Amid uncertain bets on the Federal Reserve's next policy move, risky assets experienced wild swings throughout the week. As anticipated, the Federal Reserve raised the interest rates by 25 basis points, reaching the highest level since 2001 at a range of 5.25 percent to 5.5 percent. The Fed left the door open for another rate hike, basing their decision on incoming data, financial developments, and their pursuit of a 2 percent inflation target.
However, the US Dollar retreated sharply to 100.55 following Fed Chair Jerome Powell's post-policy remarks. Powell's statements fuelled speculation that the Federal Reserve might be approaching or already at the end of its tightening cycle. Traders reacted by pricing in lower odds of further monetary tightening in September. Powell's optimistic outlook on economic growth, with the Fed upgrading it from "modest" to "moderate" and dismissing recession concerns, bolstered market sentiments.
Despite the dovish sentiments from the Fed, upbeat economic data from the US indicated persistent price pressures, suggesting that the Federal Reserve may still have room for additional rate hikes, leading to a stunning rebound of the Dollar Index to 102 levels. Notably, US applications for unemployment benefits fell to a five-month low, while second-quarter GDP accelerated to 2.4 percent, surpassing expectations and supported by a robust labour market.
In contrast, the European Central Bank (ECB) raised interest rates for the ninth consecutive time, reaching 4.25 percent, but the lack of clear guidance from the ECB President was perceived as dovish.
COMEX Gold slipped from its high to a two-week low due to positive US data strengthening the Dollar and treasury yields. Despite multiple attempts since May 2023, spot gold has been unable to break through the significant resistance level near $1,984 per troy ounce. This resistance continues to hold strong. As long as this resistance remains intact, the expectation is for gold to trade within a range of $1,984 to $1,930 per troy ounce, where a robust support level lies.
On the other hand, LME base metals managed to retain gains, driven by expectations of China cutting interest rates, issuing infrastructure bonds, and easing property policies. Among the metals, zinc stands out as a favourite bet, given the Bullish Engulfing candlestick formation observed on the weekly chart.
Crude oil prices continued their upward trend for a fifth consecutive week, buoyed by signs of supply tightness and improving macroeconomic conditions. In last week's article, we highlighted that NYMEX Crude prices experienced an upward trend after breaking through the falling trendline resistance level at $77.50 per barrel. The continued strength of the falling trendline break pattern suggests that bullish momentum might lead the market towards the next objective at $82.50 per barrel, a significant resistance level to watch.
Looking ahead, investors are eagerly anticipating concrete measures from China to support its ailing property sector, given the recent pullback in consumer spending and lack of visible signs of a property market rebound.
In the coming week, key events such as China's PMI, the US labour report, and the Bank of England's monetary policy decision will be closely monitored. The Bank of England is expected to raise interest rates by 25 bps, with the possibility of a 50-bp hike due to elevated inflation.
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