil demand is causing fluctuations in oil prices. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. Reports of massive Covid testing in China and renewed restrictions have reignited fears of extensive lockdowns, pushing oil prices down.

US oil inventories rose to 3.3M barrels last week, exceeding expectations. Oil supplies remain tight, however, supporting oil prices. In its latest meeting, 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. 

Many OPEC members continue to underperform, raising doubts about whether the organization can maintain its output goal, and adding to supply concerns. Last week, OPEC+ data showed that the organization produced 24.8 million barrels per day of crude oil in June, with production falling 1 million BPD short of the target levels. In addition, OPEC’s first forecast report for 2023 indicated that demand will continue to outpace supply, leading to oil shortages. Last week, a US official told Reuters that an immediate Saudi oil output boost was not expected, even as US President Biden visited the country in an attempt to achieve assurances of higher oil output.

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies

Ethereum's price skyrocketed from $1,000 to $1,400 during the weekend, following an announcement that the much-anticipated Ethereum ‘Merge’ was scheduled to launch on September 19th.

Cryptocurrencies were volatile last week, retreating at the beginning of the week but rallying towards the end of the week. Risk sentiment has been uncertain in the past few weeks, affecting crypto markets and stock markets alike. Stock markets were also volatile last week, driven largely by US inflation data. Stock markets affect cryptocurrency prices, as crypto markets have been following stock market trends.

Bitcoin price fell below $20,000 early in the week, testing the $19,200 level support, but reclaimed the key $20,000 level later in the week and reached $21,000 during the weekend. If 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's price was also volatile last week, touching the $1,000 level, before jumping by over 15% during the weekend to $1,400. If Ethereum 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.

Ethereum price skyrocketed during the weekend, following an announcement from the Ethereum Foundation that the much-anticipated ‘merge’ was 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.

Global recession fears are promoting a risk-aversion sentiment pushing cryptocurrency prices down. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. A Fed rate hike of at least 75 bps this month is priced in by markets, putting pressure on crypto markets. Other major Central Banks are also tightening their monetary policy, with the Bank of Canada hiking by 100 base points on Wednesday and the ECB is expected to raise its interest rate by 25 bps this week. Stalling economic growth combined with fiscal tightening gives rise to fears of recession, promoting a risk-aversion sentiment and putting pressure on cryptocurrencies.

US PPI in June reached 11.3% showing that US consumer inflation is accelerating. CPI data released last week showed that US inflation in June hit a 40-year high of 9.1% on an annual basis. Collectively, the CPI and PPI data indicate that US inflation continues to rise at an alarming rate, increasing the chances of a steep Fed rate hike this month.

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

BTC/USD 1h Chart

BTCUSD 1hr chart

 

ETH/USD 1h Chart

ETHUSD 1hr 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

Share the article:

Latest news

Why TopFX

10-years

10-years

industry presence
as a Liquidity Provider

Spreads

Spreads
from 0.0 pips

and reliable execution

Segregated

Segregated

client funds

First-class

First-class

customer support

Open your Live Account in 3 Steps

Step 1

Fill in the registration
form and click
"Create account".

Step 2

Once you are in the client secure area, please proceed with uploading your Proof of Identity and Proof of Residence.

Step 3

When your live account is approved, you can deposit funds and start trading on your chosen platform!