Five Central Banks Set to Shape Market Sentiment This Week

Market Wrap-Up: Softer Dollar, Retreating Oil, and Central Bank Focus

The US dollar edged lower in Monday's early trading as Treasury yields extended their decline and oil prices retreated from near six-month highs. Attention now turns to five major central bank decisions and a series of US economic releases that could influence interest-rate expectations.

Brent crude futures fell $2.12, or 1.82%, to $114.60 a barrel, while US crude futures declined $2.14, or 2.07%, to $101.13 by 02:32 GMT, according to Reuters. Prices had climbed on Friday following Houthi attacks in Saudi Arabia, which heightened concerns over potential disruptions to energy supplies. The subsequent pullback came after Reuters reported efforts by Qatari mediators to de-escalate regional tensions. 

Despite the decline in crude, supply concerns remained in focus. The Houthis said they had attacked a Saudi airport and oil facilities on Saturday, while Saudi Arabia reported intercepting additional missiles and drones on Sunday. The US Department of Energy also authorised the release of 400,000 barrels of oil from the Strategic Petroleum Reserve to address a supply disruption at a Louisiana refinery.

US Treasury yields continued to ease, with the 10-year yield at 4.974% and the 30-year yield at 5.299%, both near one-month lows. Ray Attrill, head of FX strategy at National Australia Bank, said falling yields and narrowing yield differentials between the US and other major economies had taken some pressure off the dollar.

The US Dollar Index (DXY) edged lower to 101.64. The euro rose 0.16% to $1.122, while sterling gained 0.1% to $1.3385. The Australian dollar slipped 0.04% to $0.7030, the New Zealand dollar strengthened 0.06% to $0.572, and the Japanese yen was broadly steady at 156.920 per dollar.

Spot gold traded slightly lower at $3,986.16 an ounce. The metal fell 4% last week, marking its steepest weekly decline since June.  Last week's decline was driven partly by higher energy prices, which reinforced inflation concerns and expectations of tighter US monetary policy later in the year. Market analyst Jim Wyckoff also attributed selling pressure on gold and silver to margin calls following the technology-led equity sell-off.

Five major central banks will announce interest-rate decisions this week. Markets expect the Federal Reserve, European Central Bank, and Bank of Japan to hold rates steady, while pricing in potential increases from the Bank of Canada and Reserve Bank of New Zealand. Forward guidance will be important in shaping expectations for subsequent meetings. In the US, consumer confidence, initial jobless claims, and the Core PCE Price Index will also draw attention.

DXY 

Key Takeaways

·         Narrowing yield differentials between the US and other major economies have eased some of the support for the dollar. 

·         Diverging policy expectations across five major central banks could influence relative currency valuations.

Technical Outlook

·         Daily Bias: Neutral

·         Support: 101.49

·         Resistance: 101.85

XAU/USD

Key Takeaways

·         Expectations of tighter US monetary policy continued to weigh on non-yielding gold.

·         Equity-market margin calls added to selling pressure across precious metals.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 3,975

·         Resistance: 4,034

WTI CFD

Key Takeaways

·         Supply disruption risks remain an important source of uncertainty for crude prices.

·         Diplomatic de-escalation efforts offer a counterpoint to ongoing supply concerns.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 100.00

·         Resistance: 103.96

Calendar Watch This Week

·         ADP Employment Change Weekly: Tracks weekly changes in US private-sector employment, offering an early indication of labour-market conditions.

·         Durable Goods Orders MoM: Measures demand for long-lasting manufactured goods, providing insight into business activity.

·         CB Consumer Confidence: Gauges household confidence in the economy and offers clues about consumer spending.

·         Core PCE Price Index MoM: Tracks underlying US inflation and helps assess the Federal Reserve's policy outlook.

·         Initial Jobless Claims: Provides a timely indication of labour-market conditions.

·         BoC Interest Rate Decision: Markets will assess the Bank of Canada's policy stance and implications for future rate adjustments.

·         Fed Interest Rate Decision: The decision will influence expectations for US borrowing costs and monetary policy.

·         ECB Interest Rate Decision: Investors will look for indications of the ECB's approach to inflation and future policy decisions.

·         BoJ Interest Rate Decision: Markets will focus on the Bank of Japan's policy stance and the possibility of a shift in its interest-rate approach.

·         RBNZ Interest Rate Decision: The announcement could influence New Zealand interest-rate expectations and the NZ dollar.

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