The forex market has recently been dominated by discussions around the U.S. Federal Reserve's rate hike cycle and the resolution of the debt ceiling crisis. These events have sparked volatility in the Dollar and the stock markets on June week 1. Last week, the debt ceiling crisis was completely resolved, which could potentially trigger a risk-on surge in the financial markets. The main point of contention now is whether the Federal Reserve will hike rates by another 25 basis points at its next meeting in June, a possibility that is now priced at about 20%, down from 70% last week.
Looking back to the forex market, the best trade opportunities from last week were seen in long positions of the NASDAQ 100 Index and the GBP/USD currency pair, and there was no setup for a long trade of the USD/JPY. The market is now focused on potential recession, central bank rate hikes, and inflation, particularly in the U.S. With surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada, there is increased speculation about the Federal Reserve possibly hiking rates further. The inflation factor remains a concern as it erodes the appeal of a risk-free rate.
Looking forward to the nect week, Forex is expected to be volatile due to several central bank meetings in the U.S., the Eurozone, and Japan, plus the release of U.S. CPI data. The key data releases include European Central Bank Main Refinancing Rate and Monetary Policy Statement, Bank of Japan Policy Rate and Monetary Policy Statement, U.S. PPI, U.S. Retail Sales, and others. These releases will play a crucial role in shaping forex market trends and expectations.
In the forex market, the U.S. Dollar Index exhibited a minor bearish trend last week, aligning with its long-term bearish trend. However, caution is advised for bears due to a potential support level at 102.801, which could provide firm support. Trading against the US Dollar in the coming week could be risky as it still appears quite strong. The Canadian Dollar, the Swiss Franc, and the British Pound are showing some relative strength. Much depends on the U.S. inflation data and the outcome of the Federal Reserve's meeting.
The NASDAQ 100 Index in the forex market witnessed a rise for the seventh consecutive week, although the price barely increased, hinting at a potential loss of bullish momentum. However, the overall picture remains bullish for several reasons. Much of the short-term future of stock markets will depend on the Federal Reserve's decision on rate hikes and the new U.S. CPI data. On the other hand, the USD/JPY currency pair fell slightly last week, printing a bearish inside bar. Despite a valid long-term bullish trend, the overall performance of the US Dollar does not suggest a long-term bullish trend, indicating some conflict in the forex market.