Weekly Market Analysis: 06 June 2022

　　

What happened in the market last week?

• Bank of Canada raised interest rates by 50 bps to 1.5% and signalled more hikes to come. 
• US ADP Nonfarm Employment reported a 128,000-increase in private sector employment (previously 202,000).
• US Nonfarm Employment Change reported 390,000 additional payrolls (previously 436,000), and the unemployment rate remained at 3.6%.

Last Week Market Pair Changes

• USOUSD (WTI) set another positive week, rising 4.05%, with the EU banning Russian oil, OPEC accelerating its production, and US inventories dropping again.
• US stocks experienced another weekly loss after the latest batch of data on the labour market reinforced expectations for aggressive monetary policy tightening from the Fed. NAS100 fell 1.34%, SP500 fell 1.38%, and DJ30 fell 0.97%. 
• The USD Index (USDX) strengthened by 0.51% after reports showed better-than-expected nonfarm data.
• Gold was also affected by the nonfarm data, falling 0.11%.
• USDCAD fell as much as 0.99% after the Bank of Canada hiked interest rates by 50 bps to 1.5% and signalled more hikes in the future. 

(All data taken from MT4 VT Markets)

What to focus on this week?

This week, interest rate decisions from the Reserve Bank of Australia (RBA) and the European Central Bank (ECB) will provide clues on how major financial institutions are responding to rising inflation rates and supply chain disruptions brought about by the pandemic and the Ukraine war.

The RBA will announce its interest rate decision on Tuesday, with analysts forecasting a 40bps rate hike after the bank hinted at further tightening to tame surging prices. Last month, the RBA increased its cash rate by a higher-than-expected 25bps to 0.35%, its first rise since November 2010, citing continued efforts to curb swelling inflation.

Experts expect the ECB to keep status quo this month, after it retained interest rates at record lows in April. ECB policymakers have expressed concerns as price pressures continue to broaden, and are calling for a gradual normalisation of monetary policy. The ECB will likely start to raise interest rates only from July 2022.

Canada will announce May employment data on Friday, with numbers anticipated to remain at record lows of 5.2%, extending the robust recovery of the labour market from the pandemic.

The US Consumer Price Index (CPI) will also be released on Friday. Despite the slowdown in April, which suggests that inflation has probably peaked, inflation is unlikely to fall back to pre-pandemic levels any time soon. Analysts project figures to remain above the Federal Reserve’s targeted 2% for the foreseeable future as supply chain disruptions persist, and energy and food prices remain elevated.

Technical Analysis

USD Index

The USD index (USDX) got a little boost after a reported increase in nonfarm payroll jobs.

Unable to stay below our support level of 101.50, USDX reached our first resistance at 102.68 before lowering again to stay in the 101.50 to 102.35 range. 

The support level in the next weekly timeframe is at the 99.78 to 100.26 area, while the resistance level is at the 102.68 to 103.20 area again, with the highest resistance at 104.65. 

Meanwhile, on the 4-hour timeframe, the closest support level is 101.50, and the resistance level is 102.35.

Resistance: 102.35, area 102.68-103.20

Support: 101.50, 101.10, area 99.78-100.26

Gold (XAUUSD)

Last week, Gold moved with volatility but was unable to make a strong move. Gold tried to reach our support level at $1831 and our resistance level at $1877. 

This week, there is a possibility for Gold to move a little slower within the range of $1831 to $1877, with the US CPI data as the key driver for movement.

On the weekly timeframe, the closest resistance level is at $1877, with the support level at $1831.

On the 4-hour timeframe, the closest support is at $1832 to $1836, with the resistance level at $1858 to $1861.

Resistance: area $1858-$1861, $1877

Support: area $1832-$1836