Weekly Recap
The historic price move from the last week was when EURUSD hit 1.0 – marking parity between the euro and the US dollar for the first time since 2002 (20 years). It had closed near 1.1 last week so another 40-year high US inflation print for June and a shock 1% rate increase from the Bank of Canada were enough to send the dollar another 100 pips higher.
The euro lost over 1.5% vs the US dollar across this week but all major forex pairs were dominated by demand for the buck. The Japanese yen was the weak’s worst performer, dropping to a fresh 24-year low. So far attempts to call the top in the dollar and the bottom in these major currencies this year have been unsuccessful. This could change at least temporarily as we begin summer trading conditions.
Outside of FX, gold was the other big underperformer thanks to the strong dollar. The yellow precious metal fell to its lowest levels since August last year. Gold’s underperformance might seem counter-intuitive given the multi-decade high inflation but it has more to do with interest rate expectations. After the Bank of Canada raised interest rates by 100 bps instead of the 75bps that was expected, markets are now 80% sure the Federal Reserve will do the same at its meeting on July 27th.
At the same time the price of oil fell into a technical bear market, down 20% from its recent peak. Supply remains restricted so the best explanation appears to be investors pricing in demand destruction during a possible recession.
It was those same recession-fears after the US yield curve inverted that saw investors again sell out of stocks, though Wall Street held above the June lows.
Coming Up This Week
- ECB Rate decision
The European Central Bank has committed to raising interest rates at its meeting in the coming week. It is intended to quell inflation in the eurozone which is expected to be at 8.6% by the end of this month. However, an increase in interest rates by 25 bps, when compared to an expectation of a 100 bps hike by the Fed later this month, appears to be only mildly helpful in dealing with the problem of rising inflation. This policy divergence remains a bearish driver for EURUSD unless the ECB chooses to shock the markets with a much more hawkish stance at its meeting.
- BOJ Rate decision
The Bank of Japan has maintained ultra-loose monetary policy in June, and it is expected to do the same at its meeting in July. The overnight interest rate is not going to rise from -0.1% and the central bank will likely defend its cap on 10-year JGB bond yields. The Bank of Japan’s next meeting comes as USDJPYtrades at a fresh 24-year high on the most extreme central bank divergence.
- Netflix Q2 earnings
The share price of Netflix has dropped more than 70% from ATHs and overall, the company is facing a rough time. As its Q2 earnings report comes on Tuesday (19th) the shares have been unable to recover following the release of its Q1 earnings report where the company lost 200k subscribers and warned of sequential subscriber losses in Q2. Rising competitive challenges from other streaming platforms and consumers retrenching from ‘luxury’ purchases are the major headwinds.
The company recently announced they are teaming up with Microsoft on a free ad-supported subscription plan to help stem subscriber losses but potentially jeopardise subscription revenues in doing so.
Forex Heat Map
Source: MyFXBook.com
Technical Analysis
Our favorite technical chart of the week – Brent crude oil
Source: One Royal / TradingView
The $100 price zone is now both psychological and major technical support. A close above or below this level on the daily candle chart will likely set the tone for the direction over the coming weeks.
Economic Calendar
Two big central bank decisions alongside global PMIs and US retail sales are on tap this week. See the calendar below for the full schedule of high-impact events.
Source: MyFXBook.com
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
