Daily Market Analysis - MONDAY JUNE 26, 2023
The momentum of stocks is affected by global growth concerns and central bank actions, while the euro experiences an upswing.
Key News:
Eurozone - ECB McCaul Speaks
Eurozone - ECB President Lagarde Speaks
The US stock market is currently experiencing a decline amidst deteriorating global growth forecasts, primarily attributed to weak global Purchasing Managers' Index (PMI) readings. This worrisome trend is particularly prominent in Europe, where the risk of a severe economic downturn is higher compared to the United States. Consequently, the dollar is expected to maintain its support in the short term due to these circumstances.
Throughout this week, stocks have faced unfavorable conditions, resulting in the unraveling of various trades involving large-cap technology companies. Specifically, the Nasdaq index is taking a considerable hit, predominantly due to profit-taking in the artificial intelligence (AI) sector. The prevailing sentiment among investors is to withdraw their profits from AI-related investments, contributing to the downward pressure on the Nasdaq.
Nasdaq daily chart
Looking ahead to the upcoming week, the focus will shift towards a fresh wave of inflation releases following the conclusion of major central bank decisions.
The euro has experienced a robust month, benefiting from the market's anticipation of the European Central Bank (ECB) adopting a more aggressive approach in raising interest rates compared to previous expectations. Despite signs of moderating inflation and sluggish economic activity, the ECB has expressed its intention to pursue higher rates. However, this commitment may carry risks in the long term, potentially limiting the ECB's flexibility in responding to changing economic conditions. Nevertheless, the rally in European yields has made the euro an increasingly attractive investment option for market participants. Furthermore, the weakness observed in the US dollar and the Japanese yen has provided additional support to the euro, as foreign exchange dynamics are often influenced by relative performance.
EUR/USD daily chart
As we look to the future, a critical question arises regarding the momentum of the euro's rally. The answer to this question is likely to be influenced by the forthcoming inflation report scheduled for release on Friday and its implications for the European Central Bank's (ECB) future decisions. Throughout this year, inflation has displayed a consistent downward trend, and recent business surveys indicate that this trend has persisted into June. Notably, selling prices have been rising at the slowest pace in over two years, further contributing to the overall picture of declining inflationary pressures.
In terms of market performance, the DAX index has witnessed a notable decline, predominantly driven by a sharp decrease in the shares of Siemens Energy. The company's stock plummeted by over 30% following its decision to withdraw its full-year guidance due to challenges faced by its Spanish Gamesa operation. This development has had a significant impact on the DAX index's overall performance and has garnered attention from market participants.
DAX daily chart
In a similar vein, the FTSE 100 index has encountered downward pressure, resulting in a decline below the crucial 7,500 level. This descent has brought the index back to levels observed earlier in the trading period, reminiscent of the beginning of the year. The FTSE 100's retreat reflects the prevailing market sentiment and highlights the challenges and uncertainties currently influencing the broader market landscape.
FTSE 100 daily chart
In the United States, the week will commence with the unveiling of significant economic indicators, including durable goods orders and new home sales for the month of May on Tuesday. This will be followed by the release of crucial data on Friday, including the core Personal Consumption Expenditures (PCE) price index, personal consumption, and income figures for the same month.
In recent weeks, there has been a notable back-and-forth between Federal Reserve officials and market participants, resembling a game of chicken. While policymakers have signaled their intention to implement two more interest rate hikes throughout the remainder of the year, investors have only priced in expectations for one. The ultimate determinant of who is right in this scenario will depend on the persistency of inflationary pressures. The outcome will carry implications for the performance of the US dollar, as its value is intricately linked to interest rate differentials and market expectations.
US Dollar Currency Index daily chart
Throughout this month, the US dollar has encountered downward pressure, primarily influenced by two factors. Firstly, there has been market skepticism surrounding the Federal Reserve's hawkish signals, which has created uncertainty among investors. Secondly, the prevailing optimistic sentiment in stock markets has reduced the demand for safe-haven assets, including the US dollar.
Gold, on the other hand, has faced a challenging couple of months as Wall Street anticipates more aggressive tightening measures from central banks across Europe. The strong demand for Treasuries, driven by investor concerns about the global growth outlook, has caused the dollar to rally. However, as the stock market experiences a more pronounced selloff, gold is beginning to attract safe-haven flows. This is evident as gold prices have fallen to the $1920 level, prompting some investors to seek refuge in the precious metal as a hedge against market volatility and uncertainty.
XAU/USD daily chart
Gold received an additional boost when Federal Reserve official Bostic expressed his preference for no further rate hikes for the remainder of the year. This sentiment supported the precious metal's rebound. However, the momentum of the rebound waned when the latest PMI data failed to demonstrate sufficient weakness in the service sector, which would have justified a pause in rate hikes.
Looking ahead, the upcoming week will play a crucial role in shaping expectations regarding future Fed rate hikes. This will be influenced by the release of the Personal Consumption Expenditures (PCE) readings and remarks from Federal Reserve Chair Powell. If market participants, as reflected in swap futures, start to believe that the Fed is likely to implement two more rate increases, gold may remain vulnerable. However, if risk aversion intensifies and investors seek safe-haven assets, gold could experience an influx of buying pressure.
Key support for gold is anticipated at the $1900 level, indicating a price level where buying interest could emerge. On the other hand, resistance is likely to be encountered around the $1960 region, signifying a level where selling pressure may intensify. These levels will be closely monitored by traders and investors as they assess the future trajectory of gold prices.
Key News:
Eurozone - ECB McCaul Speaks
Eurozone - ECB President Lagarde Speaks
The US stock market is currently experiencing a decline amidst deteriorating global growth forecasts, primarily attributed to weak global Purchasing Managers' Index (PMI) readings. This worrisome trend is particularly prominent in Europe, where the risk of a severe economic downturn is higher compared to the United States. Consequently, the dollar is expected to maintain its support in the short term due to these circumstances.
Throughout this week, stocks have faced unfavorable conditions, resulting in the unraveling of various trades involving large-cap technology companies. Specifically, the Nasdaq index is taking a considerable hit, predominantly due to profit-taking in the artificial intelligence (AI) sector. The prevailing sentiment among investors is to withdraw their profits from AI-related investments, contributing to the downward pressure on the Nasdaq.
Nasdaq daily chart
Looking ahead to the upcoming week, the focus will shift towards a fresh wave of inflation releases following the conclusion of major central bank decisions.
The euro has experienced a robust month, benefiting from the market's anticipation of the European Central Bank (ECB) adopting a more aggressive approach in raising interest rates compared to previous expectations. Despite signs of moderating inflation and sluggish economic activity, the ECB has expressed its intention to pursue higher rates. However, this commitment may carry risks in the long term, potentially limiting the ECB's flexibility in responding to changing economic conditions. Nevertheless, the rally in European yields has made the euro an increasingly attractive investment option for market participants. Furthermore, the weakness observed in the US dollar and the Japanese yen has provided additional support to the euro, as foreign exchange dynamics are often influenced by relative performance.
EUR/USD daily chart
As we look to the future, a critical question arises regarding the momentum of the euro's rally. The answer to this question is likely to be influenced by the forthcoming inflation report scheduled for release on Friday and its implications for the European Central Bank's (ECB) future decisions. Throughout this year, inflation has displayed a consistent downward trend, and recent business surveys indicate that this trend has persisted into June. Notably, selling prices have been rising at the slowest pace in over two years, further contributing to the overall picture of declining inflationary pressures.
In terms of market performance, the DAX index has witnessed a notable decline, predominantly driven by a sharp decrease in the shares of Siemens Energy. The company's stock plummeted by over 30% following its decision to withdraw its full-year guidance due to challenges faced by its Spanish Gamesa operation. This development has had a significant impact on the DAX index's overall performance and has garnered attention from market participants.
DAX daily chart
In a similar vein, the FTSE 100 index has encountered downward pressure, resulting in a decline below the crucial 7,500 level. This descent has brought the index back to levels observed earlier in the trading period, reminiscent of the beginning of the year. The FTSE 100's retreat reflects the prevailing market sentiment and highlights the challenges and uncertainties currently influencing the broader market landscape.
FTSE 100 daily chart
In the United States, the week will commence with the unveiling of significant economic indicators, including durable goods orders and new home sales for the month of May on Tuesday. This will be followed by the release of crucial data on Friday, including the core Personal Consumption Expenditures (PCE) price index, personal consumption, and income figures for the same month.
In recent weeks, there has been a notable back-and-forth between Federal Reserve officials and market participants, resembling a game of chicken. While policymakers have signaled their intention to implement two more interest rate hikes throughout the remainder of the year, investors have only priced in expectations for one. The ultimate determinant of who is right in this scenario will depend on the persistency of inflationary pressures. The outcome will carry implications for the performance of the US dollar, as its value is intricately linked to interest rate differentials and market expectations.
US Dollar Currency Index daily chart
Throughout this month, the US dollar has encountered downward pressure, primarily influenced by two factors. Firstly, there has been market skepticism surrounding the Federal Reserve's hawkish signals, which has created uncertainty among investors. Secondly, the prevailing optimistic sentiment in stock markets has reduced the demand for safe-haven assets, including the US dollar.
Gold, on the other hand, has faced a challenging couple of months as Wall Street anticipates more aggressive tightening measures from central banks across Europe. The strong demand for Treasuries, driven by investor concerns about the global growth outlook, has caused the dollar to rally. However, as the stock market experiences a more pronounced selloff, gold is beginning to attract safe-haven flows. This is evident as gold prices have fallen to the $1920 level, prompting some investors to seek refuge in the precious metal as a hedge against market volatility and uncertainty.
XAU/USD daily chart
Gold received an additional boost when Federal Reserve official Bostic expressed his preference for no further rate hikes for the remainder of the year. This sentiment supported the precious metal's rebound. However, the momentum of the rebound waned when the latest PMI data failed to demonstrate sufficient weakness in the service sector, which would have justified a pause in rate hikes.
Looking ahead, the upcoming week will play a crucial role in shaping expectations regarding future Fed rate hikes. This will be influenced by the release of the Personal Consumption Expenditures (PCE) readings and remarks from Federal Reserve Chair Powell. If market participants, as reflected in swap futures, start to believe that the Fed is likely to implement two more rate increases, gold may remain vulnerable. However, if risk aversion intensifies and investors seek safe-haven assets, gold could experience an influx of buying pressure.
Key support for gold is anticipated at the $1900 level, indicating a price level where buying interest could emerge. On the other hand, resistance is likely to be encountered around the $1960 region, signifying a level where selling pressure may intensify. These levels will be closely monitored by traders and investors as they assess the future trajectory of gold prices.
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