Important calendar events
The dollar was weak at the beginning of last week, with the dollar index barely touching the 100 level, but rallied at the end of last week, with the dollar index rising to the 100.9 level. US Treasury yields also started the week low, but gained strength at the end of the week, with the US 10-year bond climbing to 3.85%.
This week market attention will be focused on the Fed policy meeting on the 26th. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%.
The Fed has signaled that its tightening cycle is not over yet, and market odds are in favor of another rate hike this week. Even though US inflation slowed more than expected in June, dropping close to the Fed’s 2% goal, Fed policymakers will likely raise rates again this week to ensure a sustainable drop in inflation. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday. Wednesday’s rate hike has already been priced mainly in thought and markets will focus on forward guidance.
There is considerable doubt on whether the Fed will continue hiking rates after this week’s rate increase. Cooling US inflation rates have shifted Fed interest rates expectations towards a less hawkish direction putting pressure on the dollar. Market participants will follow the Fed’s press conference on Wednesday closely, for hints into the central bank’s future policy direction. If the Fed maintains a hawkish bias and points to more rate hikes up ahead, interest rate expectations will rise again, boosting the dollar.
US Inflation cooled significantly in June, showing that the Fed’s efforts are paying off. Headline inflation dropped sharply to 3.0% in June from 4.0% in May versus the 3.1% forecast. US monthly inflation rose by 0.2% against the 0.3% forecast, indicating that a weakening trend in inflation is prevailing. Core inflation, which excludes food and energy, dropped to 4.8% on an annual basis in June from 5.3% in May versus the 5.0% forecast. Core inflation had been particularly sticky up till now but finally dropped to the lowest since October of 2021.
On the data front, optimistic US labor data boosted the dollar last week. US Jobless Claims dropped to 228K this week from 237K the previous week, against the 239K forecast. Existing Home Sales, on the other hand, dropped slightly to 4.16M in June from 4.30M in May, versus 4.21M expected.
US Housing data, on the other hand, fell short of expectations, putting pressure on the dollar. Housing Starts, which reflect the annualized number of new residential buildings, dropped to 1.42M in June from 1.56M in May versus the 1.48M anticipated. Similarly, new Building Permits fell to 1.44M in June from 1.50M in May against 1.49M expected. A decline in the housing sector indicates decreasing economic activity and health.
Weak US Retail data also put pressure on the dollar. US Retail Sales only rose by 0.2% in June, versus the 0.5% forecast and a 0.3% rise in May. This is a primary gauge of consumer spending and a key indicator of overall economic activity. Core Retail Sales, which exclude automobiles, also rose by 0.2% in June against expectations of 0.3% growth and 0.1% in May. US Industrial Production contracted by 0.5% in June, disappointing market expectations. May’s print had also shown a 0.5% contraction, indicating deteriorating health in the sector.
Final GDP data showed that the US economy expanded by 2.0% in the first quarter of the year. Preliminary GDP data indicated a 1.3% expansion in the previous quarter, but the final print exceeded expectations. The final GDP Price Index printed 4.1% for the first quarter of 2023, indicating that inflationary pressures are not subsiding fast enough.
The euro edged lower against the dollar last week and EUR/USD dropped to the 1.111 level. If the EUR/USD pair declines, it may find support at 1.083, while resistance may be encountered near 1.127.
The ECB raised interest rates by 25 bp at its policy meeting in June, bringing its main refinancing rate to 4.00%. The ECB has signaled that further rate hikes are required as inflationary pressures in the EU remain high.
ECB President Christine Lagarde has maintained a hawkish stance and has pointed to further rate hikes up ahead to tackle sticky inflation in the Eurozone. Lagarde has admitted that recent economic data were weak and that the Eurozone economy remains stagnant but remained confident that the EU would avoid going into recession.
The ECB is holding its next policy meeting this week on the 27th, just a day after the Fed’s meeting. Market odds are in favor of another ECB rate hike of 25 basis points on Thursday and the ECB is expected to continue its policy of monetary tightening further. Many economists expect yet another rate hike in September despite the deterioration of economic growth in the eurozone.
GDP data for the first quarter of the year showed that the Eurozone is technically entering a recession. Revised GDP showed a contraction of 0.1% for Q1 of 2023. Deteriorating economic conditions in the Eurozone may force the ECB to rethink its hawkish monetary policy.
Economic activity indicators for the Eurozone were mixed last week. German PPI dropped by 0.3% in June. The decline, however, was less than the 0.4% descent that was forecasted and considerably lower than May’s 1.4% drop. The current account for the Eurozone exceeded expectations. The current account represents the difference in value between imported and exported goods and services. The current account rose by 9.1B in May from 3.8B in April, versus the 2.5B expected.
Eurozone Final CPI and Core CPI data last week tallied with preliminary estimates and did not significantly affect the price of the Euro. Euro Area headline inflation fell to 5.5% year-on-year in June from 6.1% in May, against expectations of 5.6%. Final Core CPI, which excludes food and energy, rose to 5.5% on an annual level from 5.3% in May. The latest inflation print is showing that the ECB’s efforts to bring inflation down are paying off, but it will likely not be sufficient to induce the central bank to abandon its hawkish policy just yet.
The Sterling plummeted last week and GBP/USD dropped to 1.285. If the GBP/USD rate goes up, it may encounter resistance near 1.314, while support may be found near 1.274.
The Sterling edged lower last week, as signs of cooling inflation eased some of the pressure on the BOE to maintain its aggressively hawkish policy. British inflation dropped unexpectedly in June, indicating that the BOE may not have to raise rates as high as expected. Headline inflation in the UK eased to its lowest level in over the year, dropping to 7.9% year-on-year from 8.7% in May against expectations of an 8.2% print. Core CPI, which excludes food and energy, also came in at 6.9% for June compared with May's three-decade high of 7.1%, while markets were anticipating a 7.1% print.
The BOE raised interest rates by 50 basis points at its June meeting, bringing the bank rate to 5.0%. Sticky inflation in the UK is putting pressure on BOE policymakers to increase interest rates. BOE Governor Andrew Bailey has warned that if price pressures remain persistent, further tightening would be required. Bailey vowed last week to "see the job through" by bringing down inflation and providing price stability.
The BOE is expected to continue to increase interest rates in the coming months as it fights to bring inflation down. The BOE has been following an aggressively hawkish monetary policy, aiming to bring inflation down.
Britain’s economy contracted by 0.1% month-on-month in May after an expansion of 0.2% in April. The British economy shrank less than expected, however, as markers were anticipating a 0.3% contraction in May. GDP was stagnant in the 3 months to May.
USD/JPY gained strength last week, approaching the 141.8 level. If the USD/JPY pair declines, it may find support near 137.2. If the pair climbs, it may find resistance at 145.1. USD/JPY declined last week as the currency pair was mainly driven by the dollar’s movement and the dollar continued its descent.
The Yen has been weighed down by the BOJ’s persistently dovish policy. The BOJ maintained its ultra-accommodating monetary policy at its June meeting, holding its short-term interest rate target steady at -0.10% and keeping its yield curve control program unchanged. The BOJ has signaled it is in no rush to change its dovish stance despite rising inflation rates.
BOJ Governor Kazuo Ueda has stated that, even though price pressures are expected to grow over the next few months, there is high uncertainty on next year's wage growth. Ueda has also stressed that more time is needed until the bank’s 2% inflation target becomes sustainable.
The next BOJ monetary policy meeting will be held this week, on the 28th. Reports that the central bank will maintain its yield-control policy unchanged at this week's policy meeting have put pressure on the Yen. Markets have been anticipating a hawkish shift in the BOJ’s policy for some time now, but BOJ officials have so far been unyielding in their dovish stance.
The BOJ Policy Statement and press conference following the policy meeting are expected to attract market attention. If BOJ's forward guidance indicates that the central bank could tweak its yield curve control in the future, the Yen might rally. On the other hand, a persistently dovish outlook may push the Yen further down.
National Core CPI rose to 3.3% in July from 3.2% in May. Inflation in Japan continues to rise contrary to BOJ’s expectations and has exceeded BOJ’s target for more than a year. BOJ Core CPI rose to 3.1% in June from 3.0% in May. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households.
Trade Balance data last week for Japan were optimistic, providing support for the Yen. Trade Balance represents the difference in value between imported and exported goods. Traded balance for Japan rose to -0.55T in June from -0.77T in May, versus -0.66T expected.
Final GDP data for the first quarter of the year showed that the Japanese economy expanded by 0.7%, against a preliminary GDP print of 0.4%. The GDP data exceeded expectations, alleviating recession concerns for Japan. Final GDP Price Index showed a 2.0% annual expansion, versus 1.2% the previous quarter. Japan’s economic recovery increases the odds of a hawkish pivot in BOJ’s monetary policy.
Gold prices soared early last week touching the $1,987 per ounce level but declined towards the end of the week, dropping to $1,961 per ounce. If gold prices increase, resistance may be encountered near $1,987 per ounce, while if gold prices decline, support may be found near $1,902 per ounce.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar was weak at the beginning of last week, with the dollar index barely touching the 100 level, but rallied at the end of last week, with the dollar index rising to the 100.9 level. US Treasury yields also started low last week, but gained strength at the end of the week, with the US 10-year bond climbing to 3.85%.
Soft US inflation data have provided support for gold prices in the past couple of weeks. Signs of cooling US inflation have shifted Fed interest rates expectations towards a less hawkish direction, boosting gold prices. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise.
This week market attention will be focused on the Fed policy meeting on the 26th. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%.
Even though US inflation slowed more than expected in June, dropping close to the Fed’s 2% goal, Fed policymakers will likely raise rates again this week to ensure a sustainable drop in inflation. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday.
There is considerable doubt on whether the Fed will continue hiking rates after this week’s rate increase. Market participants will follow the Fed’s press conference on Wednesday closely, for hints into the central bank’s future policy direction. If the Fed maintains a hawkish bias and points to more rate hikes up ahead, interest rate expectations will rise again, boosting the dollar and pushing gold prices down.
Oil prices gained strength last week, with WTI prices climbing to the $77.3 per barrel level. If the WTI price declines, it may encounter support near $73.8 per barrel, while resistance may be found near $77.3 per barrel.
Global supply concerns outweighed decreased demand outlook from China last week, boosting oil prices. The Energy Information Administration released US crude oil inventory data on Wednesday. The EIA reported an inventory dip of 0.7 million barrels, which was, however, higher than the expected drop of 2.0 million barrels.
Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. Chinese economic data missed estimates on Monday, with the GDP print disappointing expectations. China’s GDP growth slowed to 0.8% for the second quarter of the year. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. There is, however, speculation that the Chinese government may announce a massive stimulus package later this month to boost its struggling economy. Such a stimulus would increase oil demand expectations, providing support for oil prices.
The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%.
The Fed has signaled that its tightening cycle is not over yet, and market odds are in favor of another rate hike at the next policy meeting this week. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday.
There is considerable doubt on whether the Fed will continue hiking rates after this week’s rate increase. Cooling US inflation rates have shifted Fed interest rates expectations towards a less hawkish direction. The prospect of a lower rate ceiling than previously anticipated increases the oil demand outlook, boosting oil prices.
Global economic concerns have also been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have decided that the current 1 million barrels per day cut would be extended beyond July and into August. Additionally, Russia will reduce its output by 500,000 barrels per day.
Crypto markets dipped last week following the decline of stock markets. Tesla and Netflix reported mixed earnings on Wednesday and risk sentiment dropped, putting pressure on cryptocurrencies. Investor optimism fell last week, dragging down stock markets and crypto markets.
Bitcoin price edged lower last week, struggling to hold on to the key $30,000 level over the weekend. If the BTC price declines, support can be found near $29,600, while resistance may be encountered near $31,820.
Ethereum price also dipped last week, dropping to the $1,880 level over the weekend. If Ethereum's price declines, it may encounter support near $1,817, while if it increases, resistance may be encountered near $2,030.
Signs of cooling US inflation provide support for risk assets, boosting risk sentiment as future rate hike expectations decrease. US inflation slowed more than expected in June, weighing the dollar down and boosting risk assets. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year to a target range of 5.00% to 5.25%.
The Fed has signaled that its tightening cycle is not over yet, and market odds are in favor of another rate hike at the next policy meeting this week. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday, putting pressure on crypto markets.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Myrsini Giannouli
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