The Dax struggled in European trade this morning as stock markets hit the skids. This week’s brief rally fizzled out after soaring UK inflation numbers and declining commodity prices added to palpitations around monetary policy tightening. The Dax slumped along with European stocks, while haven assets including the US dollar, Treasuries and the Yen rose.
Earlier today we had comments from European Central Bank vice president, Luis de Guindos who once again reiterated the ECB’s position. The ECB VP stated that the size of the September rate hike will depend on inflation expectations, while he hopes inflation will start easing after the Summer.  As DAX struggled this morning it’s no surprise that all sectors are in the red, led by healthcare and basic materials with losses of 2.65% and 2.36%. 

GER30 D1 06 22 2022 1954
From a technical perspective, we had a bearish candlestick close last week which closed below key support that turned resistance at the 13270 area. Following on two days of bullish price action, we had a shooting star candle close on the daily timeframe, retesting and closing below the 13270 area.

We have seen a push down today which currently looks like a bearish engulfing candle stick pattern is forming. We will need a daily candle close below previous monthly lows at the 12960 area. A break below could open up a retest of year-to-date lows of around 12450.

 

 

President Joe Biden has announced that he may be considering a federal gas tax holiday to ease inflationary pressures on the U.S. consumer. This looser fiscal policy could aid in the tight monetary policy stance and afford the Federal Reserve greater optionality and flexibility in its battle against inflation. Theoretically, loose fiscal policy attracts more foreign investment and therefore a higher demand for dollars. Coupled with a hawkish central bank, this may give an additional boost to the greenback if the tax cut is approved.

This does not bode well for the euro however, European Central Bank (ECB) President Christine Lagarde managed to ease fears via her statement yesterday around its proactive fight against fragmentation.

EURUSD D1 06 21 2022 1607

Price action on the daily EUR/USD chart above shows a strong start to the European session for bulls who currently test the 20-day EMA resistance level.

 

 

 

 

The USD/CHF forecast remains neutral despite the price pushing lower on Tuesday after hitting a one-month high as the divergence in monetary policy between the United States and Switzerland grows.

Swiss inflation was at 2.9% in May, the highest in 14 years and above the SNB’s target range of 0-2%. It is likely to stay high, under the same upward pressure as in most other economies, due to higher energy and food prices. Despite this, the Swiss National Bank intends to keep its negative interest rates unchanged on Thursday. The Federal Reserve is now raising rates by 50-bps and could increase to 75-bps pushing USD/CHF higher and higher.

“The SNB will mirror the ECB by keeping its policy settings unchanged at its June meeting. But with a July rate hike by euro-zone policymakers now locked in, the era of policy stasis in Switzerland is drawing to a close, and an unscheduled rate rise by the SNB … now seems the most likely outcome,” said David Oxley, an economist at Capital Economics.
We see that the price has just come shy of the 1.0000 critical level before pulling back towards 0.9900. This move comes when the price is trading above the 30-SMA, and the RSI has hit the overbought level.
This pullback might push the price to test the 30-SMA, or it may just find support at 0.9900. If support is found at 0.9000, the price will increase to 1.000. The bias for USD/CHF will remain bullish if the price keeps trading above the 30-SMA and the RSI stays above 50.   

USDCHF D1 06 14 2022 1433

 

Trade accordingly with your risk

 

 

It seems as though developments coming out of the US will sway the price of oil as crude stockpiles increase for the second week, with inventories climbing 1.956M in the week ending June 10 versus forecasts for a 1.314M decline.

Signs of easing demand may encourage the Organization of Petroleum Exporting Countries (OPEC) to retain the current output schedule after deciding that “July production will be adjusted upward by 0.648 mb/d,” and it remains to be seen if the group will follow a preset path over the coming as US output climbs to its highest level since April 2020.
A deeper look at the figures from the Energy Information Administration (EIA) show weekly field production climbing to 12,000K from 11,900K in the week ending June 3, and data prints coming out the US may influence oil prices ahead of the next OPEC Ministerial Meeting on June 30 as the recent rise in supply is met with indicating of slowing demand.

USOil D1 06 16 2022 1648

With that said, the failed attempt to test the yearly high $130.50 may lead to a larger pullback in the price of oil, and crude may face a further decline over the coming days if it fails to defend the monthly low $111.20.
The recent rally in the price of oil appears to have stalled ahead of the yearly high $130.50 as the rise in price failed to push the Relative Strength Index (RSI) into overbought territory, and crude may face a larger correction if it fails to defend the opening range for June.
A close below the $115.00 handle brings the $112.80  to $113.70 region back on the radar, with a move below the monthly low $111.20 opening up the $108.10  area.
In turn, the price of oil may work its way towards $108.76 and it remains to be seen if crude will react to the positive slope in the moving average like the behavior seen earlier this year.
Nevertheless, the price of oil may face range bound conditions if it defends the opening range for June, but need a break/close above the $120.90 area bringing the yearly high $130.50 back on the radar.

 

 

Gold prices continue to languish despite an increase in market volatility. A stronger US Dollar and rising oil prices weighed on the yellow metal. Economists and big banks are split on the odds of a recession, but current economic indicators around the labor market and elsewhere remain solid. 

The next update in the US inflation story comes Friday when the consumer price index (CPI) is set to cross the wires. Friday’s CPI data may have little influence on the Fed’s path forward, given that the June and July meetings have been clearly telegraphed. However, a much hotter-than-expected print may firm up bets later this year, especially if the print drives farther-dated inflation expectations higher, causing expectations to become unanchored, which would attract a reaction from the Fed.

Gold prices sit just below a key trendline.  Directly below sits the 200-day Simple Moving Average. A drop below that SMA could open the door for prices to fall to the psychologically important 1800 level. 

XAUUSD D1 06 09 2022 1028

 

 

 

 

 

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