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Market Wrap
According to Lagarde, the bank expects economic growth of 1% in 2023 and 2.1% in 2024 based on statistical projections. “Prices have also gone up more strongly because of renewed supply bottlenecks amid recovering domestic demand, especially in the services sector, as our economy reopens.” She added that the increase in inflation to 8.1% and the increase in energy prices by 39.2% reflect the current complex geopolitical situation.
German producer prices for industrial products increased by 33.6% in May 2022 compared with May 2021. Compared to the same month of the previous year, this was the biggest increase ever reported by the Federal Statistical Office. In April 2022 the index rose by 33.5% while in March it rose by 30.9%. Overall, the index rose by 1.6% in May 2022 when compared with April 2022. Energy prices were responsible for most of the increase in producer prices compared to May 2021.
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The EURUSD ended the London session up for the day but within the price action of last Friday and Thursday, as the US session volumes were lows due to a bank holiday for the USA. Fed Chair Powell is due to testify from Wednesday, so I am expecting the USD crosses like the EURUSD to remain range bound again tomorrow. Long-term momentum in the EURUSD is to the downside, so the path of least resistance is still lower prices. President Lagarde also says that the ECB are likely to raise rates by 25bps in July, which the market should have priced in already. Any disappointment or an unexpected rate hike would be repriced.
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The ETF that tracks the energy sector closed a lot lower last week as market participants cannot see how the demand destruction being forced through by the central banks with monetary tightening will not lead to a hard landing or recession.
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Brent was lower again today as Iran hinted that it is ready for a good nuclear deal. At the same time China is reportedly importing the most amount of oil ever from Russia as the heavily sanctioned country expects to increase oil exports this year. Russian oil is trading at a massive discount, which is benefitting the countries that have not gone along with the sanctions. The International Energy Forum said today that global oil demand declined on a monthly basis.
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The forex heatmap shows that the commodity pairs and equities would have been the best assets to trade today as the Australian dollar has been the strongest currency relative to its peers, whereas the flows out of the safe haven that is the yen has kept the JPY weak all day.
Looking at the daily AUDJPY chart, the uptrend is still intact and with a close back above the 9-period EMA there is a chance that we see an acceleration to the upper side of the Bollinger Band. The main catalyst for this scenario is a hawkish RBA monetary meeting minutes and speech from RBA Governor Lowe tomorrow.
