Important calendar events
The dollar continued its descent this week, with the dollar index dropping below the 100 level for the first time since April 2022. US Treasury yields also declined early in the week but recovered a little towards the end of the week, with the US 10-year bond yielding 3.83% on Friday.
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.
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, however, and market odds are in favor of another rate hike in July after June’s pause. The purpose of suspending rate hikes was to give policymakers time to assess the pace of cooling inflation. Even though US inflation slowed more than expected in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July.
Fed policymakers reiterated their hawkish stance and will likely raise rates a little further to ensure a sustainable drop in inflation. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase or whether July’s rate hike will be the last one this year. Fed interest rates expectations are shifting in a less hawkish direction putting pressure on the dollar.
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. Final GDP Price Index printed 4.1% print for the first quarter of 2023, indicating that inflationary pressures are not subsiding fast enough.
Several economic activity indicators are due this week for the US. Core Retail and Retail Sales data on Tuesday are important indicators of economic health. Unemployment Claims on Thursday are especially important as the condition of the labor market plays an important role in the Federal Reserve’s decisions. These data may affect the dollar ahead of the all-important Fed meeting next week on the 26th.
The EUR/USD pair soared last week as the dollar declined, climbing to the 1.125 level for the first time since last February. If the EUR/USD pair declines, it may find support at 1.083, while resistance may be near 1.151.
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. The ECB revised upwards its inflation forecasts for 2023, 2024, and 2025 by one-tenth of a percent, to 5.4%, 3.0%, and 2.2%, respectively. Higher inflation projections raised expectations for additional monetary tightening. Lagarde has pointed to further rate hikes up ahead to tackle sticky inflation in the Eurozone.
Euro Area headline inflation fell to 5.5% year-on-year in June from 6.1% in May, against expectations of 5.6%. Core CPI, which excludes food and energy, rose to 5.4% on an annual level from 5.3% in May but still fell below expectations of a 5.5% print. 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 Euro’s rally has been mainly driven by the dollar’s weakness in the past couple of weeks. US disinflation in June lowered the Fed’s expected rate ceiling, with markets expecting an end to rate hikes after July’s Fed meeting. The dovish reassessment of Fed rate expectations has been driving the dollar down.
The ECB, however, still has a lot of ground to cover to bring inflation down. Market odds are in favor of another ECB rate hike in July and the ECB is expected to continue its policy of monetary tightening further. Market expectations are more hawkish for the ECB than the Fed, and market dynamics favor the Euro against the dollar.
ECB President Christine Lagarde has maintained a hawkish stance, hinting at another rate hike in July. Lagarde 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.
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, in contrast to the Flash GDP data released earlier which showed an expansion of 0.1%. Deteriorating economic conditions in the Eurozone may force the ECB to rethink its hawkish monetary policy.
GBP/USD gained strength last week, rising to the 1.314 level. If the GBP/USD rate goes up, it may encounter resistance near 1.314, while support may be near 1.259.
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 puts 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 lowering inflation and providing price stability. The UK’s largest banks passed stress tests last week despite facing mounting stress from rising interest rates. The stress tests gave lenders a clean bill of health that should be able to withstand a potential £125bn financial hit. Bailey, speaking after the results of the stress tests were publicized, urged lenders to pass on interest rate increases to savers.
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. As the US has paused rate hikes, BOE interest rates are now almost on par with Fed rates, boosting the Sterling.
Britain’s economy contracted by 0.1% month-on-month in May after an expansion of 0.2% in April. UK 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.
Headline inflation in the UK remained unchanged at 8.7% year-on-year in May, which is much higher than the BOE’s goal of 2%. UK inflation remains sticky, forcing the Bank of England to extend its hiking cycle. Core CPI, which excludes food and energy, was also hotter than anticipated in May.
This week, the most highly anticipated fundamentals for the Sterling are British inflation data. UK CPI and Core CPI data are due on the 19th and may affect the Sterling as the direction of inflation in the UK may affect the BOE’s future monetary policy.
The Yen gained strength against the dollar last week, and USD/JPY dropped below the 137 level. If the USD/JPY pair declines, it may find support near 133.5. 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 also stressed that more time is needed until the bank’s 2% inflation target became sustainable.
Tokyo Core CPI increased by 3.2% in June from 3.1% in May but fell short of expectations of a 3.4% print. National Core CPI dropped to 3.2% in June from 3.4% in May. June’s print exceeded expectations of 3.1%, indicating that inflation in Japan continues to rise contrary to BOJ’s expectations. 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.
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 last week, climbing to $1,965 per ounce. If gold prices increase, resistance may be encountered near $1,983 per ounce, while if gold prices decline, support may be found near $1,893 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 continued its descent last week, with the dollar index dropping below the 100 level for the first time since April 2022. US Treasury yields also declined early in the week but recovered a little towards the end of the week, with the US 10-year bond yielding 3.83% on Friday. The dollar’s weakness raised gold prices last week to monthly highs.
Gold rallied last week after US inflation data raised market expectations that the US Federal Reserve is nearing the end of its tightening cycle. 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.
US inflation slowed more than expected in June, weighing the dollar down and boosting gold 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 to a target range of 5.00% to 5.25%.
The Fed has signaled that its tightening cycle is not over yet, however, and market odds are in favor of another rate hike in July after June’s pause. Even though US inflation cooled to 3% in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase or whether July’s rate hike will be the last one this year.
Oil prices rose last week, and WTI price climbed above the $77 per barrel level but pared some gains at the end of the week, dropping to $75 per barrel on Friday. If the WTI price declines, it may encounter support near $67 per barrel, while resistance may be found near $77.3 per barrel.
Crude oil prices jumped last week, after unexpectedly soft US inflation data, reduced Fed rate hike expectations. Fed interest rates expectations are shifting in a less hawkish direction putting pressure on the dollar. A weaker dollar has helped to propel oil prices upwards in the past week.
The U.S. Federal Reserve kept its interest rate steady at its June policy meeting to a target range of 5.00% to 5.25%. The Fed has signaled that its tightening cycle is not over yet, however, and market odds are in favor of another rate hike in July after June’s pause.
Even though US inflation cooled to 3% in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase. The prospect of a lower rate ceiling than previously anticipated is boosting oil prices.
The rally of oil prices was halted last week by data from the Energy Information Agency that revealed that US stockpiles increased by almost 6 million barrels in the week ended July 7th. This was considerably larger than the 0.483 million barrels increase that was anticipated.
Global economic concerns have 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.
Deterioration in China’s economic outlook is also keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices.
Chinese inflation gauges fell short of market expectations last week. Headline CPI year-on-year was 0.0% in June against 0.2% anticipated. Chinese import and export data for June were also underwhelming, indicating a slowdown in China’s economy. There is, however, speculation that the Chinese government may announce a massive stimulus package later this month in an attempt to boost its struggling economy. Such a stimulus would increase oil demand expectations, providing support for oil prices.
Bitcoin price surged last week, rising above the key $31,800 level mid-week bit pared gains towards the end of the week, trading near $30,200 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 rose last week, breaking the $2,000 barrier for the first time since April. If Ethereum's price declines, it may encounter support near $1,817; if it increases, resistance may be near $2,030.
Cryptocurrencies jumped last week after a US court ruling in favor of Ripple Labs Inc. A US judge ruled on Thursday that Ripple did not violate federal securities law by selling its XRP token on public exchanges. The ruling may provide support for other cryptocurrency firms fighting litigation from the Securities and Exchange Commission. Crypto markets showed signs of recovery but could not maintain a bullish momentum last week.
Signs of cooling US inflation also provided support for risk assets and most major cryptocurrencies gained strength last week. Risk sentiment was renewed as future rate hike expectations decreased.
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, however, and market odds are in favor of another rate hike in July after June’s pause. Even though US inflation cooled to 3% in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase or whether July’s rate hike will be the last one this year.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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