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Weekly Market Outlook For June 27th To July 3rd

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Written by:
Myrsini Giannouli

27 June 2022
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Forex 

Important calendar events

  • June 27, USD: Core Durable Goods Orders, Durable Goods Orders, Pending Home Sales
  • June 28, JPY: BOJ Core CPI
  • June 28, EUR: ECB President Lagarde's Speech
  • June 28, USD: Goods Trade Balance, Preliminary Wholesale Inventories, CB Consumer Confidence, Richmond Manufacturing Index
  • June 29, EUR: German Preliminary CPI, ECB President Lagarde Speech
  • June 29, GBP: BOE Governor Bailey Speech
  • June 29, USD: Final quarterly GDP, FOMC Member Mester, and Fed Chair Powell's Speeches
  • June 30, EUR: German Retail Sales, French Consumer Spending, French Prelim CPI, Eurozone Unemployment Rate
  • June 30, GBP: Current Account, Final quarterly GDP, Nationwide HPI, Revised Business Investment
  • June 30, USD: Core PCE Price Index, Unemployment Claims, Personal Income, Personal Spending
  • July 1, JPY: Tokyo Core CPI, Unemployment Rate, Tankan Manufacturing Index, Tankan Non-Manufacturing Index, Final Manufacturing PMI
  • July 1, EUR: Spanish Manufacturing PMI, Italian Manufacturing PMI, French Final Manufacturing PMI, German Final Manufacturing PMI, Eurozone Final Manufacturing PMI
  • July 1, GBP: Final Manufacturing PMI, M4 Money Supply, Net Lending to Individuals
  • July 1, USD: Final Manufacturing PMI, ISM Manufacturing PMI, ISM Manufacturing Prices

USD

In his testimony before the Senate Banking Committee, Fed Chair Jerome Powell stressed the importance of bringing US inflation down and admitted that recession was certainly a possibility. 

The dollar was volatile last week, with the dollar index fluctuating between 104.9 and 104.0, before closing near 104.1 on Friday. US Bond yields fell, with the US 10-year treasury note yielding just above 3.1% at closing on Friday. 

Minor US economic indicators released on Friday were overall in line with expectations, providing support for the dollar. FOMC Member James Bullard delivered a speech about central banks and inflation at an online event hosted by the Union Bank of Switzerland and his speech was especially hawkish, stressing the dangers of high inflation while attempting to allay recession fears.

US Flash Manufacturing and Services PMI data released on Thursday were lower than expected, driving the dollar down. PMI data are leading indicators of business activity and economic health and showed that US economic activity is decelerating. Flash Services PMI dropped to 51.6 in June from 53.4 in May, hitting a five-month low. Manufacturing PMI sank to 52.4 from 57 in May, its worst performance in almost two years.

Deteriorating economic health in the US is raising recession concerns and limits the US Federal Reserve’s ability to tighten its fiscal policy. Fed Chair Powell’s testimony on the Semi-Annual Monetary Policy Report before the Senate Banking Committee on Wednesday also fuelled fears of a recession in the US. In the first part of his testimony on Wednesday, Powell stressed the Fed’s commitment to tackling soaring inflation rates in the US but stated that recession was ‘certainly a possibility. The dollar has been supported by hawkish Fed policy, but the precarious state of the US economy is pushing the currency down. 

Powell continued his testimony before the Senate Banking Committee on Thursday. This second part of his testimony included a question-and-answer session and caused some volatility in the dollar. With economic data fuelling fears of a recession in the US, Powell stressed once again the importance of bringing inflation down and admitted that the US central bank had misjudged the risk of high inflation. Powel’s speech boosted the dollar, as it demonstrated the Fed’s unwavering commitment to proceed with raising its interest rates further to tackle inflation.

US Existing Home Sales data released on Tuesday fell in line with expectations and no other major news was released since last week. FOMC Member Loretta Mester delivered a speech on Tuesday, which was overall hawkish, supporting the dollar. Mester warned in her speech that inflation will not fall back to the Fed’s target of 2% for the next years and that further monetary policy tightening would be required.

In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, taking aggressive action against inflation and 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.

US inflation keeps 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. 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. 

This week, important news for the US is expected for the 29th, with the release of the Final quarterly GDP, as well as with key speeches from FOMC Member Mester and Fed Chair Powell. On July 1st, US Manufacturing PMI data are scheduled to be released, which can provide a measure of the state of an important economic sector. Throughout the week, a large number of economic, employment, and inflation indicators are scheduled to be released for the US. Even though most of these indicators are not of high importance individually, the volume of financial data that will be released will provide insight into the state of the US economy and is likely to affect the dollar.

TRADE USD PAIRS

EUR 

Even though the ECB has pointed to a shift towards a more hawkish policy, stagnating Eurozone economies limit the ECB’s flexibility to increase interest rates to combat high inflation. 

The Euro traded sideways against the dollar last week, with the EUR/USD range fluctuating around the 1.054 level. The Euro fell by weak PMI data at the end of the week, but the dollar was similarly hampered by disappointing PMI data. If the currency pair goes up, it may encounter resistance at 1.078. The EUR/USD 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.

German and Belgian Business Climate data released on Friday fell below expectations, weakening the Euro. Flash Manufacturing and Services PMI data released on Thursday for some of the EU’s leading economies also fell short of expectations and were much lower than last month’s corresponding indexes. Flash Manufacturing and Services PMI data for the Eurozone also fell below projections, with manufacturing PMI dropping to 52.0 from 54.6 in May, and Services PMI plummeting to 52.8 from 56.1 last month. 

These readings give strong indications that the Eurozone economy is slowing down, raising fears of a recession in the EU. The sluggish Eurozone economy increases the odds that the ECB may be forced to moderate its plans for raising interest rates, driving the Euro down. 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. 

Hawkish ECB rhetoric in the past couple of weeks has raised expectations of a more hawkish monetary policy, boosting the Euro. On Wednesday, ECB Vice President Luis de Guindos stated that new ECB bond buys in some eurozone countries should not interfere with the bank’s aim to control inflation. His statements supported expectations of an ECB rate hike in July, propping up the Euro. On Monday, ECB President Christine Lagarde confirmed plans of tightening monetary policy and raising interest rates to tackle rising inflation, propping up the Euro.

Political uncertainty in France halted the Euro’s ascend on Monday, as French President Emmanuel Macron lost an absolute majority in the country's parliamentary election. Macron's coalition gained the most seats in the National Assembly but did not secure the absolute majority needed to control parliament.

The Euro is supported this week by reports on ECB plans to raise interest rates.  The Fed’s decisive 75 base point rate hike last week emphasized, even more, the gap between ECB and Fed policies, putting pressure on the Euro. In its latest monetary policy meeting, the ECB kept its interest rate unchanged but pointed to a small rate hike at its next meeting in July. 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. 

EU CPI inflation data 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 has retaliated by limiting its natural gas exports to certain EU countries, raising fears of a potential energy crisis in the EU. EU leaders met in Brussels on Friday to discuss the energy shortages stemming from the reduced Russian gas supplies. 

A large number of economic data are scheduled to be released this week for some of the EU’s leading economies and the Eurozone as a whole. Key among those, are German and French CPI data on the 29th and the 30th respectively. Especially important are also the Manufacturing PMI data that is scheduled to be released on July 1st. As the ECB prepares to lift its interest rate in July, economic data are especially important as they may help determine the level of fiscal tightening that the ECB will apply. 

ECB President Christine Lagarde is also due to deliver speeches this week, on the 28th and the 29th. On the 29th she will participate in a panel discussion at the ECB Forum on Central Banking, along with BOE Governor Andrew Bailey and Fed Chair Powell. High volatility is expected during the panel discussion, not only for the Euro but for the dollar and the Sterling as well.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Tories have suffered defeat in two UK by-elections last week, dealing a fresh blow to UK PM Boris Johnson, whose party will be losing two seats in the parliament.

The Sterling was overall steady against the dollar last week, with the GBP/USD rate exhibiting low volatility around the 1.225 level, before closing near 1.227 on Friday. 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. 

Political woes are holding the Sterling back, as the Tories have suffered defeat in two UK by-elections. The results of these elections have dealt a fresh blow to UK PM Boris Johnson, whose party will be losing two seats in the parliament. In addition, Johnson has 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.

The Sterling was supported by robust UK economic data last week though. UK Flash Manufacturing and Services PMI data released on Thursday were positive for the British economy, providing some much-needed boost to the currency after Wednesday’s record inflation rates. In contrast to the US and the EU, which released weak PMI data on Wednesday, UK Manufacturing PMI data were in line with expectations, while Services PMI exceeded expectations and was at the same levels as last month. These data are encouraging for the British economy and may give the BOE some leeway towards hiking its interest rate to combat rising inflation.

UK inflation has risen to 40-year highs touching 9.1% on an annual basis, according to CPI data released on Wednesday. UK Core CPI that excludes food and energy came at 5.9%, which was lower than expected, showcasing the effect of the high energy costs on rising inflation rates. 

The cost of living in the UK has been increasing, driven primarily by the high cost of energy imports, putting pressure on UK households. Soaring inflation rates add more pressure on the BOE to continue increasing its interest rates. Stagflation is a risk for the UK economy, however, as for many other countries, economic stagnation coupled with rising inflation creates a toxic mix for the economy. 

MPC Members Pill and Tenreyro delivered speeches on Tuesday, which were hawkish on the whole, with BOE chief economist Huw Pill stating that further monetary policy tightening will be required in the coming months to rein in inflation. 

In its latest policy meeting, the BOE raised its benchmark interest rate by 25 base points, 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. 

Britain’s uncertain economic outlook limits the BOE’s ability to shift towards a more aggressively hawkish policy. By performing a modest rate hike the BOE is trying to strike a balance between battling inflation and supporting the sluggish economy. With the Fed raising its interest rate by 75 base points, the divergence in monetary policy between the Fed and the BOE becomes highlighted, putting pressure on the Sterling. 

Several financial indicators are scheduled to be released this week for the UK. Most notably, the Final quarterly GDP will be released on June 30th. British manufacturing PMI data are scheduled to be released on July 1st and may affect the sterling, as these are key indicators of economic health. Overall, the bulk of the financial data that will be released this week is expected to provide information about the state of the British economy. Such information is especially important at this time, as it may affect the BOE’s policy direction.

In addition, BOE Governor Andrew Bailey is due to deliver a speech on June 29th in a panel discussion titled "Policy panel" at the ECB Forum on Central Banking and his speech may cause volatility in the price of the Sterling.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

Minutes from the latest BOJ monetary policy meeting released last week highlighted the BOJ’s commitment to maintaining the bank’s massive stimulus program, putting pressure on the Yen. 

The Yen benefitted from the dollar’s weakness last week, halting the ascend of the USD/JPY pair. The currency rate retreated below the 24-year high of over 136 reached earlier last the week, falling as low as 134.3. 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 again at the 135.3 level representing the 2002 high, and further up near the 1998 high of 147.7. 

The dollar retreated last week, as US recession fears rise. Competing assets, such as the Yen, benefit from the dollar’s weakness. Retreating oil prices last week also provided support for the yen, as Japan is a net importer of oil and high oil prices have been putting pressure on the country’s economy.

High inflation data for Japan boosted the currency on Friday, with CPI remaining above 2.1% on an annual basis for the second month. Japan’s CPI inflation index has breached the BOJ’s 2% target, reaching 2.1% for the first time in seven years.  

Minutes from the latest BOJ monetary policy meeting were released on Wednesday, highlighting the BOJ members’ commitment to maintaining the bank’s massive stimulus program, putting more pressure on the Yen. 

On Tuesday, Japanese Prime Minister Fumio Kishida stated that the BOJ should maintain its ultra-loose monetary policy, pushing the Yen further down. 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.

The BOJ has kept its benchmark interest rate at -0.10%, despite the rising inflation rates in Japan. 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 75 base point rate hike. 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. 

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.

A large number of key financial indicators are scheduled to be released this week for the Yen. Especially important are the BOJ Core CPI data on the 28th and the Final Manufacturing PMI on July 1st. The indicators released this week are expected to provide insight into the state of the economy in Japan and influence the BOJ’s future monetary policy. 

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Stalling global economic growth gives rise to recession fears, supporting the price of gold, as record-high inflation levels cripple economic growth.

Gold prices surged above $1,846 per ounce last week, but pared their gains later in the day, closing near $1,827 per ounce on Friday, as increased rate hike expectations, outweighed recession fears. 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.

The dollar also exhibited high volatility last week, with the dollar index fluctuating between 104.9 and 104.0, before closing near 104.1 on Friday. US Bond yields fell, with the US 10-year treasury note yielding just above 3.1% at closing 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. 

Stalling global economic growth gives rise to recession fears, supporting the price of gold. In the past few weeks, recession fears have mounted, as many countries show signs that their economy is slowing down. 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. Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. 

Last week, disappointing US and EU PMI data further fuelled recession concerns. 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. 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. 

An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, while the BOE raised its interest rate by 25 base points. Stalling economic growth, however, combined with fiscal tightening gives rise to fears of recession, further supporting the price of gold. 

G7 leaders are meeting this week to discuss further sanctions on Russia, among which is an embargo on Russian gold exports. Gold exports provide revenue of tens of billions of dollars, according to an announcement by US President Joe Biden. A ban on Russian gold exports could see gold prices skyrocketing.

XAUUSD 1hr chart

TRADE GOLD

Oil 

Oil prices have tumbled amid concerns that interest rate hikes could slow global economic growth, reducing energy demand, as several Central Banks are moving towards a tighter fiscal policy.

Oil prices slid last week, amid global recession fears. WTI price fell to $103 per barrel early in the week, but recovered on Friday, closing near $108 per barrel. 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 have tumbled to a six-week low, amid concerns that interest rate hikes could slow global economic growth, reducing energy demand. 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 gives rise to fears of recession, pushing oil prices down. 

In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, while the BOE raised its interest rate by 25 base points. Other major banks, such as the Bank of Switzerland and the Bank of Canada, are also raising their interest rates, halting the ascend of oil prices. 

The oil demand outlook has increased though, 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. 

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. EU leaders met in Brussels on Friday to discuss the energy shortages stemming from the reduced Russian gas supplies. G7 leaders are meeting this week to discuss further sanctions on Russian oil, possibly by enforcing a price cap on Russian oil exports.

Many OPEC members continue to underperform, raising doubts on whether the organization can maintain its output goal. This week, two OPEC meetings have been scheduled and are likely to draw the attention of market participants. OPEC members will meet on the 29th and a meeting of OPEC+ will take place on the 30th. In its meeting this week, OPEC+ will likely discuss its output goals for August and the next few months. OPEC+ is expected to keep production goals for August to the same levels set in its previous meeting, in which the organization’s members had agreed to raise their output goal by approximately 648,000 barrels a day. It remains to be seen, however, whether the bans on Russian oil have allowed the organization to reach its output quotas.

WTI 1hr chart

TRADE WTI

Bitcoin and major Cryptocurrencies

Market participants are buying the dip for many significant cryptocurrencies with the expectation that prices have reached the bottom, preventing crypto markets from crashing. 

Cryptocurrency prices remained steady last week, after falling heavily the past two weeks. Global recession concerns have been driving riskier assets down, putting pressure on cryptocurrency prices. However, cryptocurrency prices edged higher at the end of last week as stocks rallied. Crypto markets have been known to follow the overall trends of stock markets and especially of tech stocks. 

A steep cryptocurrency selloff was triggered in the past few weeks, 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.

Many market participants have also decided to buy cryptocurrencies at their recent low prices, with the expectation that they have reached the bottom. Traders are buying the dip for major cryptocurrencies, preventing crypto markets from crashing. 

Terra Luna crashed last week, threatening to bring other cryptocurrencies down with it, while transfers and withdrawals were halted at crypto lending companies Celsius Network and Babel Finance. 

Bitcoin price moved above the $20,000 key level at the end of last week and continued to trade at the $21,000 level during the weekend. If Bitcoin price declines, support may be found at $19,200 and further down at the psychological level of $15,000, while resistance may be found near $32,300 and at $40,000. 

Ethereum's price also climbed at the end of last week and is currently trading above the $1,200 level. If the Ethereum price continues to fall, support may be found near the psychological level of $500, while resistance may be encountered at $2,000 and higher up at $2.170.

An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, while the BOE raised its interest rate by 25 base points. Other major banks, such as the Bank of Switzerland and the Bank of Canada, are also raising their interest rates. Stalling economic growth, combined with fiscal tightening gives rise to fears of recession driving cryptocurrency prices down.

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

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