Weekly outlook and review: Inflation is front and centre in the final full week of June

Tuesday’s inflation data out of Canada is first out of the gate this week at 1:30 pm GMT+1. Headline YoY inflation surprised to the upside in April to 4.4%, 0.1 percentage points higher than 4.3% in March (19-month low). Expectations heading into the event are for consumer prices to ease to 4.2% in the twelve months to May; YoY core inflation is also projected to slow to 3.7% in May (down from 4.1% in April). Traders will watch this week’s inflation release closely for signs of weakness; any meaningful deviation from economists’ expectations may elevate volatility in CAD pairs and influence market pricing for the upcoming rate announcement. The Bank of Canada (BoC) is set to meet on 12 July, and markets are pricing around a 70% probability that the central bank will increase the Official Overnight Rate by 25bps to 5.0%, the highest rate since 2001. This follows the 25bp hawkish hike this month.

Inflation data from Australia for May, the monthly CPI indicator, will be watched at 2:30 am GMT+1 on Wednesday. Expectations are for consumer prices to slow to 6.1% in the twelve months to May (median consensus), down from 6.8% in April. The Reserve Bank of Australia (RBA) are scheduled to meet on 4 July with markets currently pricing nearly a 60% probability that the central bank will hold the Official Cash Rate unchanged at 4.10% over a 40% chance of increasing the benchmark rate by 25bps. AUD pairs will be observed during the inflation release, and any marked deviation is likely to increase volatility during the Asian session and could also affect market pricing.

YoY (Flash) euro area inflation for June will be released on Friday at 10:00 am GMT+1, expected to cool to 5.7%, down from 6.1% in May. YoY core inflation for June is anticipated to increase to 5.5%, up from 5.3% in May. With the euro area entering a mild technical recession in Q1 of this year after two successive negative GDP quarterly readings and euro area inflation—aside from the jump in April to 7%—cooling since peaking at 10.6% in October 2022, the European Central Bank (ECB) may struggle to hike rates beyond investors’ expectations; thus, this could weigh on the euro and eventually entice selling. Markets continue to price in the possibility of a 25bp rate hike from the ECB in July and also in September, with a peak deposit rate expected just shy of 4.0%. As a note, check out the monthly timeframe for EUR/USD: the rally we have seen since September 2022 is potentially a pullback within a wider, longer-term downtrend.

Friday will also see the latest core PCE price index from the US at 1:30 pm GMT+1—the US Federal Reserve’s preferred measure of inflation. MoM, economists forecast a 0.3% print for May (vs 0.4% in April), while YoY is expected to remain unchanged at 4.7%. As of writing, investors expect the Fed to increase the Fed Funds rate one more time on 26 July by 25bp, then hold and eventually begin cutting rates in 2024. This is where we see some divergence between the Fed and investors. From the last FOMC meeting, where the Fed paused (or skipped) policy firming, the Summary of Economic Projections (or the so-called dot plot) revealed that FOMC members forecast a median Fed rate as high as 5.6%, indicating another two rate hikes.

Technical view: Markets to watch for the week ahead

Currencies

50-day SMA is key for the Dollar Index

Snapping a three-week bearish phase, the US dollar welcomed some tentative relief last week, adding +0.6% according to the US Dollar Index.

Regarding the monthly chart, the trend has remained higher since 2008. Q4 (2022), however, staged a noteworthy correction from 114.78, which remains active in 2023. Predictably, due to the fractal nature of the markets, this displayed a visible downtrend on the daily chart.

Should price action on the monthly timeframe extend the current retracement slide—obvious support is not seen until 99.67, a level complemented by two Fibonacci ratios (38.2% and 61.8%) at 98.72 and 98.95, respectively—this may pull the Relative Strength Index (RSI) under the 50.00 centreline to a nearby indicator trendline resistance-turned-support drawn from the high of 82.87. It is worth remembering that the RSI tends to establish support around the 40.00-50.00 area in trending environments; consequently, many use this zone as a temporary oversold base to locate positive divergences.

Meanwhile, on the daily timeframe, mid-week trading witnessed the index retest the lower side of its 50-day simple moving average at 102.67 last week; though a bearish presence proved short-lived. Heading into the second half of the week, as you can see, dollar buyers went on the offensive and lifted the index just north of the aforementioned 50-day SMA.

Although the daily chart emphasised a clear-cut downtrend in the later months of 2022, you can see that direction has been restricted between 105.00 and 101.00ish in 2023. The trend remains to the downside (supported by the RSI nearing the underside of its 50.00 centreline) in the short term (from 104.70) until a higher low and a subsequent higher high form. The close above the 50-day SMA, on the other hand, may be considered bullish for some. Holding above the SMA (even retesting the base and forming support) could help swing things back in favour of an uptrend, aligning with the monthly timeframe’s trend.

Technical structure to be aware of on the daily scale over the next few weeks, aside from the aforementioned 50-day SMA, are demand from 100.27-100.77, as well as trendline resistance taken from the high 114.78 seen overhead, sheltered by a resistance area at 105.82-105.36 and the 200-day simple moving average at 105.11.

Charts: TradingView

Commodities

Spot Silver (XAG/USD) echoing bearish vibe

Spot silver (XAG/USD), in dollar terms, fell sharply last week. Shedding -7.3%, its largest one-week drop this year, landed the precious metal at weekly support from $22.42. This follows weekly resistance welcoming price action at $25.87 earlier in the year. Clearance of current support may pave the way for a run towards support coming in at $20.82. While sentiment on the weekly timeframe has been largely to the downside since early 2021, the medium-term direction is difficult to judge. Since bottoming in August 2022 until hitting a high of $26.14 (testing the above-noted resistance level), the medium-term bias was tilted to the upside. However, last week’s push lower has seen a lower low form and swung the technical pendulum potentially back in favour of sellers.

Drilling down to the daily timeframe, I see the unit engulfed support at $22.56-$22.96 and subsequently retested the lower side of this base last week. Alongside room to push lower on the Relative Strength Index (RSI) toward oversold territory, the daily price chart also exhibits scope to navigate lower levels this week toward a harmonic bat pattern’s potential reversal zone (PRZ) between $20.13 and $20.84.

Shorter-term price action on the H1 timeframe shows silver completed an ‘alternate’ AB=CD bearish configuration heading into US hours on Friday, denoted by a 1.272% Fibonacci projection ratio at $22.60 which was complemented by a 78.6% Fibonacci retracement ratio at $22.68. AB=CD shorts would have likely reduced risk to breakeven ahead of the close (some will have also liquidated the position in order to avoid weekend risk). Downside support to be conscious of on the H1 scale is seen at $22.18, positioned close by Friday’s session low of $22.11 and the $22.00 psychological base.

As a result of the above analysis, knowing the daily timeframe has consumed notable support ($22.56-$22.96) and ended the week retesting its lower side, in addition to room seen for the unit to push lower on the H1 timeframe, this emphasises a bearish vibe this week and places a bold question mark on weekly support at $22.42.

Charts: TradingView

Equities

S&P 500 updated

The S&P 500 concluded the week -1.4% lower, snapping a five-week winning streak and forming an interesting candlestick formation (see below).

From the monthly timeframe, I do not have much to add. The following passage shows where I left the monthly chart last week (italics):

Aided by the Relative Strength Index (RSI) rebounding from support between 40.00 and 50.00 (common in strong uptrends), monthly price is fast approaching the all-time high at 4,818 set at the beginning of 2022.

From the weekly chart, the week concluded in the shape of a harami candlestick pattern (note that this is similar to the inside candle formation, though with harami formations, the candle bodies are considered, not the upper and lower shadows). Like an inside bar indicates a contraction in volatility, the harami operates similarly. And what follows a contraction in volatility is usually a bout of high volatility. Therefore, the current harami signals that either a trend reversal to the downside could be in the offing or an increase in velocity to the upside may unfold (we have been noticeably trending higher since October 2022 [in fact, we are trending higher on the monthly, weekly and daily timeframes]). Either way, two important technical levels to watch this week are 4,325 support and channel resistance taken from the high of 4,100 seen overhead. Also of technical relevance on the weekly chart, the RSI shows signs of topping near overbought territory, following a breakout above an ascending triangle pattern in late March.

Following a near-test of resistance from 4,473 (alongside the RSI testing indicator resistance at 76.39 within overbought territory), the daily timeframe ended the week throwing light on a decision point at 4,260-4,299. This base is located just south of the weekly support level highlighted above at 4,325 and could be a location dip-buyers are drawn to this week.

Charts: TradingView

Cryptocurrencies

BTC/USD powered to fresh YTD top

Against the US dollar, bitcoin printed bold gains last week (approximately +17.0%) and refreshed YTD peaks of $31,443. After a fleeting visit to resistance-turned-support on the weekly timeframe at $25,381 the week before, a level accompanied by trendline support taken from the low of $16,326, bulls well and truly made their mark and stepped in last week. They lifted the major cryptocurrency to weekly resistance at $30,644 and, given fresh YTD highs, unmasked weekly resistance from $32,933.

Moving across to the daily timeframe, resistance made a show at $31,404 on Friday, which was accompanied by the Relative Strength Index (RSI) testing overbought space. This followed the unit engulfing the 50-day simple moving average, currently fluctuating around $27,175. As a note, in early February, this market shaped a Golden Cross: the 50-day simple moving average crossing above the 200-day simple moving average ($24,251), which is a trend reversal signal. Adding to this, both the weekly and daily timeframes have exhibited clear uptrends since bottoming in late 2022. Areas outside of current resistance on the daily scale to be aware of this week are resistance at $34,048 and support from $29,383.

Considering the above, the combination of weekly resistance at $30,644 and daily resistance at $31,404 will be key to monitor this week.

From the H1 chart, traders will acknowledge that the crypto attempted to find grip north of $31,000 late Friday but failed to establish a footing and left $32,000 unchallenged. This, technically speaking, was likely due to the resistance entering the fold on the bigger picture (see above). Lower on the H1, the widely watched psychological base $30,000 is certainly a level worth pencilling in the watchlist this week as it could serve as support.

On account of the above analysis, buyers have their work cut out for them this week in view of $31,404/$30,644 resistance on the higher timeframes. Nevertheless, the longer-term trend supports further upside, which could help facilitate a buy-the-dip phase off $30,000 on the H1 timeframe. Conservative buyers, however, will likely seek additional confirmation before pulling the trigger in light of current resistance. This may be as simple as monitoring the approach: an AB=CD approach may be enough confirmation for some harmonic traders, for example.

Charts: TradingView