Weekly market report – 13 Jun 2022

The Consumer Price Index (CPI) inflation reading for May, a key economic report, was released on Friday, 10 June 2022. However, the inflation data surpassed expectations due to a surge in oil and food prices, thereby impacting the markets.

Forex

Despite the hawkish European Central Bank (ECB) announcement, the Euro dropped to its lowest level since late April against the US dollar. Moreover, the ECB’s monetary policy meeting was the main cause for the greenback’s rally. 

As the above chart depicts, EUR/USD kept bouncing back and forth between the $1.0650 and $1.0750 levels for the first 4 days of the week before entering a nosedive on Friday, 10 June 2022. The pair ended the week at the $1.0519 level, which lies slightly under the SMA 10 at $1.0527 and coincides with the SMA 5 at $1.0519. 

The GBP/USD pair declined for 4 consecutive days and closed the week at the $1.2316 level, which lies marginally above its SMA 5 at $1.2122. The pair’s bearish stint is being reinforced by the Brexit woes and political instability in the UK. Furthermore, the receding resistance line has countered any upside movements by the cable pair since mid-April. The pair now awaits the Fed and Bank of England (BoE)’s monetary policy decisions coming later this week for the next directional bias. 

Meanwhile, the USD/JPY pair has almost reached the ¥135 level, hitting over two-decade highs. This price movement can be attributed to relentless dollar demand in the US due to inflation and stronger yields. As a result, the pair came under selling pressure, which caused a drop from the long-term highs.

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Commodities

Gold prices continued to fluctuate before finishing the week at $1,872. The yellow metal's price went up significantly after a higher-than-expected inflation result. As seen within the chart, gold dipped below the $1,835 mark post the CPI data's release but bounced back to post a 1.64% change for the week. 

Bond yields and gold are in an inverse relationship once again. With the expectation that the Fed will raise rates by 75 basis points at least once in the next 3 meetings to combat rampant inflation, the benchmark 10-year yield is at its highest since 2018. 

Rising yields are heating the zero-yielding gold, which has also caused the US dollar to rise. Additionally, Fed tightening expectations have overshadowed rising recession fears while influencing the XAU/USD price. Traders are now anticipating the Fed's rate hike announcement on Wednesday, 15 June 2022 and its impact on related assets.

Meanwhile, oil prices dropped on Friday, 10 June 2022 but remained near three-month highs. This scenario resulted from US consumer prices growing faster than expected. Additionally, Shanghai's COVID-19 lockdown actions have outweighed stable fuel demand.

Cryptocurrencies

After 8 weeks of declines, the cryptocurrency market failed to hold on to its gains. Except for Cardano (ADA), which was up by 6% in the last 7 days, all top 10 cryptocurrencies have fallen by at least 3%. Altcoins like Binance Coin (BNB), Dogecoin (DOGE) and Litecoin (LTC) fell by around 6-10% for the week.

Market leader Bitcoin fared better than other coins, falling by only 3% in the past 7 days. At the time of writing, BTC is currently under the $30,000 mark.

Ethereum, on the other hand, did not fare so well. The second-largest cryptocurrency by market capitalisation fell by around 11% last week and was trading below $1,500. As seen in the chart above, there has been a constant dip since Friday, 10 June 2022, and ETH ended its week below the 5 and 10 SMA, respectively. 

In the last month, stock market losses, especially tech stocks, correlated more closely with crypto prices. Despite the recession in the US, regulators continue to propose crypto rules and guidelines that could impact demand for cryptos.

This week, the New York State Department of Financial Services (DFS) issued its first regulatory guidance for dollar-backed stablecoins. The guidelines describe the "baseline criteria" for securing, redeeming, and auditing stablecoins.

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US stocks market

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Friday’s declines lead to the S&P 500 posting its worst week since January. The Dow index fell for its 10th week in the past 11, while the S&P 500 and Nasdaq lost for the 9th week in the past 10. 

This fall was influenced by the Consumer Price Index (CPI) report that showed the annual inflation rate rose to a 40-year-high of 8.6% in May – the highest reading since December of 1981. 

The key driver of inflation continues to be rising global food and energy prices. The May CPI was discouraging as traders hoped inflation levels had peaked. However, the data suggested that inflation remains elevated and has not yet peaked in the US.

Tech stocks were under pressure as traders were concerned about higher rates and a potential recession. Apple dropped by nearly 3.9%, and Microsoft fell by 4.5% with many other stocks following the decline.

Market watchers will be anticipating the Federal Open Market Committee’s key interest rate decision on Wednesday, 15 June 2022. The Feds have already endorsed 0.50% rate hikes for the June and July meetings. However, after the inflation readings, it increases the odds of a potential 0.50% rate hike in September too.

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.