The SPX500 rolled back to mid-May levels
The U.S. dollar hit a two month high on the back of the Fed's hawkish statement
Gold had its most significant weekly loss in 15 months
Oil gains on OPEC outlook
Bitcoin is under pressure
Let's take a closer look at how these and other important events affect currency prices, indices, and commodities.
Indices
Weekly changes: SPX500 -2.16%
The SPX500 rolled back and closed the week at the previous month level of 4,166.45. After the Fed's comments on Friday, it appeared that the USA might raise its interest rates sooner than previously expected. Contrarily, the yields on ten-year U.S. Treasury notes surged almost twelve basic points to 1.57%.
Late Wednesday night, the U.S. dollar index (DXY) rose to its highest two-month level to 91.387. DXY made a 1% surge overnight, the biggest gain since March 2020. This gain was a hawkish surprise for the market, adding that most Fed's board members voted for rates rising in 2023. Their number was twice less by the previous FOMC meeting in spring. Later, the index broke the 92.00 marks and closed the week higher at 92.325.
Indices
Weekly changes: SPX500 -2.16%
The SPX500 rolled back and closed the week at the previous month's level of 4,166.45. After the Fed's comments on Friday, it appeared that the USA might raise its interest rates sooner than previously expected. Contrarily, the yields on ten-year U.S. Treasury notes surged almost twelve basic points to 1.57%.
Late Wednesday night, the U.S. dollar index (DXY) rose to its highest two-month level to 91.387. DXY made a 1% surge overnight, the biggest gain since March 2020. This gain was a hawkish surprise for the market, adding that most Fed's board members voted for rates rising in 2023. Their number was twice less by the previous FOMC meeting in spring. Later, the index broke the 92.00 marks and closed the week higher at 92.325.
KEY POINTS
Although the Fed forecast is not a commitment, the sudden u-turn was still a shock to the markets. Ahead of the June FOMC meeting, the market consensus had pointed to a gradual decline of DXY value through the remaining quarters of the year. That's the reason why the risk aversion deepened among investors. At the same time, the investors shared doubts that this current U.S. dollar strength could remain all summer. More likely, the Fed signaled that it would consider whether to taper its asset purchases or not meeting by meeting.
The stock index witnessed a slight sell-off. Last week we mentioned the solid bullish sentiment the equity market had been experiencing lately. Some periods of profit takings are natural within a long period of a strong run. Especially when it comes to increased volatility, the period the markets have been facing since last Thursday. Moreover, next week, some Fed governors will speak their comments out. Some of them will be more hawkish, and some won't. More likely, the index's direction will go back-and-forth following their speeches.
Most traders are still bullish this year with the stimulus. The Fed is committed to being dovish with the economy reopening due to vaccinations and overall corporate earnings rising.
Although the Fed forecast is not a commitment, the sudden u-turn was still a shock to the markets. Ahead of the June FOMC meeting, the market consensus had pointed to a gradual decline of DXY value through the remaining quarters of the year. That's the reason why the risk aversion deepened among investors. At the same time, the investors shared doubts that this current U.S. dollar strength could remain all summer. More likely, the Fed signaled that it would consider whether to taper its asset purchases or not meeting by meeting.
The stock index witnessed a slight sell-off. Last week we mentioned the solid bullish sentiment the equity market had been experiencing lately. Some periods of profit takings are natural within a long period of a strong run. Especially when it comes to increased volatility, the period the markets have been facing since last Thursday. Moreover, next week, some Fed governors will speak their comments out. Some of them will be more hawkish, and some won't. More likely, the index' direction will go back-and-forth following their speeches.
Most traders are still bullish this year with the stimulus. The Fed is committed to being dovish with the economy reopening due to vaccinations and overall corporate earnings rising.
Currencies
Weekly changes: EURUSD -1.95%, GBPUSD -2.11%, USDJPY +0.56%, USDCAD +2.57%
The EURUSD pair traded flat with no volume from Monday till late Wednesday. However, it has continuously fallen, surpassing three psychologically 'imposing figures' (1.2100, 1.2000 and 1.1900) levels and finished the week at 1.18569. Such a sharp move was unusual for the currency pair in recent months. As far as the price fails to decline further, there is an understanding that the U.S. dollar's strength bounce can be temporary.
GBPUSD traded almost identically as EURUSD. The pair dropped to its lowest levels in six weeks and finished Friday at 1.37954. Therefore this was a big week for the U.K. data. And while some figures like CPI and GDP were positive, others, like retail sales, showed a decline of 1.4%. Since the country postponed its full re-opening after COVID restrictions, consumer demand fell 2%, the first drop in four months. The sterling may rebound this Thursday at the Bank of England's meeting results. The BoE was one of the first central banks to reduce asset purchases. Moreover, with the Fed expressing its confidence in the recovery by signalling the sooner steps, the British regulator should sound less dovish.
By midweek, USDJPY consolidated near the two-month tops, holding above 110.00. Thursday's upbeat U.S. data continued supporting the greenback. Nervousness ahead of NFP benefitted the safe-haven Japanese currency. However, the currency pair fell sharply after the release and lost 0.52% each day, stopping at 109.70 by Friday night.
KEY POINTS
The Forex market didn't expect a sizable move in the U.S.dollar last week. The Fed jumped one step ahead, and, as a result, the greenback is likely to remain well supported against the euro. Last week ECB's statement appeared dovish even before Powell's speech. After the Fed changed the situation, EURUSD might follow its decline if the ECB made no adjustments. ECB President Lagarde will speak on Monday, and she might refer to monetary policy. Also, this week's German PMI reports could be helpful. But if the numbers show no improvements, the contrast may push the pair lower. Moreover, when the initial impulse from the Fed meeting settles, the investors will realize that the correction has gone too far and EURUSD is in the oversold zone.
The 'simply oversold' term could be applied to the GBPUSD pair as well. Besides, as long as the PMI figures are published, the pair may rebound. At least, the index's preliminary forecast seems interesting. The Bank of England meeting may bring some surprises as well. The BoE was expected to wait until August before deciding on slowing down their bond purchasing. However, the speech will presumably be re-written at the very last moment.
USDJPY seems to be the only pair among the majors, which managed to return by Friday to its 'pre-Fed' levels of 110.2. Bank of Japan maintained its monetary policy, as was anticipated. Also, the Japanese Financial Minister stated that they expect the country's GDP growth to return to the pre-COVID levels in this fiscal year.
Gold
Weekly changes: XAUUSD -5.62%
XAUUSD dropped to 1,764 USD after a Federal Reserve official said high inflation might call for the U.S. central bank to tighten its monetary policy next year. Gold is trading at its lowest levels since April, having the highest weekly loss in 15 months. Higher rates dampen demand for non-interest-bearing gold as an alternative asset.
Nevertheless, Fed Chair Jerome Powell has cautioned that discussions about raising interest rates would be 'highly premature'. His statement appears to be that the Fed is not going to do anything. They will allow this inflation spike to run its course, which the Fed believes will be transitory.
KEY POINTS
The important thing is that the Fed is not raising rates tomorrow. The Fed's plan suggests the earliest increase is 30 months away. Gold is highly oversold. Prices will probably struggle to mount a quick recovery since they broke several key technical levels in just two days.
Important levels: 1,678, 1,721, 1,769 , 1,790 , 1,816
