Weekly market report – 23 May 2022

Forex

EUR/USD finished the week with solid gains just below the $1.06 mark. Although risk-aversion persists, the leading cause of this rally was the weakening US dollar. Moreover, recent inflation rates have doubled central banks’ comfort levels.

Another factor that may have contributed to the pair’s rise is the European Central Bank. With an interest rate hike in July now being a possibility, several government council members have declared their willingness to increase interest rates as soon as possible. In fact, according to financial analysts, the odds of a 50 bps rise at the start of the third quarter have risen from 40% to 52%.

This week the GBP/USD pair crossed into positive territory for the first time in over a month, allowing traders to breathe a sigh of relief. As seen in the chart above, GBP/USD started the week around the $1.23 mark, dipped and recovered to end the week near $1.25.

Although the UK data releases are strong, they still shed light on the massive problem the Bank of England (BoE) faces over the next few months. Based on 9% inflation data, the BoE suggests the inflation rate may even reach double digits in the coming months before dropping in late 2022/2023. On the other hand, the US dollar failed to capitalise on the Fed’s hawkish comments, and US Treasury yields rose, sending GBP/USD higher to test the $1.25 level.

Meanwhile, USD/JPY attracted some dip-buying near the ¥127.15 level, though a modest US dollar weakness kept further gains in check. Furthermore, a generally positive tone in the equity markets also weakened the safe-haven Japanese yen.

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Cryptocurrencies

The most popular cryptocurrency has seen 7 straight weeks of losses – its longest losing streak since 2011. This slump can be attributed to multiple factors such as rising inflation, the Fed’s increase in interest rates, and the Russia-Ukraine war.

Bitcoin started the week marginally above the $31,000 mark. Then the largest cryptocurrency in the world fluctuated wildly and ended the week just under the $30,000 mark. The chart above depicts the 50% retracement level acted as the primary resistance level, and the 38.2% retracement level acted as the primary support level.

On Tuesday and Thursday, Bitcoin’s prices kept bouncing back and forth off the 50% retracement level at $29,978.84 and the 76.4% retracement level at $30,671.58, which acted as its primary support and resistance levels, respectively. It then broke free and entered a dive below the $29,000 mark on both days.

Meanwhile, other cryptocurrencies have given traders some respite, ending the week with slight gains. Altcoins such as Ethereum, Binance Coin, and Litecoin increased by 1.1%, 7.4% and 7.2%, respectively.

The aftermath of Terra’s collapse has seen major cryptocurrency companies, such as Binance disclose information about their previous investments in the ecosystem and subsequent losses.

In other cryptocurrency-related news, the Federal Finance Ministry of Germany has guided the income tax treatment of cryptocurrency. Now, people in Germany will be able to sell Bitcoin and Ethereum tax-free after one year.

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Commodities

Due to a risk-averse market environment, gold began the week by falling below the $1,800 mark – its lowest level since late January. However, it gained an upward momentum due to declining US yields and the US dollar’s demand being impacted by the disappointing earnings figures and bleak sales prospects from large retailers in the US. For the first time since mid-April, XAU/USD recorded weekly gains.

Moreover, after the announcement of zero coronavirus infections across all districts in Shanghai, the yellow metal managed to rebound and enjoy temporary relief as its price increased to reach near the $1,830 mark.

As seen in the chart above, gold ended its week near $1,846, swaying upwards midweek and is currently above its moving average, which acts as its support level. The 5-day SMA and 10-day SMA are around $1,844 and $1,842, respectively.

On the other hand, oil prices comfortably remained within recent ranges and aren’t trading with much conviction. A lack of new major crude oil-relevant fundamental developments in the last week may have resulted in the WTI moving in the $105-115ish ranges. Furthermore, the proposed EU ban on Russian oil imports still hasn’t secured the unanimous agreement amongst EU member nations that needed to go into force.

US Indices

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Markets continued to face downward pressure, with Wednesday, 18 May 2022, marking the biggest one-day decline in the S&P 500 index since June 2020. Equity markets have continued to slip for the seventh week in a row and closed the week down by about 20% year-to-date putting it on the track to the bear-market territory.

The losses were driven by concerns about inflation after a series of disappointing earnings reports from major retailers. In particular, Walmart reported lower than expected operating margins on higher input costs from freight and fuel. Traders seem to interpret these earnings as a signal that the worst is yet to come. Additionally, fears of a recession have been driven by rising inflation, supply-chain issues, and the Federal Reserve’s determination to raise interest rates aggressively.

As traders’ concerns pile up, stocks have been struggling to recover over the last 7 weeks. Alongside, traders have closely monitored any data related to retailers and consumers to determine whether inflation will slow consumer spending.

In the coming week, the reports to watch out for include The Personal Consumption Expenditures (PCE) Price Index for April, the Fed’s preferred measure of inflation, to be released on Friday, 27 May 2022, and earnings from Zoom, Nvidia, and Alibaba.

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