The long-term selloff is over?
While in May, we were generally on a downward trend, and we are getting closer to the FED monetary policy meeting in the middle of June, the question now is whether the late May rally means the long-term selloff is over, or Dow Jones Industrial Average's eight-week losing stretch, -the longest downdraft in nearly a century- will continue? Let's check the leading currencies, indices, commodities, and crypto's outlook in Jun.
In the first part of May, with a 1.87% gain, the US dollar index tested the multi-year high before ending the month with a 1.3% loss, almost 3.2% lower than the recent peak. As marker risk sentiment in May was divided in two, the USD Index direction and movements also experienced the same condition. In the first part of the month, we had economic data and inflation reports that were used to support more tightening policies by FED and increased the US dollar and bond yields. In the second half of May, news and announcements about the possible pausing in September after two rate hikes in June and July put pressure on the safe-haven demand, including the US dollar, with bond yields falling back towards 1.72% in the 10-years benchmark bonds. In June, the focus again turns to FOMC monetary policy meeting, where we will have more updates on economic progress and future FED policies and perspectives. The market is already priced in a 50 bps rate hike, so it will not surprise us; therefore, dot plots are where we have to observe. Inflation is still increasing or at least staying hot, and despite being a predictable 50 bps rate hike, both of them can still hold the USD demand and do not let the DXY fall much lower, even if we can not see that at higher levels. In short, side movement and bulls have more chance than bears. For the US dollar, we have to watch the CPI (10th), PPI (14th), Retail Sales (15th), FOMC meeting (15th), and Home Sales data st 21, 24, and 27th.
As was expected and mentioned in the global economic outlook for 2022, the first half of this year was terrible for Euro. This weakness had one apparent reason and another unexpected. While diversion between the central bank's policies in Europe and other major economies put more and more pressure on the common currency, the war in Ukraine and its severe negative consequences for the European economy added to these pressures. With increasing pressure on the economy, Eurozone inflation rose to new records above 8% and encouraged hawkish policies and ideas. Now hawkish perspective on the ECB actions supports the Euro, which means the bullish trend in the EURUSD chart. On the other hand, the US dollar is also expected to stay stronger; therefore, the uptrend would not be so powerful. For Euro, we have to watch the EU GDP (8th) closely, ECB monetary policy meeting (9th), German and EU ZEW Economic Sentiment (14th), Trade balance and industrial production (15th), Inflation (17th), and PMI's on 23rd.
Same as Euro, it was a terrible month for the Japanese Yen. While major central banks are moving toward tightening policies, the Bank of Japan continues its expansionary policies, putting the country's currency in a weaker position. The Yen fell to a 20-year low of 131.348 against the dollar at the beginning of May; however, later, the risk of FX intervention from the BoJ with falling the bond yields in the US helped the Yen regain some of its losses. The June FOMC meeting and its effects on the US bond yields will be the most critical market driver for the Yen. In the long term, BoJ policies can change the overall trend. For the rest of the month, Household Spending (7th), GDP (8th), Industrial Production (14th), Trade Balance (16th), BoJ monetary policy meeting (17th), and CPI on 24th are the most important events, and data to watch.
Despite the BoE's hawkish functions, the Pound tested two years low against the US dollar in May, as the economic data increased the level of disappointment among consumers. While the energy price cap for households will rise another 42% in October, data show that consumer confidence is at its historical low, and that's why amid the bleaker macroeconomic outlook, the Bank of England's hands are tied. In the last days of May and the first days of June, Cable recovered some of its losses. However, it does not seem like a long-term trend, and the Pound is losing the investors' trust. With the current situation and signs, it is so likely that weight on Sterling will continue in June as well, with a 1.24 area as a target. For Pound, PMIs (7th), Industrial Production, Manufacturing Production, and Trade balance (13th), Labor market data (14th), BoE meeting (16th), Inflation (22nd), and Retail Sales (24th) are essential data and event to watch in June.
Like other safe havens, XAU also did not have good days in May, with a 4% crash from its highest level during the month. The ultra-dovish stance from central banks made the bond yields see new records, which is not very pleasant for the gold price. After testing the recent low on May 19, with a reverse in Yields, the gold price also reversed slightly from its recent low. For June, the FOMC decision will be vital for Gold. Any Hawkish function in policies will put more pressure on stock markets and can lift the Gold. However, since tightening procedures will increase the US dollar rate as well, therefore would not be a very incentive for gold bulls.
On the other hand, we still risk stagflation and another recession, while geopolitical risks are also there. Therefore bears will not have much chance in charts. The main drivers for Gold will be central banks' monetary policy meetings, including ECB, FED, and BoE, US and EU inflation numbers, the Ukrain-Russia war, and US bond yields; do not forget to watch them in order to make better decisions for your Gold positions.
While the global economic growth outlook has weakened significantly amid the war in Ukraine, Eurozone members and Russian tensions about Oil and gas, as two opposing factors for oil prices, both are continuing. Economic growth outlooks mostly warn that in 2022 global economy can face another crisis or stagflation. The war in Ukraine is like a double-edged sword, increasing tensions and prices on one hand and slowing the global economy on the other hand. However, since European countries directly depend on Russian Gas and Oil, it will primarily work in favor of prices. Faster-than-expected monetary tightening by major central banks will also prevent the excessive increase in prices. For June, besides EIA Short-Term Energy Outlook (7th), Opec monthly report (14th), and IEA month reports, we must closely watch the conflict in Ukraine and central banks' monetary policies in the US, EU, and the UK.
The cryptocurrency market is still under pressure by risks of increasing Inflation, rising interest rates, recession, or even stagflation. However, long-term investments seem to be Okay for now. In the past months, the cryptocurrency market also directly moved in one with other markets, as overall liquidity controlled the movements. And while the market risk is increasing, the attractiveness of this risky market is diminishing. The widespread expectation is to see the reverse in this market, synchronized with other markets, significantly when the US economic outlook improves. For following trends, maybe it will not be the Bitcoin that leads the market, but Ethereum and Cardano can be at the center of the stage with their latest updates and attract institutional investments.
As many investors were waiting, finally, in May, we faced one of the worse scenarios that could possibly be seen. Stablecoins Market has been examined with TerraUSD (UST), which is associated with Luna. When Luna's price moved toward Zero in the crypto selloff rally, TerraUSD (UST) completely collapsed. Tether (USDT), with more than a $72.5 billion market cap, has the most significant part of the $159.6 billion global stablecoins markets. After Tether, USD Coin (USDC) has the most important market cap with more than $54 billion market cap. For now, the overall trend is lateral with a downward tendency. We have mostly follow the general financial markets' trend for more updates.
May ended with a generally neutral trend with little growth in the last days. The question is: Bad days are over, or panic still to come. By the end of May, the Dow Jones Industrial Average (DJIA) snapped an eight-week losing stretch, which is the longest downdraft in nearly a century. Market engaged in an atmosphere of uncertainty, and it will hold the volatility throughout this year. Adding the midterm elections in the US also to the current conditions will clarify the reasons for the cautious outlook. The following Federal Open Markets Committee (FOMC) meeting will be on June 14 and 15. Investors and market participants will follow that closely to see where the stock markets go. After an improving number in the labor market, the May consumer price index (CPI) reading on Inflation that's due on June 10 will be more attentive to market participants and FED members. FED moves on a narrow and cautious border to fight Inflation by raising interest rates against being too aggressive. Unfortunately, we are in a situation where even a small wrong decision can have enormous and long-lasting consequences. It should be noted that while Inflation fell for the first time in eight months in April, which is a good signal, the latest reading of gross domestic product (GDP) showed that the US economy in the first quarter was worse than initial expectations. Since market participants are almost sure about the 50 bps rate hike in June and July, FED's economic outlook and dot plots will be more critical and focused.