A recap of last week’s big news and price action with an analysis of what’s to come in the week ahead, including our chart of the week.
Forex Heat Map
Source: MyFXBook
Weekly Recap
The big FX movers of the past week were USDJPY, GBPUSD and USDCAD.
Hawkish Fed commentary and better US economic data lifted US Treasury yields following their recent slump, which in turn boosted USDJPY. Mary Daly, Chair of the San Francisco Fed was particularly pointed, saying the Fed is “nowhere near” done with rate rises.
The British pound dropped sharply in the wake of a well-telegraphed 50-basis point hike from the Bank of England, the biggest rate rise in the UK for 27 years. It wasn’t so much the policy but the accompanying weak outlook from the central bank for the British economy. The BOE is predicting a recession will start by Q4 and last well into 2023 as well as forecasting inflation will rise to 13% despite their own efforts to curb it. That’s otherwise known as stagflation and not a bullish case for GBP.
The Loonie owed its volatility to the price of oil given Canada’s economic dependence on its energy exports. WTI crude oil breaking down to its lowest since February hurt the CAD.
It was a choppy week for stock indices, which initially traded cautiously amid uncertainty around House Speaker Nancy Pelosi’s trip to Taiwan, only to see a relief rally once she departed. The rally soon faded though when the July non-farm payrolls came in a lot hotter than expected (528K vs 250k expected). The ‘good news is bad news’ reaction can be explained by fears the good economic data would mean the Fed can keep raising interest rates, making equities a relatively less attractive investment than fixed income.
There were some big post-earnings gainers, including Uber which posted its first quarterly positive cash flow and Coinbase, which announced a partnership with Blackrock to offer institutional investors access to crypto. Shares of Pinterest and Paypal both rose double digits on news that activist investor Elliot Management had taken a stake.
Coming Up This Week
Meme stock rally?
In what will go down as one of the craziest stock price moves in history, shares of AMTD Digital (ticker: HKD), a Hong-Kong based tech firm skyrocketed from $6.80 on its NYSE debut last month to as high as $1,600 this week, a rise of over 21,000% – giving it a market cap of $300 billion – bigger than the likes of Intel and many other well-established US tech firms. The gargantuan gains (and subsequent huge losses) could well spur copycat ‘meme stock’ moves over the coming week if sentiment in broader markets holds up.
- US CPI data
Inflation is one of the key drivers for markets and its implications on monetary policy is important for investors to understand. This week, there was some optimism when the ‘price paid’ component of the US ISM services data came down- which is a sign that inflation might be slowing down. If this translates to the headline CPI number, it could lead to a relief rally in stocks. A softer CPI would typically mean that the USD would weaken, but this could be short-lived following hawkish Fed comments over the past week.
- UK GDP data
After the Bank of England decided to lift UK interest rates by 0.5%, traders will now be looking at the preliminary estimate of UK 2nd quarter GDP. The Bank of England, alongside most economists, expect UK growth to slow in the 2nd quarter and predicts there could be a recession by the fourth quarter. GBPUSD reached a 1-month high of just under 1.23 on Monday before dropping right back to become one of the weeks top fallers.
Technical Analysis
Our favourite technical chart of the week – SP500
The benchmark US index has rallied strongly off the June lows and is now challenging resistance from the late May/early June peak. The situation resembles the last major rally back in March, which ended up as a fakeout and brought about the next leg lower, bringing the index into a bear market.
Either the same could happen again -or perhaps any breakout could hold, meaning bigger gains over the rest of the summer.
Economic Calendar
This is probably the last week to see any significant data before things slow down for the summer break. See the calendar below for the full schedule.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
