The Week Ahead 27th June – 1st July: upcoming recession?
Welcome to the Key to Markets preview of the Week Ahead.
Currency Pair Performance
5-day performance as of June 23, 2022. 11:00 GMT
Source: finviz.com
10 Big Stories Last Week
In case you missed it….
Yen slides. Following the release of the BoJ minutes to the June meeting, the yen skidded lower to a fresh 24-year low against the USD, of 136.70, on central bank divergence before recovering.
UK inflation hits 9.1%. This marked the fastest increase in prices in 40 years. The data comes as workers and unions across the UK plan strike action over pay as the cost of living rises.
Oil falls below $105. News that President Biden would temporarily suspend federal taxes on gasoline at 18.4 cents a gallon, combined with recession fears, pulled oil lower.
Canadian inflation rises. Canadian inflation rose to an almost 4-decade high of 6.1% YoY in May. Hot inflation plus strong retail sales could prompt the BoC to raise rates by 75 basis points.
Powell warns a recession is possible. Testifying before Congress, Powell acknowledged that a recession is a possibility. Citigroup forecasts a 50% probability of a recession.
Eurozone economy loses momentum. PMI data falls by more than expected in June, with business growth slumping as price hikes bite.
BTC steadies above 20k. Bitcoin fell to 17600 on June 18 but has climbed back above 20k, bringing the price out of the oversold territory.
Russia cuts gas. 12 European countries have been affected by cuts to gas supply from Russia. Ten countries, including Germany, have issued an early warning on gas supply.
Tesla up on job cuts. The EV maker jumped after Musk and said that he would cut 10% of salaried staff in the event of a recession, despite the new Tesla factories losing billions.
Twitter rises as the board supports Musk. Twitter is set for its first weekly gain after three weeks of losses as the social media platform’s board unanimously approves the $44B takeover.
Chart of the Week
Source: McClellan Financial Publications
US Michigan consumer sentiment dropped to a record low in May, which according to this chart, conveys a strong message regarding rising unemployment. The chart is inverted. Rising unemployment lags falling consumer confidence by around 10 months.
As recession fears rise and consumer confidence tumbles, the US jobs market has remained incredibly strong. This is unlikely to last; it is becoming a question of when will the jobs market weaken rather than if. Federal Reserve Chair Powell called the jobs market “unsustainably hot” last week in his testimony to Congress.
5 Things to Watch This Week
1. Australia retail sales
Australian retail sales rose a solid 0.9% MoM in April, setting another record high, underscoring the strength of the consumer as pandemic disruptions ease and interest rates remain low. The RBA started its tightening cycle in May, raising rates by 25 basis points. Investors will be watching to see whether higher rates and inflation mean consumers have begun to change their habits.
2. UK GDP
UK GDP is expected to be upwardly revised in Q1 from 0.8% to 1%. However, this may not relieve the pound or market sentiment, given the dire outlook for the UK economy. With inflation at a 40-year high, rail strikes, labour shortages, and Brexit troubles, a recession is almost unavoidable.
3. US PCE
Personal consumption expenditure is the Fed’s preferred gauge for inflation, eased back to 6.3% in May from 6.6% in April, suggesting that price pressures could be peaking. CPI inflation was also holding steady at 8.3%. Since then, we have seen CPI rise to 8.6%, defying expectations that peak inflation has passed. Another fall in PCE would mark a third straight month of declines and revive the “passed peak inflation” narrative, potentially lifting stocks.
4. Eurozone inflation
Consumer prices in the eurozone reached a record high in May of 8.1%, more than four times the ECB target level. Post-pandemic supply shortages and surging energy prices after Russia’s invasion initially dove inflation higher. However, now inflation has become more broad base. Expectations are for inflation to ease back to 7.8% YoY in June. This is unlikely to deter the ECB from starting its hiking cycle in July.
5. OPEC meeting
At the last meeting, OPEC+ surprised the market by agreeing to a larger-than-expected output increase of 468k barrels per day in July and August, rather than 400k bpd initially planned. The move by the oil cartel signals a potential thawing in relations between the US and Saudi Arabia and comes as a response to tight market conditions. Another surprise move by OPEC+ is unlikely this month, particularly in light of the fall in oil prices this week.
Economic Calendar Highlights
Source: FXStreet.com
Technical Analysis:
Technical Analysis of the major asset classes (Forex – Commodities – Indices…).
EUR/USD (H4 Candlestick Chart)
The Euro is bouncing inside a parallel channel formation made of key support & resistance levels with the respective values 1.04 & 1.06. The price is moving lower where it is about to test the lower end of this range; however, the buyers could take back control of the market and reverse the price to push it higher toward the 1.06 mark.
GBP/USD (H4 Candlestick Chart)
The Pound is also bouncing inside a parallel channel formation. This range is made from two clear support and resistance levels at 1.217 and 1.231, respectively. The market has already tested the lower end of the channel and is reversing to the upside. If this scenario occurs, the “GBP/USD” price could reach the 1.23 mark, setting up a potential upside breakout.
USD/JPY (H4 Candlestick Chart)
USD/JPY managed to break above 135 resistance; however, the pair is losing momentum. This can be seen by the big-bodied bearish bars above the resistance level. If the market drops below 135 again, this could signal a ‘fakeout’ and could lead to a further move to the downside toward the 133 mark.
AUD/USD (H4 Candlestick Chart)
The Aussie was trending to the downside; however, the sellers lost momentum above the YTD low around 0.685. The price found buyers near the 0.68 mark and looks to be setting up a reversal to the upside. If the buyers were strong enough to reverse the market, the Aussie could reach the 0.69 mark, a potential pivot area for further gains throughout the week.
USD/CAD (H4 Candlestick Chart)
Loonie is clearly in an uptrend where higher highs and lows have been posted, along with big-bodied bullish bars. The price already posted a correction to the 1.29 mark and moved higher, leaving behind a double bottom formation. So, this could lead to a continuation of the upward movement to test the psychological 1.30 mark.
Gold (H4 Candlestick Chart)
After breaking the parallel channel to the downside, the market re-entered into the range from the downside. The market is bouncing inside this formation, and currently it is heading toward the lower end of the channel, 1829. The latest long-bodied bar off support indicates a rejection from the lower end of the range, and if the buyers were strong enough, they might reverse the price and push it to the upside toward the 1856 mark.
Brent Oil (H4 Candlestick Chart)
UK Brent is in a clear downward movement where lower highs and lows have been posted. In addition, the market is bouncing inside a bearish channel, but it faced a strong support level near the 104 mark. We noticed a big-bodied bullish bar near this zone which shows that the buyers are trying to reverse the price to the upside. If they succeed, the price of Brent Oil could reach the 110 level.
US 500 (H4 Candlestick Chart)
The US500 had been moving to the downside before finding buyers near the 3,660 mark. The price posted a double bottom formation which led to a reversal and a move higher with higher highs and lows. The market found buyers near 3730, and it looks like it will continue its move to the upside toward the pivot level of 3,800, where a higher close could set up a more significant rebound through the week.
Thank you very much for reading – and have a great week trading!
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