Gold, oil and currency markets – what happens after the Fed meeting? | ThinkMarkets
Today, Australian Retail Sales data for June came in at 0.2%, down 0.7% from the previous month and below the 0.5% expected..
Investors await final German inflation data for July at 4:00 p.m. UAE time today, which is expected to come in at 7.4%. Eyes will also be on US GDP data at 4:30 p.m., this data reveals whether the US economy is in a technical recession (a contraction achieved in two consecutive quarters) or not..
The Federal Reserve yesterday raised US interest rates by 75 basis points to a range of 2.25% to 2.50% and acknowledged clear indications of lower consumer spending and output together. In return, Fed Chairman Powell pointed to “robust” labor market conditions and a commitment to bring inflation levels back to the 2% target.
Indices and Bonds
Prices for European stock indices and US index futures fell 0.1% to 0.5% today. It’s worth noting that markets believe the Federal Reserve may begin to reconsider policy, especially after statements from Chairman Feed that future hikes will mostly depend on economic data, and possibly smaller ones will be delivered.
Today, US 10-year bond yields rose 0.4%, but the daily candlestick still fails to close above 2.81%, keeping the odds for a decline towards 2, 50%. The yield curve inversion also continued, but the gap between US10Y and US2Y narrowed to just 20 basis points. The Fed is expected to continue raising interest rates at a slower pace, reaching 3.50% by the end of 2022, then a rate cut could take place by the end of the second quarter of the year next..
Major FX Currencies
The US dollar index fell 0.3% today and 0.6% yesterday. The reason for this is that the market buys the rumor and sells the news i.e. the market had already priced in a 75 basis point interest rate hike and then sold the fact after it be produced.
Investors will get more clarity from inflation reports in August and September and from speeches by Fed members who may confirm (or not) a rate hike of 50 bps in September, 25 bps in November and 25 bps in December. , as inflation levels are more likely to fall due to lower consumer spending.
That said, US Dollar prices could consolidate due to the Fed’s current tightening policy, albeit at a slower pace on the one hand, and tensions in the energy market between the EU and Russia could lead investors to the US dollar.
From a technical standpoint, a daily close below 105.42 could send the price even lower towards 103.83. On the other hand, any failure to close below 105.42 could reverse the trading direction towards 108.11..
The euro is suffering from the consequences of the energy crisis and political instability in Italy, the main reason that kept the euro above the level of parity with the US dollar was the rise in rates more than expected of the ECB (50 bps).
EUR/USD is moving between 1.0000 and 1.0414. A daily close below the lower end of the trade zone mentioned above may encourage traders to concentrate selling pressures towards 0.9701. On the other hand, a break above the July 21 high at 1.0277 could send the price towards the upper end of the trading zone.
Gold prices rose between yesterday and today by around 2% due to lower dollar prices driven by the selling of the US dollar after the rise in US interest rates.
Technically, on July 21, the price of gold hit a multi-month low at 1681 and then rallied after some traders took profits. A daily close above 1747 could send the price even higher towards 1765, on the other hand, any failure to close above 1747 could reverse the price to $1720/oz.
Oil prices rose today, driven by a sharp drop in US inventories on the one hand, and yesterday’s decline in the value of the US dollar. West Texas crude rose 1%, approaching the $100bp threshold for the first time this week, while the spread between Brent crude and WTI reached $9, on the back of the tightening supply to Europe with the reduction of Russian dependence on oil..
Technically, WTI’s daily price candlestick continued to close below 98.65, hinting that the price may drop towards 93.57. A new close below 93.57 opens the door for the price to fall towards 89.02. On the other hand, a daily close above 100.72 could send the price even higher towards $104.50 bp.
Silver Daily Price Chart (June 6, 2022 – July 28, 2022)
On July 21, the price of silver corrected higher to 18.24. Yesterday, prices broke the neckline of the double bottom pattern, located at 7:09 p.m. indicating the possibility of a rally towards the 8:00 p.m. handle.
Currently, the price is moving between 18.64 and 19.74. Therefore, a daily close above the upper end of the aforementioned area can send the price towards 20.30. On the other hand, any failure to close above the upper end of the mentioned trading zone may encourage traders to move towards the lower end of this zone.
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