Markets Week Ahead: Nasdaq 100, Gold, US Dollar, Fed, GDP, EUR, AUD, Inflation Data
Global market sentiment continued improving this past week. On Wall Street, the Nasdaq 100, S&P 500 and Dow Jones gained 3.49%, 2.54% and 1.98% respectively. In Europe, the DAX 40 and FTSE 100 climbed 2.49% and 1.04% respectively. This is as Australia’s ASX 200 rose 1.95% as Japan’s Nikkei 225 gained 2.59%.
The improvement in risk appetite dented the haven-linked US Dollar, with DXY Dollar Index down 1.31% last week. That was the worst performance since late May. Yet, the anti-risk Japanese Yen outperformed. USD/JPY fell 1.71%, the most since June 2020. JPY’s strength was likely due to external factors.
Treasury yields declined across the board as markets boosted dovish Federal Reserve monetary policy expectations. Now, markets are back to pricing in 2 rate cuts in 2023, indicating a Fed pivot. This is despite US headline inflation running at 9.1% y/y. US 2023 real GDP estimates have been falling, which perhaps is a sign of the markets seeing the Fed capitulate to recession fears.
In the week ahead, we might get a better idea of who is at the helm. A hawkish Fed could easily dispel rising dovish estimates, bringing volatility back into stock markets and likely benefitting the US Dollar. Outside of the central bank, the US will also release GDP and PCE data. The latter is the central bank’s preferred gauge of inflation.
Gold prices performed well this past week, likely due to the weaker US Dollar and Treasury rates. But, due to the busy week ahead, XAU/USD volatility may still be ripe. Crude oil prices have been doing quite poorly, likely due to fading global growth expectations. Earnings season is still in play, and rosier than anticipated outcomes may have been contributing to the optimistic market tone.
Elsewhere, Australia will be releasing its second-quarter inflation rate. A 6.3% y/y print is seen, up from 5.1% prior. This likely explains the increasingly aggressive Reserve Bank of Australia. Will AUD benefit? German and Euro Area inflation data is also on tap for the Euro. What else is in store for markets in the week ahead?
US DOLLAR PERFORMANCE VS. CURRENCIES AND GOLD
EUR/USD is heading towards a week full of important data releases and events, from both sides of the pair, that will whip up volatility further.
A strong close last week sets up AUD/USD for the upcoming data heavy week with focus on the Fed.
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WTI prices have declined rather significantly as recession concerns build despite supply remaining extremely tight. Next week’s Fed rate hike could add to that.
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The Federal Reserve interest rate decision may undermine the recent rebound in GBP/USD if the central bank steps up its effort to combat inflation.
USD/JPY has risen sharply this year, but it may soon begin to correct lower on signs that Fed hawkishness has peaked amid rapidly slowing U.S. economic activity.
Gold prices rallied this past week, but markets might be getting ahead of themselves. A hawkish Federal Reserve, US GDP and PCE data could weigh against XAU/USD in the week ahead.
US Dollar snapped a three-week winning streak with DXY reversing more than 1.5% off technical resistance. Key levels on the weekly technical chart heading into FOMC.
Gold and silver prices broke their multi-week routs, but prices struggled to hold onto gains. XAU and XAG’s charts suggest the path of least resistance remains skewed to the downside.
It was another week of strength for stocks. The Fed is waiting in the wings. Are they close to caving in the face of declining economic data?
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