Weekly Market Analysis: 11 July 2022

　　

What happened in the market last week?

• British Prime Minister Boris Johnson resigned after multiple MPs from his cabinet resigned, showing a lack of confidence in his leadership. 
• The Reserve Bank of Australia (RBA) hiked interest rates to 1.35% to try and fight the rising inflation. This could also be a way for the RBA to front-run any needs to decrease rates if the inevitable recession hits the market.
• The NFP payroll data came in above forecasts, highlighting a strong labour market in the US. US jobs created totalled 372,000 through June. Combined with the steady unemployment rate and average hourly wage, the USD strengthened in the short term compared to other markets.

Last Week Market Pair Changes

• US stocks rose in the holiday-shortened week as traders were convinced that the US Federal Reserve could avoid recession. The NAS100 closed higher by 4.7%, the SP 500 gained 2%, and the Dow lagged but still gained about 0.96%. 
• USD Index had a strong week after two of the US Federal Reserve’s most vocal hawks said on Thursday that they would support another 75 basis-point interest rate hike later this month. USD Index rose 1.73%. 
• AUDUSD ended the week higher after the RBA hiked interest rates to 1.35%. AUDUSD rose as much as 0.65%.
• Oil posted a weekly decline as volatile trading and recession fears overshadowed a fundamentally tight supply. USOUSD (WTI) declined by 4.38%.
• Gold prices slipped in their biggest weekly fall since June 2021, as demand for greenback-priced bullion weakened after the US dollar scaled to a 20-year peak. Gold declined by 3.84%.

(All data taken from MT4 VT Markets)

(Picture taken from forexfactory.com)

What to focus on this week?

Two central banks are scheduled to release a statement on interest rates this week. Will the Reserve Bank of New Zealand and Bank of Canada raise their interest rates as predicted?

The US Consumer Price Index and Retail Sales data will also be released to reflect the economic and inflation conditions in the US.

Investors will also keep a keen eye on Australia’s employment data and US retail sales.

Reserve Bank of New Zealand Rate Statement

The Reserve Bank of New Zealand raised its official cash rate (OCR) by 50 bps to 2% during its May meeting, the 5th straight rate hike.

The board also signalled that the OCR would peak higher than the previous forecast. Once aggregate supply and demand are more balanced, the OCR can return to a lower level. 

US Consumer Price Index 

The annual inflation rate in the US unexpectedly accelerated to 8.6% in May, the highest since December 1981. The Consumer Price Index, one of the indicators for inflation, will be released this Tuesday.  

Acceleration in May shows that inflation will likely continue to accelerate, and the Fed will need to raise interest rates for a prolonged period.

Bank of Canada Rate Statement 

The Bank of Canada (BoC) raised the target for its overnight rate by 50bps to 1.5% in June and signalled that it would hike interest rates further in the coming meeting to curb rising inflation.

It was the third consecutive rate hike, matching the magnitude of the bank’s previous meeting and pushing borrowing costs to the highest level since the pandemic started. The central bank also announced it is continuing quantitative tightening measures, extending the process to run down its balance sheet.

The BoC will likely raise its overnight rate by another half a percentage point at its 13th July meeting, taking its official cash rate to 2.00%.

Australia’s Employment Data

Employment in Australia jumped sharply from 60,600 to a fresh record high of 13.51 million in May 2022. Australia’s unemployment was unexpectedly at 3.9% in May 2022, remaining at its lowest on record for the third straight month, amid a steady recovery in the economy from the pandemic.

This month, the unemployment rate is forecasted at 4.0%.

US Producer Price Index

Producer prices in the US increased 0.8% month-on-month in May of 2022, following a 0.4% rise in April. The PPI is running at its highest level, showing no signs of easing.

US Retail Sales 

Retail sales in the US unexpectedly fell 0.3% month-on-month in May of 2022, the first decline this year. It follows a downward-revised 0.7% increase in April, as high inflation, gasoline prices, and borrowing costs hurt spending on non-essential goods.

Retail sales are expected to be higher by 0.8% in June.

Technical Analysis

USD Index

The USD index (USDX) continued to get stronger last week and was able to break our resistance levels. 

For this week, USD Index might go stronger since we will have some inflation-related data.

In our weekly timeframe, we can see that Stochastic Indicators are not showing any reversal yet, but we can see from the movement that a higher price is more likely. 

We have our weekly resistance levels at 107.45 and 108.34, with support levels at 104.69 and 105.56. 

Higher movement is also supported by the movement in the H4 timeframe, with Stochastic Indicators showing oversold levels with potential higher movement. 

Our support levels in H4 are at 106.55 and 106.15, and our target resistance is at the weekly levels of 107.45 and 108.34. 

Both moving averages (MA) in the weekly and H4 timeframes showing all of the 20, 50, and 200 MAs are still in the upside directions.

Weekly Resistance: 107.45, 108.34

Weekly Support: 105.56, 104.69

H4 Resistance: 107.45, 108.34

H4 Support: 106.55 and 106.15

Gold (XAUUSD)

Last week, Gold prices slipped in their biggest weekly fall since June 2021, ending the week after breaking all of our support levels from the previous week and matching our prediction that Gold might be lower for 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 the 20 and 50 MA but higher than the 200 MA. 

Meanwhile, in the H4 timeframe, we can see the Stochastic Indicators showing a strong higher move, while the price is still below all the 20, 50 and 200 Moving Averages. 

We can see that the price will rise slightly in the H4 timeframe to reach our H4 resistance levels at $1752 and 1772 before eventually going lower to try to break the support level at $1732 and $1722. 

Weekly Resistance: $1764, $1782

Weekly Support: $1722, $1687

H4 Resistance: $1752, $1772

H4 Support: $1732, $1722