Weekly Market Outlook: July 8th - July 14th
Forex
USD
Fed chair Jerome Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September.
The dollar dipped last week, and the dollar index dropped from 106.0 to 104.9. US treasury yields also retreated, with the US 10-year bond yield falling from 4.46% to 4.28%.?
One of the key factors that are driving the dollar right now is the US rate outlook. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Federal Reserve has held interest rates steady since last July.?
Fed chair Jerome Powell’s dovish comments put pressure on the dollar last week. Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Odds of a Fed rate cut in September rose above 75% last week after Fed Chair Jerome Powell’s dovish comments. Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy. The uncertainty around Fed rate expectations will likely continue in the coming months causing volatility in Forex markets.??
On the data front, US labor data released last week were mixed overall. Non-farm payrolls, or NFPs as they are called, were released on Friday. NFPs provide estimates on the number of jobs created in the US and are indicators of economic growth. NFP data showed that 206K new jobs were added in June, exceeding estimates of 190K new jobs. Meanwhile, job growth for May was revised down to 218K new jobs from 272K originally estimated. Friday’s NFP data showed that US job growth slowed slightly in June. The US unemployment rate rose to 4.1% in June, beating forecasts of 4.0%. Average hourly earnings rose by 0.3% in June, reaching an annual reading of 3.9%, which was in line with expectations.
US service PMI data released on Wednesday were disappointing, putting pressure on the dollar. The ISM Services PMI index plunged to 48.8 in June from 52.3 in May, falling short of expectations of a 52.6 reading. A print below 50 denotes industry contraction and June’s low print indicates that the US service sector is shrinking at a more rapid pace.
Similarly, US manufacturing data on Monday showed that growth in the manufacturing sector is slowing down. The ISM Manufacturing PMI index dropped to 48.5 in June from 47.7 in May against expectations of 49.2.?
?JOLTS Job Openings data on Tuesday showed that the US economy added 8.14M new jobs in May, surpassing expectations of 7.96M and rising above April’s print of 7.92 M.
US CPI data for May showed that disinflation in the US is finally progressing. Monthly inflation remained the same in May, after rising by 0.3% in April and against expectations of a 0.1% rise. Headline inflation eased to 3.3% year-on-year in May from 3.4% in April, dropping below expectations of a 3.4% print. Core inflation, which excludes food and energy, rose by just 0.2% in May versus 0.3% anticipated. Annual Core CPI came in at 3.4% versus 3.6% expected, its lowest reading in three years.
Final GDP data showed that the US economy expanded by just 1.4% in the first quarter of the year, which was in line with expectations. Economic growth in the US is slowing down, falling considerably below the 3.4% expansion registered in Q4 of 2023. The US economy is expanding at an increasingly slower pace putting pressure on the dollar, as GDP data have shown expansion by 4.9% in the third quarter of 2023.?
This week markets will focus on the US inflation report on Thursday. Headline inflation cooled to 3.3% year-on-year in May and is expected to drop to 3.1% in June. Signs that inflationary pressures are easing might induce the Fed to start cutting interest rates in September.
EUR
Marine Le Pen’s party suffered a surprising defeat at the second round of elections on Sunday putting pressure on the Euro.
EUR/USD edged higher last week, rising to the 1.084 level. If the EUR/USD pair declines, it may find support at 1.067, while resistance may be encountered near 1.091.
The Euro has been under pressure since political turmoil in France led to national elections. The first round of French national elections took place on June 30th and the second round on July 7th. Marine Le Pen’s far-right Party won the first round of France's parliamentary elections, securing 34% of the votes. According to early estimates, however, Le Pen’s National Rally party, suffered a surprising defeat in the second round on Sunday, putting pressure on the Euro. The Left-wing coalition is currently on the lead at the exit polls.? The Left-wing party, however, is unlikely to win with an outright majority required to form a government, and concerns of political instability in France are putting pressure on the Euro.
The ECB lowered its Main Refinancing Rate by 25 basis points to 4.25% in June. Eurozone inflation remains sticky and may slow down the pace of future rate cuts. ECB President Christine Lagarde has stated that the central bank’s policy will remain data-driven.?
Eurozone inflation eased to 2.5% in June from 2.6% in May putting pressure on the Euro. Core CPI, which excludes food and energy, however, rose by 2.9% on an annual basis in June against expectations of a 2.8% print.?
The Eurozone economy expanded by 0.3% in the first quarter of the year, which was in line with preliminary estimates. GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero. The EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.?
GBP
The Sterling gained strength after the Labour Party achieved a landslide victory at the British national elections last week.
GBP/USD gained strength last week, rising to the 1.281 level. If the GBP/USD rate goes up, it may encounter resistance near 1.286, while support may be found near 1.260.?
The Sterling gained strength after the Labour Party achieved a landslide victory at the British national elections last week. Keir Starmer's center-left Labour Party won 410 of the 650 seats in the parliament and will form the next British government. Former Prime Minister Rishi Sunak's Conservatives secured just 119 seats. The Labour Party’s decisive victory is raising hopes of political stability in the UK boosting the sterling.
British service data released on Wednesday were optimistic, boosting the Sterling. The Final Services PMI index rose to 52.1 in June against initial expectations of 51.2 and a 51.2 print in May. A print above 50 denotes industry expansion indicating that the UK service sector is expanding at an increasing pace.??
British manufacturing data on Monday, however, were disappointing, putting pressure on the Sterling. Manufacturing PMI dropped to 50.9 in June from 51.5 in May against expectations of a 51.4 print. June’s reading, however, remained above the threshold of 50 which denotes industry expansion, indicating that the manufacturing sector continues to grow, but at a reduced pace.
The BOE kept interest rates steady at its latest monetary policy meeting in June. The BOE maintained its official rate at a 16-year high of 5.25. The BOE's Monetary Policy Committee voted 7-2 to keep rates on hold with two members voting to cut interest rates by 25 basis points.
Markets are pricing in a rate cut in September with approximately 70% probability, while a rate cut by November is fully priced in. Rate cut expectations have shifted from two rate cuts and a total of 50 basis points of rate cuts in 2024 to approximately 35 bp reduction in rates within the year.?
Price pressures in the UK are easing, raising the odds of a BOE rate cut by September. British headline inflation eased to 2.0% on an annual basis in May from 2.3% in April, which was in line with expectations. Annual Core CPI, which excludes food and energy, fell to 3.5% in May from 3.9% in April. British inflation dropped to the BOE’s target for the first time in nearly three years indicating that the BOE’s hawkish monetary policy has been paying off.?
The British economy is showing signs of improvement reducing the odds of a dovish pivot by the BOE. GDP data showed that the British economy expanded by 0.7% in the first quarter of the year against initial estimates of 0.6% growth. The UK slipped into recession last year as the economy contracted by 0.3% in the final quarter of 2023.
JPY
Japanese Finance Minister Shunichi Suzuki stated that officials are watching currency markets with vigilance.
The Yen traded at 38-year lows last week, with USD/JPY touching the key 161.9 level. The dollar’s decline later in the week provided some much-needed breathing room for the Yen and USD/JPY dropped to 160.7. If the USD/JPY pair declines, it may find support near 159.1. If the pair climbs, it may find resistance near the psychological level of 162.0.
BOJ officials have been attempting to boost the Yen, with BOE Governor Kazuo Ueda repeatedly warning traders against speculative short selling of the currency. Japanese finance minister Shunichi Suzuki stated on Tuesday that officials are watching currency markets with vigilance hinting at another intervention to support the Yen.?
Threats of an intervention, however, have been issued for many months now and no longer have a significant impact on markets. The BOJ intervened to support the Yen in 2022 and again this year in late April and early May, when USD/JPY surged above the 160.0 level.?
The Yen has been under pressure since the BOJ disappointed expectations of a hawkish shift at its latest meeting. The BOJ pivoted to a more hawkish policy at its meeting in March, ending its negative interest rate policy and raising the benchmark interest rate into the 0% - 0.1% range. The Yen continues to weaken as there is still a significant disparity between interest rates offered by the BOJ and those from other major central banks.?
领英推荐
BOJ Governor Kazuo Ueda has hinted that the central bank would ease its bond purchasing at the next meeting in July. BOJ officials, however, have not given any specifics for paring back their bond-buying program. Market expectations of a hawkish shift were disappointed after the BOJ policy meeting, putting pressure on the Yen.?
On the data front, inflation in Japan remains weak but rising. Headline inflation rose to 2.5% year-on-year in May from 2.2% in April. BOJ Core CPI rose to 2.1% on an annual basis in May from 1.8% in April, exceeding expectations of 1.9%. Rising inflation in Japan increases the odds of another BOJ rate hike later in the year. Tokyo Core CPI rose to 2.1% year-on-year in June from 1.9% in May against estimates of a 2.0% reading.?
Preliminary GDP data for Q1 of 2024 for Japan showed that the country has slipped into recession. Japan’s economy shrank by 0.5% in the first quarter of the year against expectations of a 0.3% drop. Japan’s economy registered a small expansion by 0.1% in the final quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months
Gold
Fed chair Jerome Powell’s dovish comments put pressure on the dollar last week, boosting gold prices.
Gold prices surged last week, touching the $2,390 level. If gold prices rise, resistance may be encountered near $2,400 per ounce, while if gold prices decline, support may be encountered near $2,290 per ounce.?
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar’s decline last week boosted gold prices as the dollar index dropped from 106.0 to 104.9. US treasury yields also retreated, with the US 10-year bond yield falling from 4.46% to 4.28%.????????
Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected.?
The uncertainty around the US Fed rate outlook is causing volatility in gold prices. Fed chair Jerome Powell’s dovish comments put pressure on the dollar last week, boosting gold prices. Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Renewed rate cut expectations boosted gold prices on Wednesday. Odds of a Fed rate cut in September rose above 75% after Fed Chair Jerome Powell’s dovish comments. Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy.?
Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high.?
Oil
US crude oil inventories showed that stockpiles fell short of expectations raising supply concerns and boosting oil prices.
Oil prices were volatile last week and WTI price rose to $84.6 per barrel mid-week then retreated to $83.2 per barrel at the end of the week. If oil prices retreat, they may encounter support near $80.5 per barrel, while resistance may be found near $84.6 per barrel.
US crude oil inventories released on Wednesday showed that US crude stockpiles fell short of expectations raising supply concerns and boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile drop of 12.2M barrels for the week to June 27th, against expectations of a 0.4M barrel draw and following a buildup of 3.6 M barrels the week before.
Oil prices are supported by the seasonal oil demand outlook. Increased oil demand outlook in the summer months is propping up oil prices. Market estimates that oil demand will peak in July are boosting oil prices.?
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result.?
Odds of Fed rate cuts have become more moderate, putting pressure on oil prices. Renewed rate cut expectations propped up oil prices on Wednesday. Fed Chair Jerome Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy.?
Odds of a Fed rate cut in September rose above 75% after Fed Chair Jerome Powell’s dovish comments, boosting oil prices. The uncertainty around Fed rate expectations will likely continue in the coming months causing volatility in Forex markets.??
Supply concerns provide support for oil prices, as global geopolitical risks mount. The ongoing crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. Hopes of a ceasefire deal in Gaza, however, put pressure on oil prices on Friday.?
OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025.
Cryptocurrencies?
Bitcoin price dropped to a two-month low after Fed rate cut odds declined, but rallied towards the end of the week as hopes of rate cuts were rekindled.
Bitcoin price exhibited high volatility last week, plunging from $63,800 to $53,300 then paring some of the week’s losses over the weekend and rising back to $57,000. If BTC price declines, support can be found at $53,300, while resistance may be encountered at $72,000.?
Ethereum price was also volatile, plummeting from $3,520 to $2,820 mid-week, then reclaiming the key $3,000 level during the weekend. If Ethereum's price declines, it may encounter support near $2,820, while if it increases, resistance may be encountered near $3,650.
Cryptocurrency prices are affected by central banks’ interest rates. High interest rates are restricting economic growth putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve kept interest rates unchanged at its latest policy meeting, within a target range of 5.25% to 5.50%, as expected. Odds of a Fed rate cut in September are currently around 75%, while a rate cut by November is fully priced in.?
Fluctuating risk sentiment is causing volatility in crypto markets. Bitcoin price dropped to a two-month low mid-week after Fed rate cut odds in September declined, but rallied towards the end of the week as hopes of rate cuts were rekindled.??
Fed Chair Jerome Powell stated last week that significant progress has been made on disinflation, hinting at a rate cut in September. Powell added that more evidence of disinflation is required before the Fed can shift to a more dovish policy. Powell’s comments drove crypto markets down even though they were widely interpreted as dovish. Crypto markets reacted more strongly to Powell’s statement that the Fed is not ready to cut interest rates yet than to his hints of a rate cut later this year.?
Crypto markets have also been under pressure by the war in Gaza. Fears that the war will spread in the Middle East are promoting a risk aversion sentiment putting pressure on risk assets such as cryptocurrencies. Hopes of a ceasefire deal in Gaza, however, boosted cryptocurrency prices over the weekend.
Read the full article for more information, and take a look at this week's important Forex calendar events.
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Thanks Yiannis Menelaou for bringing this post to our attention. Kudos Myrsini.