Daily Market Analysis - WEDNESDAY JUNE 21, 2023
As US stocks decline, the market retreats while investors eagerly await Powell's testimony.
Key events:
UK - CPI (YoY) (May)
USA - Fed Chair Powell Testifies
The trading session on Tuesday witnessed a decline in US stocks, marking a shift from the previous sustained rally as investors opted to secure their profits. This decision was influenced by concerns over weakening global demand, which contributed to a cautious sentiment prevailing at the beginning of the holiday-shortened week.
One of the key events that investors are eagerly anticipating is Federal Reserve Chairman Jerome Powell's scheduled testimony before Congress on Wednesday. The outcome of this testimony has the potential to significantly impact market dynamics and serve as a major catalyst for market movement.
All three major US equity indices concluded the session with negative results, although they did manage to recover slightly from the lows reached earlier in the day. Notably, the decline was influenced by the performance of oil super-majors such as Exxon Mobil Corp and Chevron Corp, which exerted downward pressure on both the S&P 500 and the Dow.
The broader sell-off that occurred follows the Nasdaq's impressive winning streak, which had been the longest since March 2019, and the S&P 500's longest winning streak since November 2021.
Despite the setback experienced on Tuesday, it is important to note that the benchmark S&P 500 has still achieved a notable gain of 14.3% year-to-date. This highlights the overall positive performance of the market thus far in the year, even with the temporary downturn observed in the recent trading session.
S&P 500 daily chart
Federal Reserve Chair Jerome Powell's upcoming congressional testimony presents a platform for him to expand on the discussions surrounding monetary policy that took place during the recent Fed meeting. However, given the relatively short timeframe between these two events, it is improbable that Powell will introduce substantial new insights during this testimony. It is important to note that the Federal Reserve follows a data-dependent approach, making decisions on a meeting-by-meeting basis. Therefore, their next decision, slated for July 26, will likely be influenced by a range of factors, including the release of the Consumer Price Index (CPI) on July 12 and the employment report on July 7. These upcoming economic indicators will play a significant role in shaping the Fed's decisions regarding monetary policy moving forward.
GBP/USD daily chart
The GBP/USD currency pair witnessed a substantial surge of 60 pips, propelling it above the key level of 1.2800. However, the pair later retraced to 1.2760. This price movement unfolded as market participants engaged in reassessment of the UK inflation data ahead of the London open on Wednesday.
In May, the Consumer Price Index (CPI) in the UK surpassed market expectations by reaching a year-on-year figure of 8.7%, surpassing the anticipated 8.4%. This strong inflationary reading garnered attention and influenced the initial upward momentum in the GBP/USD pair.
On the other hand, the Core CPI, which factors out the impact of volatile food and energy prices, aligned with analysts' predictions. It indicated a more modest inflation increase of 6.8% year-on-year, in line with market forecasts.
The contrasting figures between the headline CPI and Core CPI may have contributed to the subsequent retreat in the GBP/USD pair, as market participants carefully considered the implications of these inflation data points. Such evaluations and reevaluations are common as traders and investors digest the latest economic indicators to adjust their positions in the market.
As the trading session progresses, market participants will continue to monitor developments and additional economic data releases to gauge the potential impact on the GBP/USD currency pair.
UK CPI
The GBP/USD buyers are currently facing challenges as the US Dollar continues to exhibit strength, extending its upward trend for the fourth consecutive day, despite recent lack of significant action. This poses a hurdle to the bullish outlook on the GBP/USD pair, even with the positive UK inflation data that supports the Bank of England (BoE) hawks.
At the same time, the US Dollar Index (DXY) remains relatively stable around the 102.60 level, maintaining its four-day uptrend without displaying a strong inclination to advance further. The recent resilience of the US Dollar can be attributed to the hawkish remarks made by Federal Reserve policymakers, particularly the nominees, as well as robust housing data from the United States. Additionally, concerns regarding geopolitical tensions between the US and China are weighing on market sentiment, further bolstering the safe-haven appeal of the US Dollar.
In light of these factors, the GBP/USD buyers are encountering resistance in their efforts to drive the pair higher. The prevailing strength of the US Dollar, supported by hawkish comments and positive economic data, poses a challenge to the bullish sentiment on the GBP/USD pair. Traders and investors will closely monitor further developments, including central bank communications and geopolitical developments, to assess the potential impact on the GBP/USD pair moving forward.
US Dollar Currency Index
Furthermore, during the course of the night, the Australian dollar experienced notable and noteworthy fluctuations, which consequently led to a substantial decrease in the AUD/USD exchange rate, edging closer to the critical level of 0.6800. The downward trajectory of the Australian dollar was triggered by the release of the minutes from the Reserve Bank of Australia's (RBA) most recent policy meeting held on June 6th. To the surprise of market participants, the RBA opted to implement an additional 25 basis points hike, thereby elevating the policy rate to 4.10%. This updated guidance on the likelihood of future rate hikes was specifically aimed at attaining the desired inflation target.
AUD/USD daily chart
Nevertheless, the recently disseminated minutes of the meeting have given rise to an array of uncertainties with respect to the Reserve Bank of Australia's (RBA) forthcoming stance on augmenting interest rates. Within the aforementioned minutes, it was brought to light that the RBA extensively deliberated on the prospect of temporarily halting any rate increases during their most recent policy meeting. However, after careful consideration, the RBA concluded that the arguments presented were intricately poised, yet slightly inclined towards implementing a rate hike.
Key events:
UK - CPI (YoY) (May)
USA - Fed Chair Powell Testifies
The trading session on Tuesday witnessed a decline in US stocks, marking a shift from the previous sustained rally as investors opted to secure their profits. This decision was influenced by concerns over weakening global demand, which contributed to a cautious sentiment prevailing at the beginning of the holiday-shortened week.
One of the key events that investors are eagerly anticipating is Federal Reserve Chairman Jerome Powell's scheduled testimony before Congress on Wednesday. The outcome of this testimony has the potential to significantly impact market dynamics and serve as a major catalyst for market movement.
All three major US equity indices concluded the session with negative results, although they did manage to recover slightly from the lows reached earlier in the day. Notably, the decline was influenced by the performance of oil super-majors such as Exxon Mobil Corp and Chevron Corp, which exerted downward pressure on both the S&P 500 and the Dow.
The broader sell-off that occurred follows the Nasdaq's impressive winning streak, which had been the longest since March 2019, and the S&P 500's longest winning streak since November 2021.
Despite the setback experienced on Tuesday, it is important to note that the benchmark S&P 500 has still achieved a notable gain of 14.3% year-to-date. This highlights the overall positive performance of the market thus far in the year, even with the temporary downturn observed in the recent trading session.
S&P 500 daily chart
Federal Reserve Chair Jerome Powell's upcoming congressional testimony presents a platform for him to expand on the discussions surrounding monetary policy that took place during the recent Fed meeting. However, given the relatively short timeframe between these two events, it is improbable that Powell will introduce substantial new insights during this testimony. It is important to note that the Federal Reserve follows a data-dependent approach, making decisions on a meeting-by-meeting basis. Therefore, their next decision, slated for July 26, will likely be influenced by a range of factors, including the release of the Consumer Price Index (CPI) on July 12 and the employment report on July 7. These upcoming economic indicators will play a significant role in shaping the Fed's decisions regarding monetary policy moving forward.
GBP/USD daily chart
The GBP/USD currency pair witnessed a substantial surge of 60 pips, propelling it above the key level of 1.2800. However, the pair later retraced to 1.2760. This price movement unfolded as market participants engaged in reassessment of the UK inflation data ahead of the London open on Wednesday.
In May, the Consumer Price Index (CPI) in the UK surpassed market expectations by reaching a year-on-year figure of 8.7%, surpassing the anticipated 8.4%. This strong inflationary reading garnered attention and influenced the initial upward momentum in the GBP/USD pair.
On the other hand, the Core CPI, which factors out the impact of volatile food and energy prices, aligned with analysts' predictions. It indicated a more modest inflation increase of 6.8% year-on-year, in line with market forecasts.
The contrasting figures between the headline CPI and Core CPI may have contributed to the subsequent retreat in the GBP/USD pair, as market participants carefully considered the implications of these inflation data points. Such evaluations and reevaluations are common as traders and investors digest the latest economic indicators to adjust their positions in the market.
As the trading session progresses, market participants will continue to monitor developments and additional economic data releases to gauge the potential impact on the GBP/USD currency pair.
UK CPI
The GBP/USD buyers are currently facing challenges as the US Dollar continues to exhibit strength, extending its upward trend for the fourth consecutive day, despite recent lack of significant action. This poses a hurdle to the bullish outlook on the GBP/USD pair, even with the positive UK inflation data that supports the Bank of England (BoE) hawks.
At the same time, the US Dollar Index (DXY) remains relatively stable around the 102.60 level, maintaining its four-day uptrend without displaying a strong inclination to advance further. The recent resilience of the US Dollar can be attributed to the hawkish remarks made by Federal Reserve policymakers, particularly the nominees, as well as robust housing data from the United States. Additionally, concerns regarding geopolitical tensions between the US and China are weighing on market sentiment, further bolstering the safe-haven appeal of the US Dollar.
In light of these factors, the GBP/USD buyers are encountering resistance in their efforts to drive the pair higher. The prevailing strength of the US Dollar, supported by hawkish comments and positive economic data, poses a challenge to the bullish sentiment on the GBP/USD pair. Traders and investors will closely monitor further developments, including central bank communications and geopolitical developments, to assess the potential impact on the GBP/USD pair moving forward.
US Dollar Currency Index
Furthermore, during the course of the night, the Australian dollar experienced notable and noteworthy fluctuations, which consequently led to a substantial decrease in the AUD/USD exchange rate, edging closer to the critical level of 0.6800. The downward trajectory of the Australian dollar was triggered by the release of the minutes from the Reserve Bank of Australia's (RBA) most recent policy meeting held on June 6th. To the surprise of market participants, the RBA opted to implement an additional 25 basis points hike, thereby elevating the policy rate to 4.10%. This updated guidance on the likelihood of future rate hikes was specifically aimed at attaining the desired inflation target.
AUD/USD daily chart
Nevertheless, the recently disseminated minutes of the meeting have given rise to an array of uncertainties with respect to the Reserve Bank of Australia's (RBA) forthcoming stance on augmenting interest rates. Within the aforementioned minutes, it was brought to light that the RBA extensively deliberated on the prospect of temporarily halting any rate increases during their most recent policy meeting. However, after careful consideration, the RBA concluded that the arguments presented were intricately poised, yet slightly inclined towards implementing a rate hike.
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