Daily Key points: Central bank aggressive rate hikes to continue?

After the FOMC triple rate hike on Wednesday, the SNB and the BOE followed a similar strategy and increased their interest rates accordingly. The biggest surprise for the markets was the SNB, that carried out a double rate hike (0.50%) sending shock waves across the market and structuring an organized buying trend for the CHF. USDCHF came under fire as traders rushed to short the currency pair, leading it to its biggest daily selloff in years. The unexpected double rate hike tends to highlight the SNB’s urgency to fight inflationary pressures. On Thursday, USDCHF was the biggest daily mover among major forex pairs by far, as a result. The CHF also gained ground against the EUR and the GBP during the session. BoE’s rate hike of 25 basis points initially enacted a weakening of the GBP against the USD but Cable rebounded in the next hours ending the day positive. EURGBP a currency pair that reached a new yearly high in the past days relented ground and returned lower ending the session in red area.

On Tuesday, the session was also characterized by the weakening of the USD. The Dollar Index was down while the USD lost ground against most of its major counterparts including the EUR, GBP and JPY. The USD’s weakening may have been motivated by negative US economic releases like the Housing Starts and the Philly Fed Business Index which displayed rather disappointing results. However, on Friday USD traders expect the US Industrial Production rate for May but also a speech by Federal Reserve Chair Jerome Powell as both events can potentially create volatility. Moreover, US stock markets continued their descendance on Thursday with the major indexes dropping and testing new 2022 low levels. Major tech companies like Amazon (#AMZN), Apple (#AAPL) and Microsoft (#MSFT) sold off during the session. Another significant economic release on Friday is the Final Eurozone headline and core HICP rates for May. On Thursday the EUR gained ground against the USD but lost against the CHF.

USD/CHF dropped in consecutive hourly sessions on Thursday and tested the (S1) 0.9660 support but seems to have rebound some ground in the latest sessions. If the rebound is to persist, we could see traders aiming for the (R1) 0.9795 resistance. Yet, with the RSI indicator remaining nearby 30, we could say the currency pair remains in a selling trend. In the scenario of an extensive selling trend we may see a breach below the (S1) 0.9660 support which could lead the price action to lower grounds and possibly the (S2) 0.9575 hurdle.

USD/JPY was on the rise in the early morning on Friday surging and testing the (R1) 134.60 resistance briefly. Even though the strong bullish trend was interrupted, and some correction was carried out, the price action  remains nearby the (R1) for now. If the (R1) is breached, we could be in for a ride to higher levels like the (R2) 135.05 resistance or even the (R3) 135.55 barrier. Please note the (R3) is the yearly high level for the currency cross making it an important challenge for traders. In the opposite direction a move lower could send USD/JPY testing the (S1) 133.30 barrier. Yet the for now the pair displays strong bullish interest.

Volatility and contradicting signs in the energy market

On Thursday, the energy commodity that benefited the most was WTI which advanced in the US session and reversed the losing streak it was in, since the previous days. For the most part, analysts are citing a lack of supply as the main driver for higher Oil prices which has been inviting bullish tendencies for WTI in the past months. On a separate note, the US announced new sanctions on Iran, making it even more difficult for Persian Oil to be included in global Oil output and trade. Furthermore, Libya’s Oil output has diminished substantially compared to the previous years supply levels. On a contradicting note, Natural Gas prices initially advanced but then declined on Thursday closing the session in red territory. According to various sources Russian gas supply to Europe via the Nord Stream 1 pipeline is reduced. Some analysts tend to note the reduction of Russian gas is a strategic move to lift the commodity’s prices even higher and place more pressure on Europe for its sanctions towards Russia.

WTI is currently trading just below the (R1) 115.50 resistance level probably making it the first target in a buying scenario. If this level is captured, we may see traders turning their attention towards the (R2) 120.95 barrier which was tested previously in June but was not surpassed. In our view, WTI remains in a sideways trendline but may be prone to bullish tendencies. If the commodity comes under selling interest, we may see a move towards the (S1) 108.80 support.

BOJ remains on hold

The central bank of Japan kept its interest rate steady at -0.10% as expected, but volatility was evident for the JPY. USD/JPY gained during Friday’s early European morning while the JPY also lost ground against the EUR and the GBP.

USD/CHF H4 Chart

Support: 0.9660 (S1), 0.9575 (S2), 0.9485 (S3)

Resistance: 0.9795 (R1), 0.9885 (R2), 0.9960 (R3)

USD/JPY H1 Chart

Support: 133.30 (S1), 132.55 (S2), 131.95 (S3)

Resistance: 134.60 (R1), 135.05 (R2), 135.55 (R3)

WTI H4 Chart

Support: 108.80 (S1), 104.20 (S2), 97.55 (S3)

Resistance: 115.50 (R1), 120.95 (R2), 126.55 (R3)

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.