Hawkish Stances Drive Forex Markets
16 June 2023
Thursday was a whirlwind day in the market, characterized by significant swings across Forex pairs, commodities, and indices. The day was driven by pivotal data releases and central bank decisions, leading to heightened volatility and some unexpected movements.
In the Forex market, the primary event was the European Central Bank's decision to raise interest rates by 25 basis points to 4%. This decision, alongside hawkish comments from the bank, strengthened the Euro. Thursday also brought significant retail data from the US, which had a substantial impact on the market. Contrary to expectations of a 0.2% decline, retail sales for May surprisingly rose by 0.3% on a monthly basis. This stronger-than-expected retail sales data would typically strengthen the US Dollar. However, the USD weakened on Thursday, which can primarily be attributed to profit-taking and a release of built-up pressure from a very active week marked by CPI and rate decision.
The Yen notably weakened on Thursday, following verbal interventions from Japan's Chief Cabinet Secretary Mr. Matsuno. This resulted in an uptick in most Yen pairs, with the AUDJPY pair experiencing a particularly steep rise.
Turning to commodities, the weakening of the USD provided some relief, leading to reversals in the trends of gold, silver, and oil. Gold, for example, moved back inside its pennant formation, effectively creating a false bearish breakout and a subsequent buy signal.
Indices on Thursday continued their upward trajectory. The S&P 500 showcased impressive strength by breaking upward from its channel formation, a definitive sign of bullish dominance. The German DAX flirts with long-term highs, suggesting a possible breakout if the buying pressure continues.
Shifting to Friday, the focus turns to the Bank of Japan's decision to keep its interest rates unchanged, and the forthcoming Preliminary University of Michigan Consumer Sentiment data from the US. The reversal trends for commodities such as gold and oil are expected to continue with the ongoing weakening of the USD. Indices such as the S&P 500, Dow Jones, and NASDAQ are projected to maintain their bullish movements.