US Fed Goes Big with a 0.75% Interest Rate Rise.  JPY at 24-Year Lows and No End in Sight. Bank of England “Doom and Gloom”.

Overview

Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout July and beyond.

The US Federal Reserve eased us into the month of June as we realized that the 0.25% or 0.5% interest rate rise might become a whopping 0.75%.  That’s what happened!

Thanks to high debt loads, crazy-low interest rates, and confusion at the Bank of Japan, the Japanese Yen is suffering and we, as traders, are waiting for the magic reversal.  Probably not just yet.  Watch this space!

JPY

Recent financial headlines had the Japanese Yen at its lowest point in 20 years.  In this business it is amazing how quickly news gets old…it’s actually 24 years since USDJPY reached 137 and higher.  The Monthly chart below shows that price action broke through a key level of resistance from 2002.  Why?

Japan has had super-low interest rates for years for a couple of reasons.  Firstly, the Bank of Japan assumes that with low interest rates, people, companies, and banks will spend more, lend more, borrow more, and invest more, thereby stimulating the economy.  Secondly, Japan is seriously in debt and lower interest rates mean lower interest payments for the government.

Also, with other economies, like the US, raising interest rates and cutting bond-buying to fight inflation, the bond yield differential with Japan has deterred investors away from Japanese bonds.

In a nutshell, the Bank of Japan’s policies have failed miserably but no one knows how low the Yen will go.  For those of us, that thought that negative interest rates were a bad idea, we have been proven correct.

Price action on CHFJPY has hit 144 with the monthly and weekly charts looking more like ever-rising Swiss mountain ranges.

The interesting charts now are AUDJPY and NZDJPY with consolidation patterns in the form of  Symmetrical Pennants.  These are worth watching as they represent a giant game of “Chicken” and we will wait to see when the Bank of Japan decides to dive out of the way.

Crude Oil

June was an up-and-down month for both WTI and Brent Crude.

The fall in price from 8 June until 23 June was mostly based on fears of a global recession affecting demand.  The sharp rise from 24 June until the end of the month was due to the G7 discussing price caps (to cap Russia’s income) and the optimism over China’s reducing restrictions and COVID lockdowns.

The fall yesterday, the last day of the month, was based on OPEC+ agreeing to replenish supplies into August.

From the technical side, we can see that the $100 level is not only a nice round number, but it is also the 50% Fibonacci level of support.  The price of Brent Crude is currently at $108 so we will wait to see if we break through the 38.2% where we are today.

To further confuse matters, we have a Contango situation where the UKOil September contract is roughly $1 higher than today’s spot price, but a situation of Backwardation where the UKOil October contract is much lower at $105.50 per barrel.  In other words, we are getting mixed signals from the markets.

Natural Gas

The chart tells the story of Natural Gas prices falling all month with a dramatic drop on the last day of the month.  Why?

Despite the massive geopolitical issues with Russia, and the threats to cut off gas supplies to Europe, price action is bearish.  The threat of a global recession has futures falling based on a predicted fall in demand, Europe had a milder winter than predicted, and yesterday’s news on lower German consumption in May has helped.

Going forward into July, and the rest of the year, we will have to watch the news on the Russia/Ukraine war, and listen for more threats and promises on supply and demand.

US Equities

The chart of the NASDAQ shows price action in consolidation coming into the month of June and then plummeting during the second week.  Up until then, the market was debating whether the US Federal Reserve would raise interest rates by 0.25% or 0.5%.  It became suddenly clear that 0.75% was on the table and that is exactly what happened on 15 June.

Thankfully, with optimism out of China, and the resilience of investors, many “bought the dip”  and the markets have rebounded somewhat.

Where does that leave us?  We, and the US Federal Reserve, are still on inflation watch with key CPI data coming out on 13 July.  Of course, next week we will see the latest US Non-Farm Payrolls report which always gives the Fed and the markets some direction.

On a technical note, you can see from the NASDAQ chart above just how accurate the MACD was for larger moves for you Swing Traders and just how reliable the Stochastic Oscillator is for Intraday moves.

USD

During April we looked at serious USD strength due to the rising interest rates but, during the month of May, it gave lots back to the market.  A reversal of fortune, literally, occurred with the extra boost of a 0.75% rise in interest rates from Jerome and his team.

We saw USD strength during June, except against CHF.

If next week’s NFPs are better than expected, and the mid-month CPI numbers are healthy, we can expect to see this USD strength continuing.

CHF

Without a doubt, the Swiss franc has returned to its rightful place as THE Safe-Haven currency, dethroning the Japanese Yen, Gold, and the Greenback.

The strength is obvious and the concept of the pulling out of negative interest rates could see the Swiss climb even further.  However, outside of speculation and rumours, we won’t see any announcements until September from the Swiss National Bank.

GBP

The charts are quite mixed with June’s results for the Pound Sterling with losses against EUR, USD, CAD, and CHF, but with gains against JPY, AUD, and NZD.

However, the big news on the global FX scene was Andrew Bailey’s proclamation that global inflation will hit the UK economy harder than all others.  Unfortunately, we won’t see the next UK CPI until 20 July so, until then, expect a rough ride for GBP.

Gold

We usually spend an inordinate amount of time talking about XAUUSD but, to be honest, there hasn’t been too much to report as price action has been ranging in the $1800s all month.  However, price action has just reached a key level of support at $1807 and our technical indicators look bearish.

Assuming some USD strength and a break of support, the next key levels below are in the $1780s and the $1760s.

Of course, be aware of next week’s Non-Farm Payrolls and the mid-month US CPI figures.

That’s all for now.  Make sure you subscribe to the Valutrades blogs and videos and we will see you here at the end of July.