Week of June 13

A series of interest rate decisions around the globe could provide some choppy markets as investors try to figure out whether China has overcome the threat of covid.

----------------

The week in review

Initial optimism that China was definitely on track to reopening took a blow later in the week as officials announced another round of mass testing scheduled for over the weekend. 

Risk sentiment was also impacted as crude prices continued to drift higher, with corresponding more worries about inflation. Revisiting the 14yr high of $130/bbl will be no surprise. Near-term support lies at $120, then $115/bbl. 

As expected, the ECB announced the end of its QE program and foreshadowed a 25bps hike at its next meeting in July. EUR/USD fell as the ECB signaled only one hike in July and September, from a high of $1.077 to $1.06.

Australia was a bit of a surprise, raising rates more than expected, but the Aussie was broadly lower on a stronger dollar. Yields steadied along with the dollar index.

Top events for the week ahead

The return of the bankers

Central bank meetings will be the theme for this week. The most important is likely to be the Fed, where the consensus is for another 50bps hike, and to leave the door open for a similar measure at the July meeting. The dollar index (DXY) could rise to 105 again but will need to recapture 103.6 first. On the flip side, a break of 102.1 might see a reversed outlook taking place instead.

The BOE is also expected to hike again, but maintain its more modest series of 25bps hikes in place since the start of the year. GBP/USD has a range top at $1.26 and bottom at $1.2470. If the latter breaks, it opens up $1.24 and below.

The BOJ is expected to once again leave policy intact, but there will be increased scrutiny on commentary about how far the yen will be allowed to fall. USD/JPY bulls could attempt to take 135 out, but if we lose 133.20, 131.50 is possible.

Switzerland has managed to avoid the ravages of inflation and is expected to keep rates unchanged. But, given that the ECB is expected to hike in July, the SNB could signal a matching tighter policy to keep policy in line with Europe might be appropriate. USD/CHF sits at 0.98 and has resistance and support at 0.9957 and 0.9663 respectively.

Cable in focus with data

As if the BOE decision weren't enough to shake up the pound, the UK releases a series of key economic figures through the course of the week. 

Starting on Monday with the UK trade balance. Then on Tuesday, the UK is expected to report steady employment figures. On Friday retail sales are expected to show slower demand from UK consumers. The FTSE 100’s decline could continue to 7300 and even 7140 data-dependent, but inversely there is major resistance at 7500.

Getting risk appetite back

With supply chain issues on the market's mind, China's May industrial production, retail sales, and unemployment figures which are all set to be released on Wednesday could be the pivot point for market optimism. The consensus of expectations is for improved data compared to the prior month, although industrial production and retail sales are expected to still be negative.

Other data and events

On Tuesday, ZEW publishes its economic sentiment indicator for Germany, and then the US reports PPI figures. The next day's key data points include EuroZone industrial production and US retail sales, which could be overshadowed by the FOMC decision. Australia reports its unemployment rate on Thursday, followed by US housing data in the context of the Fed rolling off its MBS holdings.