Weekly Market Analysis: 04 July 2022

　　

What happened in the market last week?

• European Central Bank (ECB) President Christine Lagarde, Federal Reserve Chairman Jerome Powell, and Bank of England (BoE) Governor Andrew Bailey spoke on policy outlook at the annual ECB Forum on Central Banking.
• ECB President Lagarde said nothing that would encourage financial markets to wager that Europe’s deposit rate will climb from -0.50% to 1% by year’s end. She mentioned twice the “optionality” that ECB wants on the timing and size of any interest rate changes after the 0.25% July hike that was effectively announced previously in June.
• BoE Governor Bailey provided context for current market estimates for the bank rate, which was increased to 1.25% in June. Since mid-June, overnight index swap market prices have implied a high probability of the BoE’s bank rate rising from 1.25% to 2.75% or more before year-end. Still, the BoE’s Market Participants Survey indicates an increase of only 2%.
• Fed Chair Jerome Powell praised the extent to which financial markets have understood the Fed’s future guidance and the speed with which they have priced in a series of interest rate hikes. He said nothing to urge the markets to go farther than they have already, and instead made plain that everything about the forecast for the Fed’s interest rates depends on US inflation rates in the months ahead.

Last Week Market Pair Changes

• US indices ended the first half of 2022 lower but started the 2nd half with a strong rebound though unable to cover the early week losses. NAS100 fell 4.30%, SP500 2.33%, and DJ30 1.42%.  
• Pessimism about the global economic outlook raised demand for the safe-haven US dollar, strengthening the USD index by 0.97%.
• The strengthening of the USD index also slowed some major pairs, with AUDUSD falling by 1.81%, GBPUSD 1.52%, and EURUSD 1.06%.
• Oil rose 0.67% after Libya declared force majeure on more crude export terminals, fueling further concerns over tight global supply.
• Gold was also affected by the strong USD Index and fell by 1.61%.

(All data taken from MT4 VT Markets)

(Picture taken from forexfactory.com)

What to focus on this week?

Several key events this week will lead sentiments for the second half of the year, with investors hoping for a positive start following a stormy first half that saw some of the highest rate hikes in decades. 

Switzerland will kick things off on Monday with its monthly Consumer Price Index (CPI) data, where higher inflation numbers could mean potential rate increases from the Swiss National Bank (SNB).

The Reserve Bank of Australia (RBA) is set to announce its cash rate on Tuesday after back-to-back interest rate hikes, with some analysts forecasting another 50bps and supporting more aggressive action to tame soaring inflation.

US Federal Reserve will release its FOMC meeting minutes on Thursday, providing in-depth insights into its recent 75bps higher-than-expected rate hike decision. Fed Chairman Jerome Powell asserted confidence in the US economy’s ability to withstand tighter monetary policies, and said the bigger risk is failing to restore price stability.

With several Fed members advocating for quick rate hikes to get inflation back to 2%, investors are bracing for yet another 75bps or 50bps gain this month.

US Non-Farm Payroll (NFP), Unemployment Rate, and Average Hourly Earnings data will be released this week. Analysts expect some on-month easing in NFP numbers for June, projected at 295,000, and forecast unemployment to decrease to 3.5% after stagnating the past few months, as jobs trickle in from a recovering economy.

Canada’s unemployment fell to a record-low of 5.1% in May, and June’s data this Friday is expected to surpass that, continuing months of rally in the jobs market.

Technical Analysis

USD Index

The USD index (USDX) is back on stronger terms in the last week and is trying to break our resistance levels and close our weekly timeframe at 105.56 – 104.69. 

For this week, USDX will keep trying to break our resistance levels if we see the Weekly Stochastic Indicator still showing its strength. Our weekly resistance levels are 104.69 and 105.56, with the support levels at 101.02 and 101.63. 

Meanwhile, with a weekly timeframe showing a stronger move, we can see a possibility of a correction on the H4 timeframe. We believe that in the short term, the USDX will go slightly lower and target our H4 support levels at 104.63 and 104.38 before eventually strengthening again and hitting the H4 resistance levels at 105.18 and 105.31. 

Even though all of the 20, 50, and 200 moving averages in the weekly and H4 timeframes are still on the upside, this technical aspect might change after the release of this week’s US labour data.

Weekly Resistance: 104.69, 105.56

Weekly Support: 101.63, 101.02

H4 Resistance: 105.18, 105.31

H4 Support: 104.63, 104.38

Gold (XAUUSD)

Last week, Gold weakened after a positive jump in the opening on Monday. This was the third week in a row that Gold had weakened. Even though US labour data has not yet been released, we can see a possibility for Gold to go lower in the next few weeks. 

In the weekly timeframe, we can see that the stochastic indicators show a potential reversal for Gold to move lower, yet the moving averages show that the price is below 20 and 50 but higher than 200. 

Meanwhile, in the H4 timeframe, we can see the stochastic indicators showing a strong higher move, while the price is still below the 20, 50, and 200 moving averages. 

The price may also rise slightly in the H4 timeframe to try to reach our H4 resistance levels at $1821 and $1828 before eventually going lower to try to break the support level at $1786/87 and $1757.

Weekly Resistance: $1875, $1903

Weekly Support: $1787, $1757

H4 Resistance: $1821, $1828

H4 Support: $1807, $1786