Introduction
Welcome to your weekly market pulse. This week, we’re tracking a massive shift in Fed rate expectations and a much-needed breather in the equity markets after a relentless two-month rally. We also dive into a divergence in the Euro and look at why Copper is currently stealing the spotlight from precious metals.
Global Macro
The macro calendar showed relatively few high-importance events this week, thus allowing us to shift our attention to expected Fed interest rates for the rest of the year.
Compared to just a couple of months ago, rate cuts have been completely priced out, and there is now a 57% chance we will be seeing a 25-basis-point rate hike by the end of the year. However, these expectations are subject to the continuation of the Middle East conflict.
A quick resolution from here on out could allow the Fed to ‘look through the data’ and pass on any rate hikes, whereas any continued conflict would likely tie the Fed’s hands.
Equities
Most indices this week took a little breather, as they have basically been up-only for the past two months.
S&P 500 on the Daily Timeframe
Technically, the market picture remains clear: price is in discovery mode, leaving it with no visible upside resistance. We are tracking two minor support levels that could potentially attract buyers looking to sustain the upward momentum. Currently, price is testing the upper boundary of these two zones.
Forex
The Euro is in an interesting spot right now. Next week, the ECB has 97% odds of hiking rates by 25 basis points, and yet EUR/USD is currently sitting at its range lows.
EUR/USD on the Daily Timeframe
This raises the question of whether the market is currently mispricing the asset. Generally, higher interest rates support currency appreciation, which theoretically favors a move higher for EUR/USD. However, given that a hike is 97% priced in, this event is already largely discounted. The fact that EUR/USD remains stuck at its range lows may actually signal underlying weakness.
Commodities
As Gold, Silver, and Oil are all taking a breather, we shift our focus to Copper.
Copper on the Daily Timeframe
In conjunction with equity markets, copper has been having a strong year, as the asset is currently up 13% year-to-date. When it comes to the technicals, recent momentum has been solid, with our momentum indicator pointing up.
The absolute key area to watch resides at $6.11-$6.15, where we can see seven separate retests of this level from both sides, confirming its validity.
Conclusion
One-sentence summary of the week:
Rate Hikes Expected, Equities on Early Summer Break & Copper Bull Run