Top Market Opportunities 13.06.2022 – 19.06.2022

As investors had started to think that the Fed might take a softer stance on hiking, inflation happened. Last week we saw the US CPI breaking to 40-year highs, and of course, sentiment reversed again as the Fed gets another slap for expressing that inflation had peaked. The ECB has finally joined the club, verbally. But if there’s one bank apart from BOJ that has to go it more aggressive and it doesn’t, that’s the one. Here’s what we shall remember from last week:

  1. US10Y back above 3% after impressive 7% week-on-week surge following 40-year record US inflation read
  2. DXY pops over 2% after CPI reverses less-hawkish sentiment as it proves the Fed continues to fail to stop inflation running hot
  3. EUR/USD down 2% as ECB’s stance showed the bank’s members are not taking heightening inflation seriously on one hike per month
  4. Gold reclaims safe-haven status 1% higher as more hedging seems to be becoming a little more popular
  5. Oil trades indecisive at $120/bbl as weak demand from covid-inflicted China is offset by Libyan disruptions
  6. SP500 records worst week since before covid after slushing 5.5% off gains

Anyway, we are not done with the bankers just yet. The week ahead is looking to be quite eventful, with plenty of economic data releases and central bank announcements on the calendar.

FOMC critical for market direction

The Fed is widely expected to hike rates twice at their June meeting this week and the real focus will be on the accompanying statement and press conference. The statement will be closely watched for any changes in language with regards to the outlook for rates and where the Fed sees inflation peaking this time following a 40-year high last Friday. In particular, investors will be looking for any clues on the size of the next rate hike in July, and beyond of course, and whether there has been discussion of larger increases for September as the month was portrayed as the one the Fed would pause the hiking cycle.

Overall, the FOMC meeting is likely to be less volatile than many expect as the Fed is likely to stay on course with its 50-basis rate hike plans, and not surprise with a 75-basis. Which means it is already priced in.

If the Fed provides a less aggressive message, the USDJPY might even fall for a well-needed breather, as markets would see this as dovish after the CPI print. The RSI and MACD indicators point to bearish price action too. Since there’s no major support between now and 131.35, a few weeks of downside could be seen unless the BOJ surprises us with a stimulus on Friday. In the interim, the 23.6% and 38.2% Fibonacci retracements at 133.20 and 131.86 might react.

Inversely, breaking past 135.20 – a 20-year high- could set the pair up for 136.00 and 137.25, taking us back to Q4 of ‘98.

SNB to stay put, but when will it hike?

The Swiss National Bank (SNB) is widely expected to leave rates unchanged at -0.75% on Thursday, but there’s a chance that the event will be seen as dovish should the statement provides no clues about future policy tightening since the ECB will be hiking in July; the SNB is expected to follow the lead.

The SNB has been one of the most active central banks in recent years in terms of its interventions in the foreign exchange markets, and it is unlikely to stop supporting the economy now. Especially since it works; Swiss inflation is at 2.2%, and GDP is up 0.5%.

1.0500 has become quite a level on EURCHF as it keeps the pair below its 2-year range, but we can observe both recent attempts have overlapped the resistance. One might think ‘so what, we had a false break in February too’, but this time prices are above the 200-day and 50-day averages. These two make short-term resistance/support. 

On the top side, re-entering the range would open up the room to 1.0700, whereas on the bottom side, 1.0250 becomes a major level for sentiment. It’s the 50% Fibonacci of the 0.9971-1.0514 leg. Obviously, the lower the levels are important too, but will we get there after getting two hidden bullish divergence signals on the RSI and MACD?

BOE is unlikely to push the brake now

The Bank of England is expected to raise rates again this week as inflation is expected to rise further. The move would be the fifth consecutive hike and thanks to pre-financial crisis interest rates, it is back up to its old self.

There are concerns that higher interest rates could put a brake on consumer spending and business investment, which could, in turn, lead to even slower economic growth, which could explain why the bank continues to raise rates gradually. 

Before Thursday’s event, the UK releases wages and growth data, both of which are critical in adding conviction that MPC members are handling the situation well. Another contraction in GDP is unlikely to be taken out of context.

Against the Canadian dollar is where the pound might reverse, short or medium term. GBPCAD displays a double divergence signal, and it appears on both MACD and RSI. But losing the support at 1.5725 opens the road to 1.5250. Between now and there, if the divergence signals are not invalidated, any round level such as 1.5700, 1.5650 et cetera, might offer the very same reversal. 

With momentum weakening (notice MACD histogram), it is not much likely we see much more downside. A move to RSI 30% is probable. Once the ‘new’ low is in (if, that is), prices could soar to the 50-day average near 1.6000 and beyond, but bulls will need to recapture and hold 1.5890.

How much more will BOJ let the yen fall?

The Bank of Japan is very likely to leave interest rates unchanged at its meeting on Friday despite mounting pressure for more stimulus to revive one of the world’s largest economies. The central bank’s nine-member policy board is set to convene for a two-day meeting starting Wednesday, with the release of its decision scheduled for Friday morning in Tokyo.

There has been speculation that the BOJ might take ultra-easing measures to keep its yield target despite inflation rising. But many economists say the BOJ is unlikely to act now because the Japanese yen has fallen to 20-year lows against the dollar and weakened across the board overall, and inflation is above target at 2.1%, offsetting dovishness – perhaps.

If there’s one pair the yen is less weak against, that’s the kiwi dollar. NZDJPY has started to fall after retracing 90% of the 87.34-79.47 drop near 86.60 but recovered its 50-day average around 84.00. Without a divergence printed on the chart though, how strong of a signal is this, if it is? Another leg up above the recent top could form the ‘missing’ signals.

After a multiyear print, the potential upside leg could extend to 90.00 ever, but when the inverse Fibonacci of the downward leg to the 200-day average is used, 88.44 and 89.46 are evident resistance levels. Looking down, the 53% near 83.40 is important for sentiment. If we lose it, the drop towards 80.00 is not going to be that hard.

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Top Market Opportunities 25.04.2022 – 01.05.2022

This week we will get releases on the US and EU GDP figures, inflation data from EU countries, and the bank of Japan’s central banking meeting.

Last week’s corporate earnings was badly performed by Netflix. There is now concern on whether Meta, Alphabet and Amazon will be able to beat expectations this week as IMF cut growth forecasts.

BOJ to hold

Japan’s Bank is expected to keep its policy unchanged on April 28 – likely maintaining rates at -0.10% and its QQE with yield curve control to flexibly target 10yr JGB yields at 0.0%. Most analyst will still focus on the Fed meeting on May where a 50bps rate hike is expected along with the start of QT.

Traders will be attentive to any possible changes in growth and inflation forecasts though due to effects from the Ukrainian war.

NZDJPY reversed at 87.32 last week, and broke the 85 level following divergence signals from both the RSI and MACD indicators. 84.25 is the near-term support should the decend continues. However, a bounce could be seen there. If traders are caught by a surprise, 82.53 is a major support. On the flip side. Interim 5esistance to the top lies at 86.30, Friday’s open.

Fed gets PCE

United States’ GDP is expected to show that the rate of economic growth slowed in the first quarter to 1% percent on Thursday. However consumer spending is expected to remain strong as both business investment and residential investment are expected to continue improving.

The Fed’s favorite inflation indicator is expected to show that prices are increasing by 3% in March. While the annual rate is only rising by 0.6%, this is not much less than what analysts predicted. The Fed uses the March report as an estimate of how inflation will change during the next month.

AUDUSD has been weakening since the 76.6c top a couple of weeks ago, finding golden support near 0.7230 after the indicators printed bearish divergence. Due to its bearishness, it is more likely it reaches 0.71 than 0.7363 (last Friday’s open) now, however, support can be observed at 0.72 too. Breaking 71c might lead prices below the 70c. Although unlikely, upward price action exposes resistance at 0.7458 as well.

EU inflation unstoppable

On Friday, Eurozone Q1 GDP will be updated in addition to Germany’s flash Q1 GDP figures. Q1 has been closely watched because of the spillover effects from the Russia-Ukraine conflict. March PMI data showed that growth continued at a slow pace even as business sentiment slumped and prices on average rose.

In addition, CPI figures will be provided. Inflation March data saw HICP soar to 7.4% from 5.9%, driven primarily by surging energy prices. Furthermore, pressure was also seen in the core reading following a pick-up in goods and services. Food prices will also contribute largely to the headline inflation rate.

DAX reached a critical support at 14k and could see a relief rally up to 14371 – the 23.6% Fibo retracement. Above there, 14589 is the next resistance. However, losing 14k will likely take the index to 13884, and if that gives in, the 50% Fibo can be marked as the next big support. Both indicators look bearish as the RSI is below its 50% and the MACD has pulled of a crossover.

Big 4 Report

The top 4 biggest companies by market capitalization are due to report earnings during week in the S&P 500 index. The latest earnings report comes amid increased fears the economy will take a turn for the worse due to the uncertainties of raised rates and inflation.

NASDAQ has reached the 61.8% Fibo extension at 13344, and if proven to be a false break, traders might see a relief rally towards 13471, 631 or even 14k if bulls make a decent attempt to recapture the round level. Should they let prices slide, however, the index risks to plummet down to 13k. Will this be easy, though, given the indicators are somewhat oversold?

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