Introduction
Stocks are at new ATHs, while we see major weakness in key metals. Furthermore, central banks are making decisions that seem illogical if you do not understand the framework they work under. Join us in this week’s market pulse as we explain the key movers this week.
Global Macro
This week, we saw the Reserve Bank of New Zealand deciding to keep the official cash rate at 2.25%. The RBNZ differs from other central banks in regard to its inflation target; rather than having a specific 2% target, it maintains a 1-3% inflation band, wherein it wants to keep inflation.
This is also why the current rate pause makes sense: the economy is struggling due to raising energy prices, and inflation has only just popped its head above its target band, as the latest reading came in at 3.1%.
Equities
Equities had another great week, as all major indices closed the week in the green. Nasdaq took the crown, however, as the iconic $30,000 level was broken on Wednesday. The extremely strong performance of the index is additionally highlighted by the fact that the $20k level was broken just two years ago, in June of 2024.
Nasdaq on the 4-hour Timeframe
A very interesting level has been developed at $29,734-29,782. Despite the area being rather tight, the amount of daily lows here really speaks to its technical strength. This is a key area to watch when the price comes down to test it.
As always, putting targets on assets in discovery mode is a very difficult feat. The best approximation we can use is the Average True Range on the Weekly Timeframe, which might support an extension towards 31.300 next week.
Forex
Forex as an asset class had yet another low-volatility week, with most pairs having barely moved. The New Zealand Dollar was one of the few exceptions, due to the central bank meeting.
NZD/USD on the Daily Timeframe
The asset put in very peculiar price action earlier this week and the prior week. Every candle closes in the opposite direction of the one prior, as we see an up-down-up-up-down-up-down pattern. Moreover, this pattern happened on gradually declining volatility as the range kept getting tighter and tighter until a true breakout on Wednesday was achieved.
The asset seems to have solid short-term momentum, and with that, the 0.59905 seems like a reasonable upside target. To the downside, 0.59290 may provide some support to facilitate this move up.
Commodities
Last week, we diverged from the major commodities, as their charts had nothing interesting to show us. Today, however, a look at Gold is warranted.
XAU/USD on the Daily Timeframe
Price has finally come to test the super important lower end of this range and is seemingly bouncing from it. From a technical point this move doesn’t seem very convincing. Price has reacted to it nicely, but we want to see stronger follow-through to cement a longer bottom and turn this bounce into a Higher Low rather than just another Lower Low.
However, the fundamental bull case for Gold remains. Most central banks continue to be long-term buyers, and as we go through an increasingly unstable geopolitical world, the metal does seem like a key option for hedging against those risks.
The conclusion is thus a multi-faceted one. In the short-term, be prepared for this asset to go either way, with a slight bias towards the downside. However, holding a long-term short position could be dangerous, as new All-Time-Highs later this year very much remain a possibility.
Conclusion
One-sentence summary of the week:
Nasdaq at $30K, Gold breaking down & the RBNZ holding rates.