Fed’s tightening path strains market’s nerves

The USD tended to gain against its counterparts on Friday as the Fed’s monetary policy tightening path seems to provide bullish tendencies for the greenback. It’s characteristic that Cleveland Fed President Mester  stated on Friday that she does not expect inflation to fall to the Fed’s 2% target for two years while other policymakers see the case for further 75 basis points rate hikes. Market worries for the possibility that the Fed’s monetary policy tightening could bring about a recession for the US economy seem to increase and tend to weigh on riskier assets, yet US stockmarkets on Friday tended to stabilise. Please note that today it’s a public holiday in the US so no US financial releases and statements from Fed policymakers are expected thus we may see trading conditions becoming a bit thin. We also turn our attention towards the AUD, which tended to retreat against the USD on Friday as there were wide concerns for the demand side of the Chinese economy, and it was characteristic that iron ore prices fell yet the Aussie seemed to recover some ground during today’s Asian session. Tomorrow during the Asian session we note the release of RBA’s minutes of its last meeting, while earlier on RBA Governor Philip Lowe is expected to make a speech and should he sound hawkish enough may provide some support for the Aussie. 

US 500 remained relatively stable on Friday between the 3750 (R1) resistance line and the 3630 (S1) support level. We tend to maintain a bias for a sideways motion of the index, yet we would like to note that the RSI indicator below our 4-hour chart is near the reading of 30 implying a rather bearish market sentiment. For our sideways bias to change in favour of a bearish outlook though we would require a clear breaking of the 3630 (S1) support line and for the index  to start aiming if not reach the 3520 (S2) level. Should on the other hand the bulls take over, we may see the index breaking the 3750 (R1) line and aim for the 3870 (R2) level.
AUD/USD after a substantial drop on Friday bounced on the 0.6910 (S1) support line and is currently aiming for the 0.6970 (R1) resistance line. We tend to maintain a  bias for a sideways movement between the prementioned two levels and we also note that the RSI indicator below our 4-hour chart is just below the level of 50. Should the pair find extensive fresh buying orders along its path, we may see it breaking the 0.6970 (R1) resistance line and aim for the 0.7050 (R2) resistance level. On the other hand should a selling interest be expressed we may see  the pair reversing course breaking the 0.6910 (S1) support line and aim for the 0.6825 (S2) support level.

Other highlights for today

Today we note the release of Germany’s PPI rate for May which is expected to slow down and if so could weaken the EUR, yet EUR traders may have their attention turned towards ECB President Lagarde’s statements before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels.

As for the rest of the week

We note on Tuesday UK’s CBI trends for industrial orders for June, Canada’s retail sales for April. On Wednesday we get New Zealand’s trade data, UK’s and Canada’s CPI rates, all releases being for May as well as the Preliminary consumer confidence of the Eurozone for June. Also on the on monetary front note from the Czech Republic the release of CNB’s interest rate decision. On Thursday we note the release of Australia’s, Japan’s, France’s, Germany’s, the Eurozone’s, UK’s and the US preliminary PMI figures for June, UK’s CBI distributive trades for June and the US weekly initial jobless claims figure. On the monetary front we note the release from Norway of Norgesbank’s interest rate decision and from Turkey CBT’s interest rate decision. On Friday we get from Japan the CPI rates and UK’s retail sales both for May, Germany’s Ifo indicators and from the US the final University of Michigan consumer sentiment both for June.

US 500 Cash H4 Chart

Support: 3630 (S1), 3520 (S2), 3415 (S3)

Resistance: 3750 (R1), 3870 (R2), 3985 (R3)

AUD/USD H4 Chart

Support: 0.6910 (S1), 0.6825 (S2), 0.6750 (S3)

Resistance: 0.6970 (R1), 0.7050 (R2), 0.7135 (R3)

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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.

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