Market news – Week 3, July 2022

The release of June’s Consumer Price Index data last week indicated that consumer inflation had accelerated to 9.1% in June – a pace not seen in more than 4 decades. Here’s how the markets reacted.

Forex

For the first time in 20 years, the euro plunged below parity against the US dollar on Wednesday, 13 July 2022. This fall was a result of an increase in June's US consumer prices, which reached a four-decade high, and concerns over Russian restrictions on Europe's energy supply.

Since the beginning of this year, the euro has dropped by almost 12% against the US dollar. European Central Bank (ECB) rates have lagged behind other central banks in raising interest rates, further weakening the euro. That being said, the US dollar has also been strong in recent months. With the US central bank raising its interest rates, traders have turned to US dollar assets as safe havens during uncertain times.

Meanwhile, EUR/USD ended the week trading around $1.0100 amid a broad US dollar retreat and Italian political uncertainty. As a result of easing fears over aggressive Fed tightening and China's policy support, the market has been in a positive mood. All eyes remain on this week's ECB rate hike as it is widely expected to raise its benchmark interest rate for the first time since 2011.

Although the GBP/USD rate touched new yearly lows, it followed other major currency pairs in hopes that the British public sector workers' wages would be significantly higher after Friday's US dollar retreat. This week, the UK Consumer Price Index (CPI) will be one of the most critical data points.

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Commodities

Gold started the week above the $1,740 level and went on a bearish run to end the week below the $1,710 level. The yellow metal experienced its longest stretch of declines in nearly 4 years as it entered its fifth straight week of losses.

Rising inflationary fears and an expensive US dollar were the main factors contributing to the ongoing decrease in gold prices. Moreover, on Wednesday, 13 July 2022, the US suffered its most significant annual gain in inflation at 9.1% – the highest since 1981. These circumstances contributed to this severe reaction in the gold market.

As seen in the chart, on Thursday, 14 July 2022, the precious metal almost fell to the $1,700 mark from the $1,735 level at the start of the day. The SMA5, SMA10, and SMA15 followed the same trend and converged at the end of the week at the $1,705 level.  

This week will put gold at further risk as the US dollar strengthens against all competitors.

On the other hand, Brent broke beyond the $100 per barrel mark on Thursday, 14 July 2022, as traders weighed restricted supply against the possibility of a significant US rate hike that would stifle inflation and reduce demand for crude oil.

Cryptocurrencies

Over the past few weeks, major cryptocurrencies have seen a wave-like pattern. Most significant coins started the week in the negative but quickly reversed the trend and showed a steady climb. 

Bitcoin fell below the $20,000 level at the start of the week. However, the largest cryptocurrency in the world by market capitalisation took an upward turn and breached the $21,000 level in a bullish run during the end of the week. 

Bitcoin turned downwards after scaling the $21,500 level on Sunday, 17 July 2022. At the time of writing, Bitcoin is trading at the $20,929.30 mark, which is lower than its SMA5, SMA10, and SMA15 at $20,997.25, $21,129.15 and $21,234.25, respectively. 

Moreover, recent data released by Bloomberg suggests that the Bitcoin-to-Nasdaq correlation is close to its lowest point this year. This point indicates that Bitcoin has endured more downward pressure than stocks. 

Cryptocurrencies like Litecoin, Dash, and Dogecoin mirrored the movements of Bitcoin and ended the week with gains of 14.5%, 11%, and 1.6%, respectively.

While other major cryptocurrencies just managed to consolidate their losses, Ethereum prices increased by over 22%, surpassing the $1,300 level. 

In other crypto-related news, the Financial Stability Board (FSB) announced that it would develop proposals to ensure cryptocurrencies are appropriately regulated and supervised.

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US stock markets

*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.

It was a volatile week for stocks, leading to all the major averages ending the week in a loss. The Dow fell by almost 0.2%, while S&P and Nasdaq each fell by 0.9% and nearly 1.2%, respectively. As a result, the S&P 500 fell by roughly 19% of its highs accumulated from the beginning of the year.

According to the US Labor department, the Consumer Price Index (CPI) rose to 9.1% – the highest in 41 years. The prices increased by 1.3% in June alone.

However, on Friday, 15 July 2022, a surprise 1% gain in June's retail sales was reported, along with stronger data on consumer inflation expectations. The inflation data seemed optimistic, as the rise in import and export prices was less than anticipated. Due to this, the market rallied strongly to end the day. 

​​This week, the release of earnings reports by various companies could set the tone for the market. These reports will include results by Bank of America, Goldman Sachs, IBM, Johnson & Johnson, Netflix, Tesla, and more.

Now that you’re up-to-date on how the financial markets performed last week, you can improve your strategy and trade CFDs on Deriv MT5 Financial and Financial STP accounts.