Welcome to the Key to Markets preview of the Week Ahead.
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5-day performance as of June 2, 2022. 13:30 GMT
In case you missed it….
In case you missed it….
EU institutes Russian oil ban. The EU-wide ban will affect oil that arrives by tanker, but not pipeline oil because of opposition from Hungary. The net result will be a 90% drop in Russian oil imports into the EU by the end of the year.
Saudi Arabia to take up the slack. Talk of Saudi Arabia making up for the deficit of Russian oil and Russia leaving OPEC+ sent oil prices sharply lower after spiking on news of the ban.
Quantitative tightening begins. The Federal Reserve officially began reducing the size of its bloated balance sheet on June 1st. This means the Fed is selling bonds back into the market.
Shanghai lifts restrictions. This week, a cause for optimism in markets was Chinese cities lifting economically-damaging and supply-chain disrupting covid restrictions after a 2-month lockdown.
BoC hikes 50 beeps. The Bank of Canada hiked rates by 0.5% for the second time in a row, taking interest rates back to 2%. Governor Macklem backed it up with hawkish plans for the coming meetings.
USD pullback slows. The dollar staged a comeback in the last week as some forex traders bought the dip following a 2-week decline.
JPY slides. A loss of haven demand and Governor Kuroda reiterating the BOJ’s dovish stance sent the Japanese yen lower (EURJPY, AUDJPY higher) for the third week running.
Jamie Dimon says, “hurricane coming”. In an interview, the long-time chief executive of JP Morgan said that things are good now, but he sees an economic storm coming that might not be avoided.
Meta’s Sheryl Sandburg steps down. The Facebook COO, known as “the adult in the room” at the company, announced she is leaving, sending the FB share price lower.
Solana network probs. Troubles across the digital currency space continued in the last week, with a second significant outage of the Solana network sending the token sharply lower not long after the collapse of Terra.
Source: Worth Charting
This chart shows the relative performance of the Nasdaq 100 relative to the S&P 500 going back to 2005. The current pullback represents one of the most significant periods of underperformance of tech stocks which are heavily represented in the Nasdaq.
It represents a possible buying opportunity as tech reaches fairer valuations as this comparative chart pulls back to its bullish trendline. However, should the price break the trendline, markets will be in uncharted watchers – and potentially enter a multi-year slump in tech stocks, which could mean a prolonged bear market given their high weighting in the S&P 500.
Source: FX Street
All eyes will be on President Christine Lagarde following her comments that rates in Europe will be back in positive territory come September. There’s been a hawkish shift at the ECB, but the question is where it’s enough to stem the tide of EURUSD selling as the Fed preps another 0.5% hike this month.
Another reason the dollar selling eased over the past week was the Fed’s Raphael Bostic walking back his previous suggestion that the Fed might pause its rate hikes in September. A softer May CPI number could give the idea more credibility.
The Aussie dollar was an FX outperformer last week amid expectations the RBA could accelerate its pace of rate hikes at the coming meeting. Australian Q1 GDP data came in ahead of expectations, and one measure of inflation is the highest since 1988.
There’s an outside chance that Russia could respond to the EU ban of Russian oil, adding geopolitical risk to markets. In the past, Russia has mirrored sanctions placed on it by the West. However, given the economic pressures on the country, it seems unlikely this time.
The World Health Organisation (WHO) confirmed more than 500 monkeypox cases across 30 countries. The international health body suggested the virus must have been circulating unknown before it was discovered in several countries.
Technical Analysis of the major asset classes (Forex – Commodities – Indices…).
The euro successfully broke the bearish trend line to the downside and entered a bullish flag formation. The market faced a strong support level around 1.0640, where the buyers reversed the price to the upside. Should the price breakout from the flag, it could probably be heading toward the next key resistance level, which is 1.0760.
The Pound breached the bullish trend line and moved lower; however, the strong support area halted its move to the downside, which led to a strong positive momentum which suggests the correction of the bullish trend is over and could lead to a move higher to a retest of the 1.2636 mark.
USD/JPY managed to shift direction after breaking a bearish trend line to the upside. The pair now is in a clear upward movement where huge bullish bodied bars are posted along with higher highs and lows. We could see a lower correction to the support level (129.4039) before a new bullish impulsive wave to the 130.820 mark.
The Aussie is bouncing inside a bullish channel formation which shows that the pair is in a healthy upward movement. The market retraced to the 0.715702 mark and is now consolidating within the channel, where the price sat and reversed around this mark. Good momentum is seen on the current 4-hour bar showing that the buyers are in control of the market and could push the price furthermore towards the upside to the 0.7265 level, the early May peak.
Loonie is in a downtrend; this is seen by the bearish bodied bars highlighted in yellow. After breaking the bearish flag pattern, the market continued its move to the downside. Now it is ranging near the 1.2635 mark. What we could see next is a retracement to the area of confluence made by the bearish trend line, and the resistance level around 1.27201 could offer resistance to any bounce where the sellers could ride back the downtrend and this could lead to another move to the downside to reach back the 1.2635 mark.
Gold shifted direction after breaching the bearish trend line to the upside. The market now is moving to the upside, where it entered into a potential bullish flag pattern. The price of Gold could be pushed towards the 1849 mark, and it has the potential to reach the 1909 level since there is a possible ABCD pattern which coincides with the strong resistance area (1909).
UK Brent oil failed to break the resistance zone around the 120 mark, which led to a reversal and a move below a bullish trendline. The market is now dominated by the bears, but where the market is currently sitting around the 113 level offers near term support. If more sellers joined the downtrend, this could lead to a move to the downside again toward the 109 mark.
The US500 reversed and moved higher after breaking a bearish trend line. The 4-hour bar closed above the 4135 mark, which shows strong dominance by the bulls. A lower correction is underway to the previous resistance level 4135 (now support), which might offer the opportunity for more buyers to enter to jump the uptrend at lower prices and push the price toward the 4303 mark.
Thank you very much for reading – and have a great week trading!
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