"Asia-Pacific Gains, SoftBank Shifts to Offensive Mode, Powell’s Forecasts Impact Global Markets, and Bitcoin Surges"
Asia-Pacific markets mostly experienced gains, although the Nikkei 225 in Japan fell by 0.19%, undoing its progress from Wednesday. On the other hand, the Topix index increased by 0.53%. The decline in the Nikkei 225 was influenced by U.S. Federal Reserve Chairman Jerome Powell’s statement, in which he predicted additional interest rate hikes this year and highlighted the time required to achieve the 2% inflation target.
SoftBank Chairman and CEO, Masayoshi Son, announced plans to shift from a defensive stance to an offensive one, aiming to seize opportunities in the AI industry. SoftBank’s strategy involves building up cash reserves, and the company has amassed five trillion yen ($35.3 billion) to support its objectives. Son expressed enthusiasm about embracing an offensive approach and emphasized SoftBank’s aspiration to lead the AI revolution.
In contrast, European markets are expected to open negatively on Thursday, following the cautious sentiment sparked by Jerome Powell’s forecast. During his testimony before the House Financial Services Committee, Powell revealed that most participants in the Federal Open Market Committee (FOMC) anticipate raising interest rates to some extent by the year’s end.
Investors in the United Kingdom are closely monitoring the Bank of England’s upcoming monetary policy announcement. It is anticipated that the central bank will increase rates due to persistently high inflation, although there is disagreement among market participants regarding whether the rate hike will be 25 or 50 basis points.
On Thursday morning, Powell is scheduled to present the Semiannual Monetary Policy Report to the Senate Banking Committee. Investors will be attentive to any further remarks he makes regarding inflation and interest rates.
During Wednesday’s trading session, the price of Bitcoin reached a peak of $30,749.45, marking its highest level since April 14. This surpasses the previous occasion when Bitcoin traded as high as $31,102 on April 26.
EURUSD
Federal Reserve Chairman Jerome Powell confirmed that more interest rate increases are likely due to persistently high inflation. However, he acknowledged that bringing inflation down to the target of 2% will take time. Despite signs of a loosening labor market, there is still a shortage of available labor compared to job openings. The Federal Open Market Committee (FOMC) expects two additional interest rate hikes by the end of the year. Inflation, particularly core inflation, remains well above the target despite some moderation. The Fed decided to hold off on rate hikes in a recent meeting to assess the impact of previous tightening measures and suggested a more moderate pace for future increases.
In a different context, the German IFO Institute warned of a sharper-than-expected recession in Germany. European Central Bank (ECB) member Kazimir expressed uncertainty about the ECB’s continuation of rate hikes in September. However, ECB members Schnabel and Nagel maintained a hawkish stance, emphasizing that there is still work to be done. Market expectations support further rate hikes from the ECB, which has been favorable for the euro.
The price action of the EURUSD continued higher at the 1.1000 level as market pricing a more ECB hikes in the next meetings but still not sure about the Fed ones. The next resistance level to watch would be 1.1050.
| Resistance 3 | Resistance 2 | Resistance 1 | Support 1 | Support 2 | Support 3 |
|---|---|---|---|---|---|
| 1.1080 | 1.1050 | 1.1000 | 1.0950 | 1.0912 | 1.0860 |
GBPUSD
The expectation is widespread that the Bank of England (BoE) will raise its policy rate by 25 basis points (bps) to reach 4.75%. Given the absence of a post-meeting press conference, market participants will carefully scrutinize the policy statement for any new insights into the future direction of the policy.
Although unlikely, a 50 bps rate hike would represent a significant and unexpected shift towards a more hawkish stance, potentially favoring the GBP/USD exchange rate. In May, two policymakers voted in favor of maintaining the policy rate. If these policymakers adopt a more hawkish stance and the BoE raises the rate with a unanimous vote, the Pound Sterling could display resilience against other currencies. In such a scenario, remarks on inflation developments could influence the currency’s valuation.
Since the last policy meeting, both inflation and wage inflation in the UK have remained uncomfortably high, contradicting the BoE’s earlier forecasts of a sharp decline in inflation starting from April. Recognizing the persistence of elevated inflation and acknowledging the need for further tightening could stimulate demand for the Pound Sterling.
The GBP/USD pair remains in a downtrend, with market participants eagerly awaiting the upcoming Bank of England (BoE) meeting. The level of 1.2700 is currently acting as a support level, while 1.2750 is serving as resistance. Moving forward, the next anticipated resistance level for GBP/USD is around 1.3000. However, there are additional factors to consider.
| Resistance 3 | Resistance 2 | Resistance 1 | Support 1 | Support 2 | Support 3 |
|---|---|---|---|---|---|
| 1.3200 | 1.3000 | 1.2800 | 1.2650 | 1.2540 | 1.2460 |
USDJPY
During discussions on the exchange rate and inflation outlook, Bank of Japan (BoJ) board member Asahi Noguchi emphasized the importance of continuous wage increases and expressed a desire for higher wages next year. Noguchi believes that nominal wages should exceed the 2% inflation target. Concerns were raised about the rapid decline of the yen last year, noting that while it negatively affects households through rising prices, it benefits firms with increased overseas profits and tourism. Noguchi emphasized the significance of domestic demand for Japan’s economic recovery, especially considering the expected slowdown in overseas growth. They clarified that FX should reflect fundamentals and highlighted that monetary policy does not directly target the exchange rate.
In addition, the BoJ’s decision to widen the yield target band is not considered monetary tightening, and Noguchi sees no immediate need for operational changes to the Yield Curve Control (YCC) policy. The BoJ remains committed to maintaining extraordinarily low-interest rates, leading to a prevalent strategy of shorting the yen. The market is focusing on reaching the ¥142.50 level, and a breakthrough could potentially lead to further upward movement. Many investors are seeking yield opportunities and holding the US dollar against the Japanese yen, or other currencies against the yen, provides positive swap earnings.
The USDJPY pair is currently hovering near the resistance level of 142.20, indicating a consolidation of price as market participants await further direction. A breakout above this level would signal a potential move toward the significant level of 145. However, it is worth noting that this level is considered sensitive, as it may prompt intervention from the Bank of Japan (BOJ) in the market. On the other hand, in the event of a correction, the next support level to watch for is at 140.2.
| Resistance 3 | Resistance 2 | Resistance 1 | Support 1 | Support 2 | Support 3 |
|---|---|---|---|---|---|
| 142.80 | 142.20 | 141.50 | 141.00 | 140.20 | 139.50 |
XAUUSD
During his bi-annual testimony to the US House Financial Services Committee, Federal Reserve Chairman Jerome Powell maintained a hawkish stance. However, the absence of new comments and conflicting statements from other Fed officials are putting downward pressure on the US Dollar and constraining movements in the XAU/USD (gold) pair.
Despite this, major central banks’ commitment to a “higher for longer” interest rate outlook and doubts surrounding China’s recession concerns, along with tensions between the US and China, are exerting downward pressure on the price of gold.
Looking ahead, monetary policy announcements from the UK and Switzerland are forthcoming, which could contribute to increased market volatility. Additionally, the Bank of Canada (BOC) and Bank of Australia (BOA) are expected to raise interest rates, adding further pressure on the metal.
Gold has recently breached the support level of 1938 on the Daily chart, signaling a potential shift into selling territory. Confirmation of this trend awaits further information on future policies from central banks, particularly as the majority of developed world central banks remain hawkish and are increasing interest rates. If gold continues to decline, a significant and robust support level can be found around the 1870-1860 area, which aligns with the downward parallel of the bullish long-term trend and the 200-day moving average (200MA) on the daily chart.
| Resistance 3 | Resistance 2 | Resistance 1 | Support 1 | Support 2 | Support 3 |
|---|---|---|---|---|---|
| 2000 | 1980 | 1960 | 1933 | 1870 | 1800 |
DAX 40
European shares started the day with losses as concerns over ongoing monetary policy tightening persisted. London stocks were particularly impacted due to uncertainty surrounding the magnitude of the Bank of England’s interest rate increase scheduled for later in the day.
The Bank of England is expected to raise interest rates for the thirteenth consecutive time, following the release of higher-than-anticipated inflation data. However, market predictions for the rate hike were divided, with nearly equal bets placed on a 25-basis-point or 50-basis-point increase.
Rate-sensitive technology shares experienced a 1.2% decline, while auto stocks saw a more significant drop of 1.9%, leading the overall market decline.
Corporate news in Europe was relatively scarce, although a few merger and acquisition headlines garnered attention.
The DAX index managed to find temporary support around 16,000, but the today second meeting of Powell’s testimonial could impact European equities. Additionally, the US equities continue the slow down.
| Resi Level 3 | Resi Level 2 | Resi Level 1 | Suppo level 1 | Suppo level 2 | Suppo level 3 |
|---|---|---|---|---|---|
| 16800 | 16600 | 16370 | 15650 | 15400 | 15100 |
