Global financial markets were busy pricing in the Federal Reserve’s latest action last week, as Mr. Powell’s FOMC hiked the US benchmark rate by 75 basis points. The jumbo rate hike dampened inflation expectations and perhaps restored some credibility to the institution. However, the impact on equity markets has been undeniably bearish. The Dow Jones Industrial Average (DJIA) fell over 4% to its lowest level since November 2020.
The US dollar benefited from safe-haven flows despite an immediate reaction to the downside. The DXY Index was up about 0.50% at the start of the weekend. However, there are technical signs on major crosses such as EUR/USD, GBP/USD, AUD/USD and USD/CAD that suggest the dollar’s rise may be at or near a critical point. The Bank of England maintained its relatively dovish stance, raising interest rates by 0.25%. The dollar strengthened against the pound but pared some of those gains in the second half of the week.
Oil prices plummeted on Friday as traders absorbed growing fears of a Fed-induced recession. This happens in the middle of the summer driving season, when higher demand for fuel usually lasts into the fall months. Natural gas prices found relief in the United States after an LNG terminal suffered a catastrophic outage that would likely take months to repair. However, European prices shot up. The development should keep prices high in Europe, further complicating the inflation outlook for Europe.
Speaking of energy prices, Canada is due to release inflation data for May on Wednesday. The country’s consumer price index (CPI) is expected to come in at 7.5% yoy. That would be up from April’s 6.8% year-over-year gain. Hotter than expected prints are likely to already inspire aggressive rate hike bets from the Bank of Canada and potentially strengthen the Canadian dollar.
Japan is also expected to release inflation data for May. The Bank of Japan maintained its dovish stance last week in a market that appeared to be trying to force the BoJ’s monetary policy stance. That didn’t happen. The “don’t fight the Fed” mantra seems equally appropriate for the Bank of Japan. The yen fell against the dollar last week, although the pace of the losses has gradually eased. Hotter than expected CPI print from Japan could actually lead USD/JPY lower.
US DOLLAR PERFORMANCE VS. CURRENCIES AND GOLD
Fundamental predictions:
Australian Dollar Outlook: Hawkish RBA underpins AUD for now
The Australian dollar was boosted by a suddenly hawkish RBA which signaled a much higher interest rate path. If commodities hold and China loosens, will AUD/USD rise?
Gold Price Prediction: Gold Rangebound on Rates and Inflation Tug of War
Gold on track for first weekly drop in a month. However, range trading is likely to continue.
Euro fundamentals forecast: ECB emergency meeting, anti-frag tool and gas disruptions
The euro faces many challenges as Russian gas supplies dwindle and the ECB does little to ease bond market jitters after unfounded mention of an anti-frag tool
British Pound (GBP) Weekly Forecast: Inflation in Focus Again as Pound’s Weakness Continues to Hurt British Consumers
The pound has bounced back this week but continues to be overshadowed by a resilient dollar as upcoming economic data should keep current GBP/USD volatility alive.
Oil Price Forecast: Selloff looks overdone, tight energy market supports recovery
Oil sold off during the week, falling to its lowest level in almost a month on mounting recession fears, but the commodity could soon rebound, helped by extremely tight energy markets.
USD/JPY Outlook: All eyes on Fed testimony as BoJ sticks to easing cycle
Developments out of the US could affect USD/JPY in the coming days as Chairman Jerome Powell is expected to testify before Congress.
US Dollar Fundamentals: DXY Eyes Powell Testimony, Economic Data
The US Dollar has had a busy week of FOMC action but the economic agenda remains riddled with event risk. Mr. Powell’s testimony is among the most important.
Dow Jones, S&P 500 and Nasdaq 100 outlook for the coming week – not looking good
The Dow Jones, S&P 500 and Nasdaq 100 tumbled after the Federal Reserve stepped up efforts to rein in runaway inflation with a 75 basis point rate hike. The economic agenda is light but volatility remains ripe.
Technical forecasts:
S&P 500, Nasdaq, Dow Jones forecast for the coming week
Stocks tumbled to fresh yearly lows after FOMC this week, with key support targets now in sight. Relevant levels on the weekly S&P 500, Nasdaq and Dow technical charts.
US Dollar Technical Forecast: EUR/USD, GBP/USD, AUD/USD, USD/JPY
It’s been a busy week for the greenback and the currency continues in a bullish frame as the Fed remains the most hawkish play in town.
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