In the final week of the first half of the year, the Nasdaq Composite experienced a significant decline as investors sold off shares of technology companies that had performed well so far in 2023. The Nasdaq dropped by 1.16%, while the S&P 500 also saw a loss of 0.45%, and the Dow Jones Industrial Average dipped slightly by 0.04%.
This pullback was primarily driven by a sharp decline in technology giants such as Nvidia, Alphabet, Meta Platforms, and Tesla. Despite the setback, the Nasdaq has still seen a substantial rebound this year, fueled by renewed investor optimism in artificial intelligence and expectations of a slowdown in the Federal Reserve’s interest rate hikes.
While the technology sector experienced a decline, other segments of the market performed well in the first half of the year. The S&P 500 has gained 12.7% and the Dow is up approximately 1.7%. Although the market rally stalled last week, overall, it has been a successful first half for investors.
Traders will keep an eye on the situation in Russia following a brief rebellion by a private military group, which could potentially introduce uncertainty into the markets. Additionally, economic reports for the week are relatively light, with the focus on the personal consumption expenditures index for May and corporate earnings reports from Walgreens Boots Alliance and Nike.
On Monday, the overall market experienced a slight decline of 0.45%. However, some sectors managed to perform well, with the Real Estate sector showing the highest gain at 2.21%, followed by Energy at 1.71% and Materials at 1.00%. Utilities and Industrials also saw positive growth with increases of 0.98% and 0.79% respectively.
On the other hand, several sectors faced declines, including Information Technology leading the losses with a decrease of 1.03%, followed by Consumer Discretionary and Communication Services both experiencing declines of 1.25% and 1.88% respectively. Financials, Health Care, and Consumer Staples also saw slight declines, with decreases of 0.20%, 0.60%, and 0.03% respectively.
Major Pair Movement
GBP/USD remained steady after a day of little change, with the USD weakening slightly. The market anticipates that the Bank of England (BoE) will implement aggressive interest rate hikes, potentially raising rates by 50 basis points. However, relying solely on interest rates to control inflation may not be effective, raising concerns of a looming recession. In June, shop price inflation in the UK slowed down as retailers reduced prices.
The AUD/USD currency pair showed minimal reaction to the turmoil in Russia and remained on the sidelines. The AUD/USD rally was limited by the strengthening of USD/CNH (Chinese yuan) and supported by softer US yields.
EUR/USD initially declined near the 55-day moving average but later turned positive on Monday. The currency pair demonstrated resilience in the face of Russia-related geopolitical risks and disappointing Ifo data, which could strengthen positive technical indicators and contribute to further gains.
Despite potential instability in Europe’s eastern region due to a weekend mutiny, EUR/USD traded higher as investors focused more on a potential pause in the US Federal Reserve’s rate hikes and favourable positioning for long positions.
Market expectations indicate that the Federal Reserve may implement two more rate hikes, but current US rates are factoring in only one additional increase, potentially followed by cuts later in the year. Despite a decrease in euro positions and an increase in dollar positions, EUR/USD managed to rally as investors reduced their overall exposure, suggesting a positive sign for the currency pair.
In the US, the focus is on the forthcoming weekly claims data and May’s Personal Consumption Expenditures (PCE) figures, which will likely influence market dynamics.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Rises as Markets Await Inflation Data and Central Bank Speeches
The EUR/USD pair saw a modest increase on a quiet Monday, with investors eagerly anticipating the release of key inflation data and speeches from central bank officials. The US dollar weakened slightly due to declining yields and a rebound in commodity prices. Germany’s Ifo data showed a decline, raising concerns about the country’s economic health. The European Central Bank’s forum on central banking in Sintra has begun, where ECB President Lagarde and other policymakers will address the audience. Monetary policy expectations will be influenced by the discussions and upcoming inflation data from the Eurozone and the US.
According to technical analysis, the EUR/USD pair exhibited low volatility on Monday, but the Bollinger Bands still have wide bands. Currently, the price is approaching the middle band of the Bollinger Bands from the lower band. The Relative Strength Index (RSI) is currently at 51, suggesting that the EUR/USD has returned to a neutral position.
Resistance: 1.0932, 1.0965
Support: 1.0890, 1.0863
XAU/USD (4 Hours)
XAU/USD Eases from Highs as Investors Await Central Bank Clues and Inflation Updates
Spot gold (XAU/USD) initially surged at the weekly opening but later retraced its gains during the European session. XAU/USD reached a high of $1,933.31 before settling around $1,925 per troy ounce. The US Dollar traded within narrow ranges as investors remained cautious amid central banks’ ongoing battle against inflation. Market participants are closely watching the European Central Bank (ECB) Forum on Central Banking, where ECB President Christine Lagarde is expected to provide opening remarks.
Additionally, upcoming discussions featuring central bank chiefs, including the Federal Reserve’s Jerome Powell, Bank of England’s Andrew Bailey, and Bank of Japan’s Kazuo Ueda, could provide insights into future monetary policy decisions. Inflation updates from Europe and the US are also anticipated, adding to speculations regarding central banks’ actions and their impact on the global economy. While risk sentiment is currently low and global indexes are trading negatively, market movements are limited due to the absence of significant data releases at present.
According to technical analysis, the XAU/USD pair is experiencing low volatility and a tight range on Monday, resulting in narrower movements for the upper and lower bands of the Bollinger Bands. The price is currently moving above the middle band of the Bollinger Bands, indicating the potential for a slight upward movement with the aim of reaching the upper band and our resistance levels. Currently, the Relative Strength Index (RSI) stands at 50, indicating that the XAU/USD is in a neutral position.
