Weekly Update (June 18th – 24th)
As expected, last week was an intense week full of activity, especially by the Central Banks.
– Central Banks decisions last week should calm the markets in the following months
o Fed is raising rates at a normal rhythm
o ECB has planned to finish its unconventional asset purchase plan by 2019
o Central banks do this at a time where inflation is rising
- So, they are not that worried about inflation
- Apart from the fact that is a transitory inflation influenced by excessive oil prices
o At the end of the day, Central Banks make clear decisions which are good for bonds
– Fed wants to raise interest rates two more times this year and a couple more times in 2019, ending around 3.25%
o Reduce balances
o Finish a process of normalisation
- Normalisation is good and stable
– ECB will retire the unconventional measures in 2019
o Interest on deposit and credit will rise becoming positive by 2019
o This is highly positive for the economy
This week we have Central Banks news as references
– Sintra meeting
o Annual meeting of central banks
- With what happened last week not much will be observed here
– OPEC meeting
o Will increase production
o Reduce oil prices
- Fear over inflation will fall
Hence, the situation should improve within an environment where corporate results are still increasing and inflation starting to fall along with good unemployment rates and less political risk. Therefore, this week and the ones ahead should be positive for the markets.
US Dollar Index
US Dollar Index just broke with power, a critical monthly resistance totally reversing the bearish trend it has been following in the last months. We may see a small retest, but it will only serve to confirm the beginning of a bullish trend. Therefore, it is a good moment to buy, putting the SL just under the minimum of the last session and the TP above the last resistance. With this position, we should catch the new bullish trend.
After attempting the retest, it has dropped even further continuing the weekly bearish trend it formed previously. Short positions should remain open as for now, it has clear path downwards.
After a fake breakout, it has broken down again, against the two supports that were supporting the upward movement. Hence, we open a new short position that has now supported the remaining ahead.
After moving sideways between two key support and resistance for weeks, the USDJPY is now approaching the resistance above. However, it is necessary to wait for now until it confirms whether it will test it and come down, or it will break it for once and for all. Thus, for now, we wait until we have a confirmation of the breakout.
After breaking and retesting the upward trendline, it confirms the continuation of the bearish trend that began weeks ago and that we are joining again. Without notable supports ahead it should continue going down.
DAX has been tumbling the last few months, but after breaking the resistance it has been playing with lately, it has followed a clear path upwards. For now, we hold as fundamentals from last week support the markets even more.