Weekly market report – 06 Jun 2022

Last week, fears of the Federal Reserve tightening its monetary policy resulted in a heavy sell-off, which wiped out gains secured earlier in the week.

Forex

Despite reaching a high of $1.0787 last week, EUR/USD finished the week essentially unchanged, in the range of $1.0720/30. The pair’s price increase was largely driven by government bond yields and inflation-related concerns. 

Looking at the chart above, EUR/USD is priced between the 61.8% and 50% retracement levels near $1.0730 and $1.0713, respectively. On the upside, its next resistance level would be at the 76.4% retracement level at around $1.0751. However, on the downside, its next support level would be at the 38.2% retracement level at approximately $1.0695. 

In the holiday-shortened US week, GBP/USD suffered its first weekly loss in 3 weeks. Although the US dollar continued with its corrective decline, the pair failed to capitalise on this factor after troubling inflation data and a negative growth outlook for the UK soured market sentiment.

This week, the US Consumer Price Index is likely to steal the show. There are no significant economic releases until Friday, 10 June 2022, so traders will prepare for this critical event as policymakers enter their blackout period before the next Federal Open Market Committee (FOMC) meeting. On the other hand, the European Central Bank (ECB) will announce monetary policy decisions ahead of the US inflation report, mostly confirming a July liftoff.

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Commodities

Gold prices fell ahead of the weekend due to a renewed US dollar strength, reactions to the upbeat jobs report and the benchmark 10-year US Treasury bond yield surging by 3%.

Gold ended its week at $1,851.18. As per the above chart, gold is priced just below the 50% retracement level at around $1,851.63. If this level is breached, its next resistance level would be at the 61.8% retracement level near $1,856.78. On the downside, its support level is at the 38.2% retracement level at around $1,846.47.

WTI ended the week above $118, marking a gain of over 3%. Additionally, the US job market grew faster than expected in July, indicating that economic growth will continue, thereby boosting crude and refined product demand.

Despite easing virus restrictions, oil prices have risen as demand has increased. Moreover, supply from one of the three largest producers has been reduced by Russia's invasion of Ukraine. However, China, the largest crude importer globally, has the potential to rebound in consumption, further pushing up prices.

Cryptocurrencies

Last week, the price of the largest cryptocurrency, Bitcoin, was just above $30,000. There was a slight increase from Friday, 3 June 2022, but it continued to trade in the shadows as it has for the past month. 

Since early May, the price of Bitcoin has been fluctuating around this range as traders nervously await clear signs on the direction of inflation and the global economy. As seen in the chart above, the moving average fluctuated back and forth between the support and resistance levels since the start of the week.

Meanwhile, Ethereum was recently trading well within the range it has held over the last 2 weeks – just above $1,800. The upward price movement is due to the team's upgrades. Among these upgrades, Ethereum 2.0 will transform the network's process from showing proof-of-work (PoW) to proof-of-stake (PoS). Naturally, this transition will enhance the network's scalability, efficiency, and speed.

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US Indices

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

For the week, the Dow lost 0.27%, the S&P 500 index declined by 0.57%, and the Nasdaq index shed 0.74%. US equity markets lost their gains earlier in the week after a heavy sell-off on Friday, 3 June 2022, that was driven by expectations of a tighter monetary policy following a stronger-than-expected May jobs report.

The non-farm payrolls added 3,90,000 jobs last month, and the unemployment rate remained steady at 3.6% for the third straight month. Traders who sold stocks reacted to the rise in interest rates with fears of the Federal Reserve tightening monetary policy at the forefront. Traders fear higher rates will slow the economy and lead the market into a recession. 

Although key indicators, including inflation, jobs reports, and consumer spending, are now smoother, they may not necessarily signify economic recovery. For instance, Tesla CEO Elon Musk is thinking about freezing hiring and laying off 10% of its employees because he is worried about the economy. So, traders may still be cautious since the sentiments of businesses can change very quickly.

The highlight of this week will be the highly-anticipated May update to the consumer inflation rate in the US, which could indicate whether inflation may have peaked.

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