Weekly Market Analysis: 13 June 2022

　　

What happened in the market last week?

• US Consumer Price Index (CPI) surged 1%, above the forecast of 0.7%, which will likely see the Federal Reserve continue its aggressive stance on interest rates. 
• Reserve Bank of Australia (RBA) increased interest rates to a higher-than-expected 0.85%, with analysts bracing for more hikes to come.
• European Central Bank (ECB) left rates unchanged, but signalled a rate rise of 25bps in July, with more planned towards the end of the year. 

Last Week Market Pair Changes

• US stocks suffered another weekly loss on the back of relentless inflation. NAS100 fell 5.57%, SP500 fell 5.04%, and DJ30 fell 4.59%, in the worst week since January. 
• The USD Index (USDX) strengthened 1.82% following higher-than-expected CPI data. 
• Gold rose 1.12% as investors look to safe haven instruments amid inflation uncertainties.
• EURUSD fell as much as 1.92% after the ECB failed to surprise investors at its meeting, despite declaring the end of quantitative stimulus and a 25-basis-point rate hike in July.

(All data taken from MT4 VT Markets)

What to focus on this week?

This week will be a big week for some central banks, including the US Federal Reserve, Bank of England, Bank of Japan, and Swiss National Bank.  

On Wednesday, the Federal Reserve will likely deliver a second 50bps rate hike, adding to the 75bps rate increase since March. 

Investors are keen to know what Fed Chair Jerome Powell has to say about future rate hikes after the stronger-than-expected inflation data released last Friday. Investors are increasingly concerned that aggressive measures by the Fed could lead to a recession. 

The Bank of England (BoE) is anticipated to announce its fifth consecutive rate hike amid soaring cost of living. The BoE was the first major central bank to raise interest rates since the beginning of the pandemic. However, that did not stop the UK inflation from reaching 9% in April, almost five times its 2% target. 

The BoE anticipates inflation to exceed 10% later this year and Governor Andrew Bailey said the bank is walking a tightrope between tackling the surge and causing a recession.

The Swiss National Bank (SNB) and Bank of Japan (BoJ) will also hold policy meetings on Thursday and Friday, respectively. 

The SNB is not expected to make a change to its -0.75% interest rate – the world’s lowest – when it meets on Thursday. But with Swiss inflation hitting the highest in 14 years in May and the prospect of the European Central Bank increasing rates in July, a shift towards rate hikes may finally come about.

Meanwhile, the BOJ is expected to retain its ultra-low interest rates, putting it at odds with other major central banks pushing for a much tighter monetary policy. Reports of the Fed aggressively tightening its monetary policy could result in the broader divergence of interest rates between the US and Japan, positioning the yen to multi-decade lows against the US dollar.

On Wednesday, the US will release data on May retail sales, expected to decrease amid weak auto sales. 

The producer price index will be reported on Tuesday. Rising price pressures are prompting consumers to change their spending habits, inciting fears of a recession.

Technical Analysis

USD Index

The USDX increased after CPI data rose higher than expected, increasing above our mid-resistance level at 103.20. 

USDX is expected to increase further should the Fed increase the interest rate this week, with the next target being in our weekly resistance levels of 104.65 and 105.04. Our weekly support will remain at 102.68 and 103.20. 

Meanwhile, on the 4-hour timeframe, the resistance level will be at 104.47 and 104.88, with the support level at 103.20 and 102.81.

Resistance: 104.47, 104.65, 104.88, 105.04

Support: 103.20, 102.81, 102.68

Gold (XAUUSD)

Last week, Gold moved higher, reaching our resistance level of $1877, after most investors looked for Gold as a safe haven after US inflation continued to rise. 

This week, there is a possibility of Gold moving a little higher, with the next resistance level at $1916 on the weekly timeframe and the support level at $1859 and $1832. 

Meanwhile, on the 4-hour timeframe, the closest support will be at $1863 and $1856, with the resistance level at $1872.

Resistance: $1872, $1877

Support: area $1863, $1859, $1856