USD rises as inflation boosts Fed bets, US bank earnings begin

JP Morgan => The stock falls to 2022 low
Oil => The commodity remains below $100
USD/JPY => The pair rises over 138.00

JP Morgan Q2 earnings preview

JP Morgan kicks off the second quarter earnings season. Its results come as the banking sector trades down 25% year to date, despite rising interest rates. Higher rates are a double-edged sword for banks. On the one hand, higher interest rates mean higher net interest income (NII), but they also mean a decline in the market value of banks’ securities, investments, and loans. In addition to rising costs and slowing investment banking, another key theme this banking season will be how much is being set aside in bad loan provisions. This will give clues as to how they feel about the outlook and how much is left to be returned to investors. JP Morgan’s loan loss is expected to be around $1 billion this quarter. A $30 billion buyback is already in play.

Where next for JP Morgan?

JP Morgan’s share price has lost around 30% of its value this year. The price has formed a series of lower highs and lower lows, hitting a 20-month low of  $109.30 earlier this month. The failure to retake the 20 sma combined with the bearish RSI suggests that there could be more downside to come. Sellers will look for a move below 109.30 to extend the bearish trend towards $100, the psychological level. Buyers will need a move over the 20 sma and $115 the weekly high to expose the 50 sma at $119.90  and bring 130 into the target. A move over $131 could see buyers gain traction.

Oil weighs up large U.S. rate hike bets

Oil price volatility is back. After falling 8% on Tuesday falling to a three-month low, oil prices rebounded 2% yesterday, despite high inflation and rising Fed bets. Still, the outlook for oil remains weak with an aggressive Federal Reserve, raising the likelihood of an economic slowdown or, possibly, a recession, which is bearish for oil demand. To make matters worse, a COVID flareup in China could result in more lockdown restrictions. A pause in Chinese economic growth could dramatically hit global demand. China’s June oil imports fell to the lowest since June 2018. EIA stockpile data showed a surge in stockpiles by 3.3 million barrels, supporting further downside.

USD/JPY rises to fresh 24-year high

USD/JPY rose 0.4% yesterday after US inflation data came in higher than expected. US inflation rose above forecasts to a fresh 40-year peak boosting the likelihood of the Federal Reserve acting more aggressively to hike interest rates. The market now sees a 50% probability of the Fed raising rates by 100 basis points in the July meeting. Before the inflation data, the market was pricing in just a 10% probability of a 100 basis point hike. This is in sharp contrast to the BoJ, which continues with its accommodative policy stance, saying that it will ease policy further if needed. Today the pair is rising as attention turns to US jobless claims, which are expected to hold steady and US wholesale inflation which could ease.

Support can be found at 135.83 (20 sma) and 134.74 (July low).

Resistance for the pair can be seen at 139.00 (round number) and 1.40 (psychological level).