Important calendar events
Last week was marked by high dollar volatility, with the dollar index ranging from 105.7 to 103.6. In a surprise move, the US Federal Reserve voted to raise its benchmark interest rate by 75 points last Wednesday, taking aggressive action against inflation.
The dollar index spiked to 105.7 immediately after the announcement of the Fed interest rate, but fell below 104.8 later, exhibiting high volatility. The dollar price became more stable later in the week as markets had time to absorb the news, closing near 104.8 on Friday. Bond yields were also volatile last week, with the US 10-year treasury note yielding approximately 3.3% on Friday.
In the past few weeks, FOMC members had pointed to a 50 base point rate hike, indicating that the Fed intended to move gradually towards monetary policy normalization. In its monetary policy meeting on Wednesday however, the Fed raised its benchmark interest rate by 75 base points, bringing its interest rate to 1.75%. Record high US inflation rates have forced the Fed to ramp up its efforts by performing its steeper rate hike since 1994. With 10 out of the 11 FOMC members voting in favour of the rate hike, the Fed sent a clear signal that it plans to tackle soaring inflation rates.
A strong probability of a 75 bps rate hike had already been priced in by markets ahead of the Fed meeting, although market expectations were mostly in favor of a 50 bp rate hike. The dollar had been overbought in the past few days in anticipation of a hawkish Fed meeting and the Fed’s announcement fell within market expectations driving the dollar down. Markets reacted strongly to the Fed interest rate announcement as well as the ensuing FOMC Press Conference, causing high volatility in the price of the dollar.
Following the Fed meeting, however, the dollar has begun re-establishing its equilibrium, as markets had time to process the news. FOMC rhetoric on Friday remained hawkish after the Fed meeting, with Fed Chair Jerome Powell stressing that the US Central Bank’s primary aim is to bring inflation down.
Several economic indicators were released last week for the US, including Philly Fed Manufacturing Index and Unemployment Claims on Thursday. These data were overall negative for the state of the US economy, putting pressure on the dollar.
US inflation data released last week showed that inflation rates keep rising, forcing the Fed to tighten its monetary policy. PPI climbed 0.8% for the month and 10.8% on an annual basis, falling close to the historically high levels reached in March. Core PPI rose by 0.5%, which was higher than last month’s increase, but fell slightly below expectations. CPI in May increased by 8.6% on an annual basis, the largest year-on-year increase since 1981 according to the US Labour Department. Rising costs of food and energy have contributed to soaring inflation rates in the US.
Several economic data are scheduled to be released this week for the US and may cause some volatility in dollar prices. US Flash Manufacturing and Services PMI data is scheduled to be released on the 23rd and may have a strong impact on the dollar, as they are leading indicators of economic health. Several Fed members are also due to deliver speeches this week which may affect the dollar, especially in the wake of last week’s Fed policy meeting.
The Euro gained strength against the dollar early last week, but pared some of its gains later in the week, closing near 1.050 on Friday. The EUR/USD rate exhibited high volatility last week, especially following the announcement of the Fed interest rate. If the currency pair goes up, it may encounter resistance at 1.078. The currency pair is currently testing the support at the 1.036 level that represents the 2016 low and, if it falls further, it may find support near a 20-year low of 0.985.
The Euro was boosted on Wednesday, as an emergency ECB meeting raised expectations of a more hawkish monetary policy. The ECB council held an unscheduled meeting last Wednesday to discuss the recent market selloff of government bonds, following reports that the EU Central Bank was planning to gradually start raising its interest rate. In an unexpectedly hawkish shift, ECB President Christine Lagarde stated after the meeting that the ECB would not be dominated by fiscal considerations. Lagarde also stressed the importance of bringing inflation down to its 2% target, further raising expectations of a steeper rate hike at the next monetary policy meeting in July.
The Fed’s decisive 75 base point rate hike on Wednesday, emphasized, even more, the gap between ECB and Fed policies, putting pressure on the Euro. In its monetary policy meeting last week, the ECB kept its interest rate unchanged and issued a Monetary Policy Statement that was more dovish than expected, driving the Euro down. The ECB pointed in its statement to a small rate hike of 25 base points at its next meeting in July, which was more modest than expected, as markets were pricing in an interest rate increase of up to 50 base points. The ECB has kept its interest rates below zero for over a decade and an increase in interest rates represents a hawkish turn in its monetary policy, to counter unprecedented inflation rates.
Economic data released for the Eurozone last week were disappointing, with Italian Trade Balance, ZEW Economic Sentiment, and German ZEW Economic Sentiment decreasing and falling below expectations. Economic growth in the EU has been stalling after the pandemic, raising fears of a potential recession. 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.
CPI inflation data released on Friday for the Eurozone show that inflation remains at record high levels of 8.1%, driven by rising food and energy costs. EU members have recently announced a gradual ban on Russian oil imports, while Russia retaliated by limiting its natural gas exports to certain EU countries, raising fears of a potential energy crisis in the EU. Core CPI data released on Friday, which exclude food and energy, were at 3.8%, unchanged from last month.
This week mostly minor economic indicators are scheduled to be released for the Eurozone. The most notable economic data are the Flash Manufacturing and Services PMI data scheduled to be released on the 23rd, for some of the EU’s leading economies and the Eurozone as a whole.
ECB members’ speeches this week are also likely to have a strong impact on the Euro, especially, in the wake aftermath of last week’s FOMC meeting. Fed Chair Powell’s testimony on the Semi-Annual Monetary Policy Report before the Senate Banking Committee on the 22nd, is expected to attract the attention of market participants who will seek to gauge the Fed’s future policy direction.
The sterling retreated early last week, with the GBP/USD rate dropping below the 1.200 level support ahead of the Fed and the BOE meetings. After the Fed policy meeting on Wednesday and the BOE meeting on Thursday, the pound regained strength against the dollar. The GBP/USD rate rose to 1.240, as the dollar weakened. 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 1.200 and further down near 1.140.
Last week, the BOE moved towards raising its benchmark interest rate by 25 base points at its monetary policy meeting on Thursday, bringing its interest rate to 1.25%. This was the fifth consecutive rate hike for the BOE, something that hasn’t been done in 25 years. Although the rate hike fell within market expectations and had already been priced in, Sterling gained strength after the announcement of the rate hike.
Britain’s uncertain economic outlook had raised doubts on whether the BOE would proceed with increasing its interest rate, bringing the Sterling down ahead of the BOE meeting. 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. By performing a modest rate hike the BOE is trying to strike a balance between battling inflation and supporting the sluggish economy. The BOE’s Monetary Policy Statement released after the conclusion of the meeting was more dovish than expected, casting doubts on whether the UK Central Bank would continue its policy of monetary tightening.
Coming just a day after the Fed’s policy meeting, which raised its interest rate by 75 base points, the divergence in monetary policy between the Fed and the BOE becomes highlighted. Immediate market reaction was erratic following the two meetings, with the dollar losing ground against the Sterling. By Friday however, the dollar had started rallying, while the Sterling retreated.
The Sterling has been under pressure by disappointing economic data, which cripple the BOE’s ability to move toward a more hawkish direction. Economic data released last week for the UK fell below expectations, indicating slow economic growth and putting more pressure on the currency. Monthly GDP fell to -0.3% on Monday, while Unemployment Rate rose to 3.8% on Tuesday. In addition, the UK PM Boris Johnson recently faced a vote of no-confidence against him, which he won by a narrow margin, with the bleak political climate reducing investor confidence in the Sterling.
Headline inflation in the UK rose to a new 40-year high of 9% in April, while core inflation hit 6.2%. 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.
This week, UK Annual CPI and Core CPI data, which are leading indicators of consumer inflation, are scheduled to be released on the 22nd and may cause some volatility in the Sterling, especially after the BOE meeting last week. UK Flash Manufacturing and Services PMI data is scheduled to be released on the 23rd and may affect the Sterling, as they are leading indicators of economic health.
Last week, the USD/JPY displayed high volatility. The yen gained strength against the dollar ahead of the Fed and BOJ meetings, with the USD/JPY pair falling to 131.5. The currency pair pared its losses later in the week though, testing the 135.3 level resistance, before closing near 134.9 on Friday. If the USD/JPY declines, support might be found near the 130.5 level and further down at the 127 level. If the pair climbs again, it may find resistance near the 2002 high of 135.3.
The dollar retreated on Wednesday following the Fed’s announcement, raising the appeal of competing assets, such as the Yen. As the dollar began to regain its strength later in the week though, the Yen slid, pushed down by the outcome of the BOJ meeting.
The BOJ monetary policy meeting on Friday held no surprises, as BOJ members voted to maintain the Bank’s negative interest rate. The BOJ defended its ultra-easy monetary policy once more, driving the Yen down.
The BOJ maintains an ultra-loose monetary policy, keeping its benchmark interest rate at -0.10%, despite the rising inflation rates in Japan. Japan’s CPI inflation index has breached the BOJ’s 2% target, reaching 2.1% for the first time in seven years. The BOJ and the Japanese government are in favor of a weak yen, as it makes Japanese exports more competitive and bond-buying cheaper. The combination of a weak currency and rising inflation, however, is burdening Japanese households.
Coming in the wake of the Fed and the BOE meetings, the BOJ’s decision to keep its interest rate unchanged, emphasizes the divergence between the BOJ’s fiscal policy and that of other major Central Banks, especially following the Fed’s steep rate hike. 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.
On Tuesday, the BOJ expanded bond-buying, to bring the yield on the 10-year Japanese government bond back within the 0.25% cap, after it had spiked to 0.33%. The BOJ in its policy meeting on Friday kept its bond yield target remained at 0%. 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.
Important financial data scheduled to be released this week for Japan, include Monetary Policy Meeting Minutes on the 22nd and National Core CPI on the 24th.
Gold price exhibited high volatility last week, ranging from $1,877 to $1,805 per ounce. Gold price crashed early in the week, as the dollar reached its highest price yet this year, with the dollar index climbing to 105.7 ahead of Wednesday’s Fed monetary policy meeting. Gold price pared its losses later in the week, benefiting from the dollar’s weakness following the Fed monetary policy meeting. By Friday, the dollar’s rally added pressure on gold price once again, which closed near $1,840 per ounce. If the price of gold decreases, support may be found at $1,786 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.
Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, taking aggressive action against inflation. The dollar had been overbought ahead of the Fed meeting in anticipation of a hawkish outcome and the Fed’s announcement fell within market expectations driving the dollar down and propping up gold prices. The dollar recovered later in the week though, as markets had time to digest the news.
US Bond yields were also volatile last week, dropping from the previous week’s highs, but remained at high levels, with the US 10-year treasury note yielding above 3.2% 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.
In addition, stalling global economic growth 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.
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. Rising costs of food and energy have contributed to soaring inflation rates worldwide. 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.
Oil prices slumped last week, with WTI dropping to $110 per barrel on Friday, below the $112 per barrel support. If the WTI price retreats, support can be found further down near $98 per barrel, while resistance can be found near the $121.2 per barrel level and higher up at $130 per barrel.
Oil prices tumbled to a four-week low, amid concerns that interest rate hikes could slow the global economy, reducing energy demand. The US Federal Reserve voted to raise its benchmark interest rate by 75 points on Wednesday, taking aggressive action against inflation. Record high US inflation rates have forced the Fed to ramp up its efforts by performing its steeper rate hike since 1994. Oil prices were pushed down by the higher-than-expected Fed rate hike and continued falling after the BOE announced a 25 base point rate hike on Thursday. Other major banks, such as the Bank of Canada, are also raising their interest rates, halting the ascend of oil prices.
OPEC+ has agreed in their latest meeting to raise their output goal by almost 648,000 barrels a day in July and August. Market investors doubt whether the organization can meet its production targets though and deliver its promised output.
On Tuesday, reports that OPEC production fell by 176,000 BPD in May compared to April, boosted oil prices. Some of the group’s members are struggling to maintain their production quota, with supply worries further increasing oil prices. Later in the day, however, the American Petroleum Institute reported a build this week of 736,000 barrels in crude oil inventories, through the release of 7.7 million barrels from the US Strategic Petroleum Reserves.
This week, oil prices may rally again, as markets will have had time to digest the news of the rate hikes. The oil demand outlook has increased, as in the summer, there is increased traveling and driving, boosting oil demand. The zero-Covid lockdown in Shanghai has officially ended, increasing the demand outlook and boosting oil prices. It seems however that Covid restrictions are not over in China, creating uncertainty in oil demand. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down.
Rising geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU. 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. Russia is retaliating, however, by limiting its natural gas exports in certain EU countries, further exasperating the EU’s energy problem.
Cryptocurrency prices plummeted last week, as global recession concerns drove riskier assets down. The shift of major central banks towards a more hawkish fiscal policy has been putting pressure on cryptocurrencies. Most major Central Banks are turning towards a tighter policy and a return to pre-pandemic interest rates, driving cryptocurrency prices down. Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, taking aggressive action against inflation. The dollar index fell after the Fed meeting but rallied later in the week, pushing cryptocurrency prices down. The BOE also announced an interest rate rise last week, putting more pressure on cryptocurrencies.
Even though the Fed performed an unexpectedly high rate hike, market reaction was uncertain following the Fed meeting. High market volatility triggered volatility in cryptocurrency prices, as markets struggled to process the outcome of the Fed policy meeting. Market sentiment has been fragile during the past couple of weeks, causing volatility in stock markets and cryptocurrencies alike. Crypto markets have been known to follow the overall trends of stock markets and especially of tech stocks. In addition, a strong risk-off sentiment has prevailed since the beginning of the year due to geopolitical tensions, driving investors to safer assets and dampening the appeal of cryptocurrencies.
A steep cryptocurrency selloff was triggered last week, 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 price fell below the $20,000 level during the weekend for the first time in over two years and is currently testing the $19,200 level support. If Bitcoin price continues to fall, further support may be found at the psychological level of $15,000, while resistance may be found near $32,300 and at $40,000.
Ethereum price also plummeted in the past week and it is currently testing support at the psychological level of $1,000. If the Ethereum price continues to decline, support may be found near the psychological level of $500, while resistance may be encountered at $2,000 and higher up at $2.170.
BTC/USD 1h Chart
ETH/USD 1h Chart
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