European and US futures are kick-starting the week on the back foot as disappointing Chinese economic numbers have buffeted economic sentiment further. China’s zero-tolerance policy is causing the industrial output and consumer spending to break down. Currently, they are sitting at their worst level since the pandemic began. The industrial output fell 2.9% in April from a year ago, and the retail sales contracted 11.1% in the period. In addition, we also saw the unemployment rate climbing to 6.1.
The data has made traders anxious about the global economic outlook. The general trend is likely to prevail in the market. The dollar index continues to act as a safe haven, Treasuries will soar, and oil prices may move further lower; this week could be another week of weakness for the global equity markets.
Market players are highly concerned that a recession is likely to happen, and central banks from the developed world are increasing the interest rates when economic growth slows down. Geopolitical tensions aren’t going away as Finland and Sweden’s intentions of applying for NATO aren’t helping the Russia and Ukraine conflict situation.
Oil prices are moving lower to begin the week as the general sentiment in the market isn’t supporting oil demand. Investors are more worried about the strong possibility of a recession taking place in the biggest economy in the world, the US. Even if we hit a technical recession where the GDP growth shows contraction for a brief period, it would only adversely influence oil demand.
On the geopolitical front, it is evident that Germany, the largest economy in the Eurozone, is going o stop importing oil from Russia by the end of this year, regardless of what the EU decides on its embargo decision Russia. In Germany, lawmakers are doing their best to seal with alternative suppliers, and the government has a positive stance to resolve any remaining logistical obstacles within the next six months.
In terms of technical price levels, the Brent crude oil price is currently trading above the 50-day SMA on the daily time frame and flirting with its support of $100. We are likely to see further weakness in the oil price, which means that Brent oil price may break below the $100 and retest its support at $94.
The precious metal saw tremendous weakness in its price action last week, and traders are picking up the momentum where they left off last week. The focus is on the dollar index’s strength, and even though the Chairman of the Fed has assured that the Fed isn’t thinking of increasing the interest by more than 50 basis points, the dollar index is soaring. Traders know that the Fed is likely to remain on autopilot for their next two meetings, and this means an interest rate hike of 1% before they start thinking of keeping it the same or increasing the level of interest rate hikes.
In terms of the price level, gold traders will be watching the support of 1,800, and if the price violates this support zone, it will send a further bearish signal for the precious metal. The following important support zone is at 1760.
The blowout in Terra and Luna has pushed crypto traders to the side, and the event has massively influenced the sentiment among traders. Crypto traders have been worried about the Bitcoin price, and the current weakness in the bitcoin price suggests that it is likely that we may see further lows for the bitcoin price. For instance, last week, we saw the bitcoin price falling near the 24K, and this week it is likely that we may see a retest of this level. This is mainly because another stable coin going belly up will bring higher scrutiny from lawmakers. Terra’s blowout has left many people wounded, and this isn’t going to go away unnoticed.
We are expecting more weakness for the BTC price this week, but it is also important to note that the bitcoin price is trading near the oversold area as per the RSI suggestion on the daily and the weekly time frame.
Euro: For the first in a long time, it seems highly likely that odds for the Euro-dollar parity are strong. There is no doubt that if the ECB increased the interest due to massive pressure from its soaring inflation numbers, it would do that when the overall general economic numbers in the Eurozone advise against it. However, leaving the inflation will cost the EU more, and the ECB, like the BOE, will have no choice but to act. This particular factor is likely to influence the Euro’s price negatively, and we think it is likely that within this quarter, we may see the Euro dropping to parity against the dollar.
Sterling: The most important economic number, the inflation reading, will be released this week for the UK. The number is coming out on Wednesday, and the expectations are that the UK inflation number will reach a reading of 9.1% on a y/y basis, while the forecast is 7.0%. The soaring inflation numbers and slowing economic growth point to one economic term: stagflation. And sadly, there is not much the BOE can do in terms of its economic policy apart from increasing the interest rate, which is already hampering business confidence and negatively influencing the currency.
The BOE is also closely watching the UK’s labour data, and the unemployment rate is expected to hold steady at 3.8%. In reality, the unemployment rate likely understates the degree of labour market tightness. For example, job openings are at an all-time high. Regular salary growth is expected to hit 4.2 per cent in March, up from 4% in February. This is higher than the 2% inflation objective set by the Bank of England (3-3.5 per cent). Pay growth is expected to average 4.5 per cent before slowing down.
The GBP/USD pair is likely to break below the 1.20 mark, and it is likely to retest the support of 1.18 for the GBP/USD pair.