The current week is considered particularly critical for the financial markets. Three of the major central banks are set to announce their decision on interest rates, which is expected to affect their economies as well as the global economy for a long time. The start is made by the Fed on Wednesday where the probability of a 0.25% interest rate increase is now very high, but the markets will also pay great attention to the press conference that will follow in order to understand the possible next moves of the central bank.
The European Central Bank in turn announces interest rates on Thursday with analysts also calling for a 0.25% increase as the inflation problem in the Eurozone continues to be fierce. The interest rate cycle closes on Friday with a decision by the Bank of Japan. We need to remind you that the central bank of Japan has kept interest rates in negative territory, at -0.1% by implementing a very loose monetary policy but many analysts believe that this cannot last forever, and thus Friday’s decision is considered very important.
Going back to the week just past, markets were rather cautious about central bank decisions and the macroeconomic results announced were relatively unable to make a significant impact. Retail sales in the US saw a slight rebound in June, while inflation reported in the Eurozone at 5.5% merely confirmed that the problem remains.
Most stock indices continued their upward trend, registering significant gains as we will see in detail below. The week was also bullish for most commodities such as gold and oil. The US dollar rallied while riskier currencies such as the euro and sterling declined slightly. There were no significant changes in the bond market with the US 10-year closing the week in the region of 3.84%, very close to the opening of the week. Finally, as far as the cryptocurrency market is concerned, they could not benefit from the bullish climate of the traditional markets and had corrective movements.
As we said above, the week we are going through is particularly important because of the decisions of the central banks on interest rates and monetary policy. In addition to these, however, the announcements of personal consumption expenditures in the United States, the PMI indicators in the world’s strongest economies, and the announcement of inflation in Australia are considered important. Markets’ volatility is expected to spike especially around the times of central bank decisions and press conferences.
With bullish trends, the US SP500 index closed last week, at 4,536 points and profits close to 0.70%. SP500 had lower volatility and it makes sense since markets are in a wait-and-see mode ahead of the FOMC on Wednesday. Most likely we will see a 0.25% interest rate hike by the Fed and more or less, markets have digested this fact and all the effort goes to the press conference that will follow the decision since we may learn more about Fed’s future actions. There’s a general perception that the cycle of interest rate hikes is about to end as inflation has dropped to 3%. Last week was also a week of quarterly results announcements for many companies of the SP500. The season was in general positive as 73% of the companies exceeded the markets’ expectations. Some companies created concerns with their results such as CSX and American Express but in any case, the 73% is close to the 3-year average of 80%. We may try long positions for one more week.
The German DAX40 index was bullish last week, closing at 16,177 points, with profits of 0.45%. The global investing sentiment was positive and the European stock indices took advantage of it. The focus of the markets is mainly on the ECB and the expected interest rate hike of 0.25%. Certainly, the press conference that will follow is of great importance as well as there’s a question mark if the ECB will carry on aggressively or if the fears of growth slowing may calm things down. Investors and traders will also have their eyes in the USA and the FOMC on Wednesday. Germany announced the producer price index last Friday which rose by 0.1% on a yearly basis vs the 0% that the markets expected. Germany will announce the consumer price index in the current week but the 5.5% that was announced for the Eurozone is still too high. DAX40 presents a weakness to escape very much from the 16,000-milestone price and if the ECB appears hawkish, we may see corrective trends so we’d prefer short positions this week.
The British FTSE100 index moved heavily upward last week, closing at 7,664 points, with profits exceeding 3%. The FTSE100 was favored a lot by the lower inflation that was announced in the UK. Markets expected inflation to drop in June to 8.2% from 8.7% but the result was 7.9% and many investors considered that the Bank of England will not be as aggressive as expected. Many analysts estimated that the next decision of the BoE may imply a 0.50% hike as the inflationary pressures are still too high but there may be second thoughts after the 7.9%. These second thoughts helped FTSE100 to recover impressively. Also, retail sales increased by 0.7% in June, showing that the UK economy is resilient. We may try long positions this week, based on the bullish momentum that has been developed.
The previous week was slightly bullish for gold, with the next month’s futures closing at $1,963.50 and profits close to 0.20%. The strengthening of the US dollar should weigh the gold prices but the expectations of the markets regarding the Fed’s behavior had greater importance. As inflation in the USA has fallen to 3%, markets consider that the interest rate hike on Wednesday (which has a very high probability of 99% according to the FedWatch tool) may be the last one. The biggest competitor of gold in the family of safe-haven assets which is the bind yields did not have significant movements so it was a neutral factor for gold prices. Gold investors, besides Fed, will also put their eyes on the two other major central banks, the ECB and Bank of Japan as they’ll announce their decisions on interest rates as well. They’ll also put their eyes on two other major announcements concerning the US economy: GDP (economy growth indicator) and personal consumption expenditures (inflationary indicator). Although it’s not easy for the gold to surpass the price of $2,00, we’ll prefer long positions for one more week.
Last week was bullish for oil with the next month’s futures closing at $76.77, with profits approaching 2.20%. It was another bullish week for oil, the fourth in a row as the majority of the investors believe that the global economy growth will bring higher oil demand as well. China, which is the biggest oil consumer in the world announced disappointing GDP results last Monday but there’s a perception that will apply a quantitative easing/stimulus to help the growth recovery since the 0% inflation allows such an action. The USA had lower inventories last week according to the Energy Information Administration and this was another reason that helps the higher demand perception. Another factor that pushes the oil prices higher is the latest production cut decisions from some OPEC members like Saudi Arabia and Russia. Oil prices could extend the bullish trend to $80, even to the next resistance of $83.50, especially if the news from the central (Fed, ECB, BoJ) contribute. We may try long positions this week too.
EURUSD (Euro vs US Dollar)
Last week was bearish for EURUSD as it opened at 1.1228 and closed at 1.1125. It was the first major correction for the EURUSD after a strong uptrend that had started at the end of May. Market expectations of a Fed rate hike next Wednesday boosted the dollar but that was not the only reason. The positive macroeconomic results in the United States (retail sales and initial jobless claims) contributed to the strengthening of the dollar, but it was certainly also a technical correction after the exchange rate had a strong rise, overcoming several important resistances successively. In Europe, the high inflation that was announced for June at 5.5% increased the continuation of actions by the ECB, but the markets are not convinced of the determination and endurance of the European economy. The current week will definitely be decisive for the future of the EURUSD in the coming months. The decision on interest rates by the Fed and the European Central Bank, as well as the statements that will follow in the press conferences, will set the tone for the next period. We may try sell positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Bearish was the last week for GBPUSD, which opened at 1.3084 and closed at 1.2852. A major contributor to this downward movement was the strengthening of the US dollar which made the exchange rate fall below 1.30 again. The dollar strengthened based on continued interest rate hikes by the Fed and positive macroeconomic results for the United States. Sterling was unable to react strongly as UK inflation was significantly lower than last month. It was announced at 7.9% in June from 8.7% in May, below the 8.2% expected by the markets. Other indicators of inflation such as the producer price index and the retail sales index also recorded a strong fall. Retail trade in the country also presented a good picture with sales recording an increase in June of 0.7%. So, markets felt that the next moves by the Bank of England will not be so aggressive as the inflationary problem starts to ease and the economy keeps decent performance. Sell positions is our decision for the current week.
USDJPY (US Dollar – Japanese Yen)
USDJPY moved heavily upward last week, opening at 138.69 and closing at 141.83. The US dollar strengthened on market expectations of a rate hike by the Fed on Wednesday and a positive macroeconomic picture in the United States, but such a rise is not justified by this alone, as bond yields were also flat and unchanged. Markets have a concern and a belief that the Bank of Japan cannot continue indefinitely with ultra-loose monetary policy and negative interest rates. It is a fact that this suits the Western economies as Japan continues to remain a source of cheap money. However, the statements of central bankers continue to talk about maintaining the current situation and Japan’s inflation which continues to be at relatively low levels (at 3.3% announced for June) does not imply a change in monetary policy. Friday’s decision on the central bank of Japan is very important and surprises are not excluded either in the price of interest rates or as far as statements about future movements. We may try sell positions this week.
EURJPY (Euro – Japanese Yen)
Bullish was last week for EURJPY which opened at 155.72 and closed at 157.76. With this strong upward movement, the exchange rate registered a new multi-year high continuing the strong trend that has formed since mid-March. The European Central Bank which is likely to raise interest rates by 0.25% on Thursday is a factor that strengthens the euro while on the contrary low inflation in Japan and statements by Japanese officials converge that loose monetary policy and negative interest rates are likely to continue. Of course, surprises in this area are not excluded, but for now, the markets show their preference so we are keen to try sell positions this week.
EURGBP (Euro – Great Britain Pound)
Last week was bullish for the EURGBP, as it opened at 0.8568 and closed at 0.8655. The two central banks, the European Central Bank and the Bank of England are expected to continue aggressively raising interest rates in the near future as inflationary pressures in the two economies continue to be high. However, the expected hike from the ECB this week coupled with the weakness experienced by sterling due to the significant deceleration in UK inflation in June has created this bullish trend for EURGBP. Since ECB is not able to convince the markets and since the UK has bigger problems with inflation, the sterling may come back so we prefer sell positions this week.
USDCAD (US Dollar – Canadian Dollar)
Bullish was the last week for USDCAD, which opened at 1.3206 and closed at 1.3222. USDCAD was not able to develop a strong upward momentum like the rest of the currencies containing the US dollar and thus the strong downtrend that has developed since March was not significantly altered. Canada reported inflation for June at 2.8% from 3.4% in May, a rate that was even lower than the 3% expected by the markets. So, inflation in Canada is even lower than that in the United States which means that the market perception should be that the Bank of Canada will ease monetary policy and interest rates but still the Canadian dollar did not weaken significantly. The Fed’s decision on interest rates this week is the central event for the rate and we may try sell positions.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had an upward course last week as the opening price was at 0.8599 and the closing price was at 0.8657. We should remember how the exchange rate is moving to the lowest price since 2015 and so some bullish reactions should not be considered absurd. The reason of course was the strengthening of the US dollar last week, in a week that was relatively neutral for the Swiss franc as there were no major announcements about the Swiss economy. Only the announcements on imports, exports, and the trade balance stood out, which in general gave a positive picture of the country’s economy, but due to their small importance, they were factors that were almost ignored by the markets. The current week will again be dominated by the US dollar with the Fed’s interest rate decision on Wednesday and the inflation index (PCE) announcement on Friday and since there’s a case that the bullish reaction will carry on, we may try buy positions.
AUDUSD (Australian Dollar – US Dollar)
Bearish was the last week for AUDUSD, which opened at 0.6778 and closed at 0.6730. The course of the exchange rate was reasonable due to the strengthening of the US dollar, but the Australian dollar was choppy due to the conflicting news and announcements. Last Monday China announced GDP for the second quarter of 2022, well below market estimates and this had a negative impact on the Australian dollar. The next day the minutes of the Bank of Australia were announced, and the most important news is that further quantitative tightening and perhaps another interest rate hike in August is on the bank’s mind. However, the Australian dollar strengthened for a while on Thursday after the announcement of a strong job market picture in Australia and a drop in the unemployment rate to 3.5%. This rise was temporary, as the US dollar prevailed again on Friday, bringing about a bearish effect on the exchange rate. The lights in the current week fall on the US dollar head and the decision on the interest rates of the Fed but the Australian dollar seems strong too so we prefer buy positions.
Last week, Bitcoin was bearish and closed at $30,085 with losses close to 0.55%. Bitcoin keeps on failing to follow the strong uptrend that has been developed lately to the traditional markets such as the stock indices. Early in the current week, Bitcoin lost the milestone price of $30K which is another bearish indicator. The recent factor that boosted the cryptos during the June which was the Bitcoin ETF application by BlackRock to the SEC has no further developments. A positive news for the crypto community is the Worldcoin Crypto project official launch by Sam Altman (OpenAI Chief Executive Officer) which is an iris biometric cryptocurrency project. Worldcoin hopes to provide a reliable way to authenticate humans online called World ID, to counter bots and fake virtual identities facilitated by artificial intelligence. There was some bad news for cryptos as well: Kuwait has banned cryptocurrency transactions, investment, and mining and the UK government announced that considers retail trading in digital assets closer to sports betting, which is a gambling action, than investing. We prefer short positions for one more week.
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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