Dow Jones, US Dollar, USD/CAD, GBP/USD, USD/JPY, Powell, Inflation

Global financial markets moved diligently to price on the latest Federal Reserve action last week, when Powell’s FOMC raised the US benchmark rate by 75 basis points. The rise in interest rates softened inflation expectations and perhaps restored some credibility to the institution. However, the impact on equity markets was undeniably bearish. The Dow Jones Industrial Average (DJIA) is down more than 4% to its lowest level since November 2020.

The US dollar benefited from safe-haven flows despite an immediate reaction to the downside. The DXY index rose about 0.50% over the weekend. However, there are technical signals at major crosses such as EUR/USD, GBP/USD, AUD/USD and USD/CAD that show that the dollar’s rally is perhaps at or close to a critical juncture. The Bank of England maintained a relatively dovish stance, raising its benchmark rate by 0.25%. The dollar advanced against the pound, but trimmed some of those gains in the second half of the week.

Oil prices plummeted on Friday as traders raised fears of a Fed-induced recession. This comes amid the summer season, which typically sees higher fuel demand persisting into the fall months. Natural gas prices found relief in the United States after an LNG terminal suffered a catastrophic failure that will likely take months to repair. European prices, however, soared. The development should keep prices in Europe high, further complicating the inflation outlook in Europe.

Speaking of energy prices, Canada is due to release May inflation data on Wednesday. The country’s consumer price index (CPI) is expected to cross the wires at 7.5% on an annual basis. That would be up from April’s 6.8% y/y increase. A warmer-than-expected print would likely inspire the Bank of Canada’s already aggressive rate hike bets, potentially bolstering the Canadian dollar.

Japan is also due to release May inflation data. The Bank of Japan maintained its dovish stance last week against a market that appeared to be trying to force the BoJ’s political stance. This did not happened. The mantra “don’t fight the Fed” seems to be equally appropriate for the Bank of Japan. The yen fell against the dollar last week, although the pace of losses has begun to cool. A warmer-than-expected CPI print from Japan could actually see USD/JPY decline.

PERFORMANCE IN DOLLAR VS. COINS AND GOLD

Fundamental Predictions:

Australian Dollar Outlook: Hawkish RBA supports AUD for now

The Australian dollar was boosted by a suddenly hawkish RBA, signaling a much higher rate path. If commodities hold up and China loosens up, will AUD/USD rise?

Gold Price Forecast: Gold Reach Limit on Rates and Inflation Tug of War

Gold on course for first weekly drop in a month. However, range trading is likely to persist.

Euro Key Forecast: ECB Emergency Meeting, Anti-Fragment and Gas Outages Tool

The euro faces many challenges as Russian gas supplies dwindle and the ECB does little to ease bond market jitters after unsubstantiated mention of an anti-fragmentation tool.

Pound Sterling (GBP) Weekly Forecast: Inflation in focus again as weak pound continues to hurt UK consumers

The pound has held up this week but continues to be overshadowed by a robust USD, while upcoming economic releases should maintain GBP/USD’s current volatility.

Oil Price Forecast: Sale looks overdone, tight energy market supports recovery

Crude oil sold during the week and fell to its lowest level in nearly a month on mounting recession fears, but the commodity could soon recover, supported by extremely tight energy markets.

USD/JPY outlook: All eyes on Fed testimony as BoJ joins easing cycle

Developments from the US could influence USD/JPY in the coming days as President Jerome Powell is scheduled to testify in front of Congress.

US Dollar Fundamental Forecast: DXY Eyes Powell Testimonial, Economic Data

The US Dollar is coming off a busy week of FOMC action, but the economic agenda remains full of event risks. The testimony of Mr. Powell is among the most important.

Dow Jones, S&P 500 and Nasdaq 100 Outlook for Next Week – Doesn’t Look Good

The Dow Jones, S&P 500 and Nasdaq 100 all tumbled after the Federal Reserve stepped up efforts to rein in runaway inflation with a 75bps rise. The economic agenda is light, but volatility remains ripe.

Technical Forecasts:

S&P 500, Nasdaq, Dow Jones Forecast for the next week

Stocks fell to new yearly lows following the FOMC this week, with key support targets now in sight. Levels that matter on the weekly technical charts of the S&P 500, Nasdaq and Dow.

US Dollar Technical Forecast: EUR/USD, GBP/USD, AUD/USD, USD/JPY

It’s been a busy week for the dollar and the currency remains bullish in scope as the Fed remains the most aggressive game in town.

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