This article was submitted by Michael Stark, market analyst at Exness..
Most riskier instruments such as shares and crypto started the week lower as participants in markets were shocked by higher American inflation on Friday and the resulting expectations for even more aggressive tightening of monetary policy. Cryptocurrencies including bitcoin have been the biggest losers so far this week as traders remain wary of the weaker outlook for economic growth combined with the ongoing narrative of inflation and monetary policy. This preview of weekly data looks at GBPUSD and AUDJPY ahead of key meetings of central banks.
The focus within monetary policy in the next few days is mainly on the Fed’s meeting on Wednesday evening GMT. At the time of writing, CME FedWatch Tool projects 73% change of a two-step hike and about 27% of three steps up. The probability of a triple hike has surged since Friday afternoon when American inflation came in significantly higher than expected, a new 41-year high.
Traders should not overlook the meeting of the Bank of England on Thursday. While the BoE is nearly certain to hike, a more modest increase of 0.25% is expected. In both cases, the outcome of this week’s meeting seems nearly certain, so the focus is on forward guidance and possibly pricing in decisions at the next meeting or next two meetings.
Traders are looking ahead at British and Australian jobs among regular data this week, plus German ZEW sentiment, Chinese industrial production and Japanese balance of trade. Chinese figures in particular might give more clues on the possible extent of the damage from recent lockdowns in Shanghai and other cities. On the whole, it’s quite a packed week of data, so one might expect gold, the dollar and various other popular instruments to be quite active, especially on Wednesday and Thursday.
The pound sterling has been among the worst performing major currencies over the last few months, affected negatively by sentiment on the British economy and recent political instability. There was a contraction in most sectors in April for the second month running. Friday’s inflation data made the situation worse for cable because participants then started to price in even stronger and faster tightening by the Fed, while the BoE has to walk the tightrope between rampant inflation and a possible recession.
On the chart, cable has moved clearly into oversold based on the slow stochastic. The price has been below all three of the 50, 100 and 200 simple moving averages since February. Selling in at the current area would traditionally be considered an unacceptable risk except on a very low timeframe, so awaiting a possible bounce to the 50% weekly Fibonacci retracement if job data on Tuesday impress might make sense. The upside still seems unlikely for the time being, with a move above the 50 SMA and 61.8% Fibo definitely unfavourable unless there’s a surprise from data or central banks.
from 18:30 GMT: statement and press conference of the Federal Open Market Committee
Thursday 16 June
from 11:30 GMT: statement and press conference of the Bank of England
Friday 17 June
from 13:15 GMT: American annual industrial production (May) – consensus 4.9%, previous 6.4%
Australian dollar-yen, daily
Despite losses over the last few weeks in many of its pairs, the Aussie dollar has generally remained strong against the yen as the Japanese currency has made fairly consistent downward movements against most major and minor currencies. Last week’s meeting of the Reserve Bank of Australia was a positive surprise, with the bank hiking by half a percent, more than expected, and remaining hawkish on expectations for more hikes in the second half of 2022.
Meanwhile in Japan inflation remains stubbornly low and the gulf in policy between the Bank of Japan and nearly every other central bank. As of now, there’s no indication that either the government or the BoJ might act on persistent rumours of an intervention, but this remains a factor to be aware of this week.
The 261.8% weekly Fibonacci extension remains the main technical reference for AUDJPY. Another close clearly above that area would probably suggest a retest of the latest high around ¥96.40. However, with the slow stochastic having only recently emerged from overbought, a move further down possibly to the 50 SMA near ¥92 seems more likely than immediate continuation upward.
This week’s Australian employment releases are probably the most notable event for Aussie dollar-yen coming up, but traders will also watch Japanese balance of trade closely for possible knock-on effects from the yen’s loss of value. The meeting of the BoJ could give some indication as to whether an intervention to support the falling yen is being considered seriously.
Key data this week
Bold indicates the most important releases for this symbol.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.