Most of the important events scheduled for this week have passed and we may already draw a bottom line.
First, the inflation in the United States showed a significant increase to 5.4% in June despite analysts’ consensus at 4.9%, and this is the highest level from September 2008.
Federal Reserve Chairman Jerome Powell that has testified in the U.S. Congress after fresh inflation figures, and he was repeating the usual mantra about transitory inflation, and the time for any tapering of stimulus measures is yet to come.
Bank of England, in contrary, immediately changed its rhetoric to hawkish after inflation figures in June jumped to 2.5%, a highest reading since September 2018. Michael Saunders, one of eight members of the Bank’s monetary policy committee, said on current trends it might become appropriate “fairly soon” to rein in some of the stimulus provided to support the economy.
So, we may see more and more central bankers are coming to the understanding that high inflation is a real threat to economic growth and not just a red flag for politicians, and it requires normalization of monetary policy.
In this context, we should look on Chinese annualized GDP figures that fell to 7.9% in the second quarter vs 18.3% in the first quarter. Industrial production and retail sales that fell sharply are among the major concern. We should also recall a significant car sales decline in January-June by 13%.
In such situation, investors are simply ignoring positive corporate earnings reports in the United States. The “Big Four” JPMorgan, Wells Fargo, Bank of America and Citigroup presented have mostly beaten earnings forecasts for second quarter. However, S&P 500 broad market index fell by 0.3%.
The situation may improve after the release of the retail sales figures in the United States. Moreover, it seems that market players got used to buying the dips on Fridays, and dragging the index to new highs. Nevertheless, the index is pretty much above its nearest support level at 4280. And since it is above this level we have a clear upside trend.
Oil market is suffering as crude prices dived by 3% after Saudi Arabia was reported to support United Arab Emirates to revise is initial production level to 3.650 million bpd to increase its quota. Brent crude prices hit its minimal support level at $74.40 per barrel and may stay close to the current levels or bounce to $75.50 per barrel.
Gold prices suddenly went up to $1830 per troy ounce despite strong Greenback. Falling U.S. Treasuries yields might be the reason for such upside move, as U.S. 10-year Treasuries yield fell to 1.31%. Anyway, a clear signal of a directional move is needed before opening any positions.
Currency market situation hasn’t changed too much. The EURUSD is still trading below 1.19300 maintaining a downside scenario with a target at 1.15300.
GBPUSD is sandwiched between the support level at 1.37500, and the resistance at 1.39300. Sell positions in this regard should be considered only when the pair hits its resistance.
The USDJPY is moving between 109.65 and 110.60 levels with no signs of a directional movement.
It seems that we will not have any significant movements in the currency market by the end of this week.