To begin things, of course, Tuesday welcomed the latest RBA Policy Meeting Minutes and speech by Governor Philip Lowe, which saw the central bank head set the stage for additional rate hikes, following the 50-basis point increase in June. Wednesday, nonetheless, was certainly a day for inflation.
UK consumer prices rose by 9.1 per cent in May on a year-on-year basis, remaining at four-decade highs and up from 9.0 per cent in April. The core year-on-year inflation measure, however, registered 5.9 per cent, compared to 6.2 per cent the previous month, though this remains considerably north of its long-term average of 1.7 per cent.
In foreign exchange, sterling has indeed fared poorly this year, down 9.0 per cent against the US dollar, nearly 5.0 per cent lower against the Australian dollar and 2.0 per cent versus the euro. Beyond $1.1958 support on GBP/USD, the next obvious downside objective can be seen around pandemic lows of $1.1410. Canada also released its latest inflation data on Wednesday, accelerating to an eye-watering 7.7 percent in May year on year, hurtling past April’s 6.8 per cent annual reading and scoring levels not seen since January 1983. Now the US Federal Reserve was also back in the spotlight this week, as Fed Chair Jerome Powell testified to Congress.
According to Powell, his commitment to taming spiralling inflation is ‘unconditional’. Annual inflation out of the US remains at 8.6 per cent, its highest level since 1981. Powell’s latest remarks indicate the Fed are willing to endure an economic slowdown in order to curb inflation, with many now raising the recession alarms as the central bank (and money markets) project another steep interest rate hike in July.
We were also greeted with the latest round of PMIs out of the European Union early Thursday, and frankly, it did not paint a pretty picture. June’s Flash estimates of French and also German PMI data recorded softer-than-expected readings, adding to recession fears.
Despite trading higher across the board so far this week, major US equity benchmarks continue to probe bear market territory.
Many analysts claim the latest pullback presents a sell-on-rally opportunity for investors, yet with the S&P 500 recoiling from what’s known as an alternate AB=CD bullish formation on the weekly timeframe at 3,743, technical resistance is not expected until around the 38.2% Fibonacci retracement at 4,093.
US Treasury yields demonstrated a somewhat bearish picture this week; the benchmark 10-year yield is on track to pencil in a weekly bearish engulfing candlestick pattern, following the prior week’s shooting star bearish candle pattern from an inverted head and shoulder’s take-profit objective at 3.24 per cent.
As major central banks adopt a phase of aggressive tightening along with the Fed, this has begun to weigh on the attractiveness of the greenback with the US Dollar Index now down 0.4 per cent on the week.
The Dollar Index’s 50-day SMA at 103.04 calls for attention to the downside, followed by daily trendline support around 102.42.