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25 July 2022                            Weekly Analysis

 

GCMAsia Weekly Report: July 25 – 29

 

Market Review (Forex): July 18 – 22

US Dollar

The dollar index which traded against a basket of six major currencies entered into a bearish trend after hitting the highest level in 20 years as the possibility of higher-than-expected rate hike eased, while a series of downbeat data continued to weigh on the dollar value.

According to Fed Rate Monitor Tool, the possibility of 100 basis point increase was notched down to the latest reading of 20.7%. Prior to now, the CPI and PPI data had given a higher-than-expected reading, which are 9.1% and 1.1% respectively. These inflation data which over the market forecast had hinted that the risk of increasing price keep lingering in the US market while the market participants started to ponder a full-percentage point of rate hike. However, the recent sharp drop in commodities prices such as crude oil and brent oil has ignited the market hopes that the inflation rate has peaked in June, where some decline could be seen in the month of July. Besides, two of the Federal Reserve most hawkish policymakers on 14 July said they favored another 75-basis-point interest rate increase at the US central bank policy meeting this month, which spurred bearish momentum on the US Dollar.

Furthermore, bearish economic data as well as the pessimistic statement from Janet Yellen further exerted bearish momentum on dollar market. On the economic data front, US Services Purchasing Managers Index (PMI) notched down significantly from the previous reading of 52.7 to 47.0, missing the market forecast at 52.6. Such downbeat reading had indicated that currently the US business activity had contracted for the first time in nearly two years as the high inflation risk, rising interest rates as well as deteriorating consumer confidence continue to jeopardize the economic growth in the United States. Besides that, US Treasury Secretary Janet Yellen warned that the US economic growth is slowing down while she acknowledged the risk of a recession continue to linger in the global financial market. In addition, the data last week suggested the labor market was softening with new claims for the unemployment benefits hitting the highest reading in eight months.

As of now, investors would continue to eye on the Thursday’s Fed meeting in order to gauge the further direction of the dollar index.

 

 

USD/JPY

The pair of USD/JPY plunged last week while closing its market price at 136.30. The massive bearish momentum has been noticed on the USD/JPY pair over the weakening of US Dollar. However, if we were to focus on the Japanese Yen itself, the Bank of Japan has vowed that they are likely to maintain its ultra-low interest rates and stressed its resolve to support a fragile economy with massive stimulus, an obvious move that showed a policy divergence with the rest of the world.

 

EUR/USD

The pair of EUR/USD rebounded last week while closing its market price at 1.0195. The single currency jumped after European Central Bank (ECB) announced its interest rate decision. According to the ECB meeting, ECB decided to raise its interest rate for the first time in 11 years by 50 basis point, which exceeding the market forecast of 0.25% rate hikes. The current rate hikes has ended negative rates era in Eurozone. Besides, the ECB claimed that it was a proper way to take more forcefully rate hikes in order to tame the soaring inflation, which sparkling the appeal of Euro. The ECB also reiterated that this move in interest rates will support the return of inflation to the target of 2%. In overall, the higher-than-expected rate hike has spurred the sentiment of Euro market, urging the investors to shift their holdings toward euro market.

 

GBP/USD

The pair of GBP/USD depreciated last week while ending last week session at the price of 1.1876.  Throughout the past one week, the pair of GBP/USD surged as a series of positive economic data showed that the economic condition in UK remains bright and resilient. According to the Office for National Statistics, UK Retail Sales data increased from the prior month reading of -0.8% to -0.1%, while stronger than the consensus forecast at -0.3%. It indicated that the deterioration of the consumer spending in UK has eased slightly. Besides, other data such as UK Composite PMI, Manufacturing PMI and Services PMI also came in at a reading which higher than the consensus forecast respectively, where it further cemented the view that UK economic condition has started to turn around from the worst. With such as backdrop, it has lit up the market expectation of aggressive rate hike by the Bank of England in the upcoming meeting.

 

Market Review (Commodities): July 18 – 22

GOLD

Gold price rebounded last week while closing its market price at $1724.35 per troy ounce. With the easing of a more aggressive rate hike expectation, the yellow metal has been receiving huge buying volume throughout the entire last week. However, the attention of the investors would still be focused on the result of the upcoming Fed meeting, in order to gauge the long-term direction of the commodity.

 

CrudeOIL

Crude oil price traded flat last week while ending the Friday’s session at the price of $94.00 per barrel. Over the week, the increasing number of Covid-19 cases in China urged investors to shy away from the oil market as it tampered the demand’s outlook of the black commodity. Besides, sign of political stability in Libya further pressured the black commodity prices as the reopening of oil fields and oil ports after a long shutdown amid civil unrest would eventually boost up or even reach the normal level of oil export within a near future. On the other hand, the supply-demand imbalances and uncertainty continue keep the oil price above the level of $90 per barrel. Besides, the capacity of OPEC+ oil production has also reached the maximum level, where further ramp up in oil production is unlikely to be seen in near future. Going forward, investors will eyes on the crude oil inventories data as well as further update from OPEC+ to gauge the direction of the oil price.

 

Weekly Outlook: July 25 – 29

For the week ahead, investors would continue to focus on crucial economic data such as Interest Rate Decision from Federal Reserve this week in order to determine further direction. Besides that, the ongoing situation with Ukraine-Russia war will also be in the eyes of investors.

As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.

 

Highlighted economy data and events for the week: July 25 – 29

Time Market Event Actual Forecast Previous
Monday – 25th July 2022
16:00   EUR German Ifo Business Climate Index (Jul) 90.2 92.3
Tuesday – 26th July 2022
22:00   USD CB Consumer Confidence (Jul) 97.3 98.7
22:00   USD New Home Sales (Jun) 664K 696K
Wednesday – 27th July 2022
09:30   AUD CPI (QoQ) (Q2) 1.90% 2.10%
20:30   USD Core Durable Goods Orders (MoM) (Jun) 0.30% 0.70%
22:00   USD Pending Home Sales (MoM) (Jun) -1.50% 0.70%
22:30   USD Crude Oil Inventories -0.446M
Thursday – 28th July 2022
2:00   USD FOMC Statement
2:00   USD Fed Interest Rate Decision 2.50% 1.75%
2:30   USD FOMC Press Conference
9:30   AUD Retail Sales (MoM) (Jun) 0.60% 0.90%
20:30   USD GDP (QoQ) (Q2) 0.40% -1.60%
20:30   USD Initial Jobless Claims 253K 251K
Friday – 29th July 2022
15:55   EUR German Unemployment Change (Jul) 15K 133K
16:00   EUR German GDP (QoQ) (Q2) 0.10% 0.20%
17:00   EUR CPI (YoY) (Jul) 8.70% 8.60%
20:30   USD Core PCE Price Index (MoM) (Jun) 0.50% 0.30%
20:30   CAD GDP (MoM) (May) -0.20% 0.30%
20:30 CAD Core Retail Sales (MoM) (May) 0.6% 1.3%

 

Risk Statement:

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