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Analysis, Educational | May 20, 2022

The Week Ahead 📈 23th – 27th May: Nasdaq in freefall, UK records, Bitcoin below 30k USD and much more…

Welcome to the Key To Markets preview of the Week Ahead.

If you have any questions about this information, please contact your KTM Account Manager who will be happy to assist.

Contents

  • Currency Pair Performance
  • 10 Big Stories Last Week
  • Chart of the Week
  • Economic Calendar Highlights
  • 5 Things to Watch this Week
  • Technical AnalysisEUR/USD | GBP/USD | USD/JPY | AUD/USD | USD/CAD | Gold | Oil | S&P 500

Currency Pair Performance

5-day performance as of May 12, 2022. 17:00 GMT

Source: finviz.com


10 Big Stories Last Week

In case you missed it….

UK inflation rose to a 40-year high. UK CPI rose to 9% YoY in April, up from 7% previously, but was slightly below forecasts of 9.1%, sending GBP/USD 1.2% lower. The data came after BoE’s Andrew Bailey warned of surging food prices.

Nasdaq falls for a 7th straight week. The tech-heavy index continues to bear the brunt of the sell-off in US stocks as recession fears grow.

UK wages incl. bonuses hit a record high. The UK jobs market tightened further with more vacancies than unemployed, and wages, including bonuses, jumped to 7%. Regular wages grew below inflation at 4.2%

US retail sales remain solid. The US consumer continues to spend despite inflation hovering at 40-year highs and consumer confidence falling to 11-year lows. Sales rose 0.9% MoM in April.

Oil rose to a 7-week high. Oil rallied to $114.00 on hopes of China’s lockdown relaxing and expectations of the EU ban on Russian oil being approved soon. The price has since eased lower as Hungary continues to dig its heels in.

US retailers show signs of strain. Target fell 25% after weak earnings, and Walmart was also disappointed as rising costs hit profit margins. The reports spooked the market.

Twitter deal off? The drama surrounding Elon Musk’s $44 billion deal to buy Twitter shows no sign of easing. Musk puts the deal temporarily on hold over questions surrounding the number of fake accounts? Or is it to get a better price, given the stock market slide?

Bitcoin consolidates. With the Fed set to continue hiking rates and US tech stocks under pressure, Bitcoin consolidates just below 30k.

Finland & Sweden apply to join NATO. Putin accepted the move, but Turkey blocked an early vote.

EasyJet sees Q3 recovery. The budget airline saw losses narrow and Q3 bookings at 90% of pre-COVID levels. The stock still trades down over 30% from its 2022 high.


Chart of the week

Source: ONS

Higher inflation to come? The chart shows that UK input prices are rising faster than output prices.

Surging inflation for UK manufacturers and producers points to danger of a big price rise that still hasn’t fed through to consumers. Input costs are 18.6% higher YoY & output costs are 14% YoY higher.

The difference suggests that manufacturers aren’t passing on their total cost increases. For now, this protects the consumer and hits firm’s margins, but if the pressure grows too great, companies are likely to pass it on, sending inflation higher.


Economic calendar highlights

Source: FX Street


5 Things to Watch This Week

1) Eurozone PMI data

Despite the fallout from the Russian war, eurozone business activity (composite PMI) remained resilient in April at 58.9, well above the figure 50, which separates expansion from contraction. Expectations are for the composite PMI in May to remain strong at 58.7, which could help the EUR continue its recovery from 2022 lows.

2) RBNZ interest rate decision

The RBNZ started the monetary policy tightening process slowly with a 25bp hike before upping the pace to 50 bp in April. Expectations are for the central bank to follow with another 50-basis point hike in May and signal to several more outsized hikes in the upcoming meetings.

3) FOMC minutes

The minutes of the May Fed meeting will be scrutinised for clues over how quickly the US central is planning to raise interest rates in the upcoming meetings. Most policymakers support 50 basis point rate hikes at the next few meetings. However, any sign of a 75-basis point rate increase could spook the market.

4) NVIDIA

Nvidia’s share price has almost halved since reaching an all-time high above $320 last November. Weakness in the gaming chip business could hold earnings back for the chipmaker. Wall Street expects EPS of $1.20 on revenue of $8.12 billion.

5) Australian retail sales

Australian retail sales rose to a record 1.6% MoM in March, more than triple economists’ forecasts and the third straight month of gains. The data highlighted the resilience of Australian households even as they grapple with surging inflation. Should the trend continue in April, bets of a more hawkish RBA could help boost the Aussie.


Technical Analysis

In this technical analysis we will cover the major asset classes (FX – Commodities – Indices…), and we are going to predict how most probably they will move in the coming hours.

EUR/USD (H4 Candlestick Chart)

The EUR/USD pair succeeded in breaking the bearish trendline to the upside after finding buyers below the strong support level around 1.0490 mark. The price posted a lower correction to the new resistance (previously support), and could potentially rally all the way up toward the 1.06320 level.

GBP/USD (H4 Candlestick Chart)

Cable was in a clear downward movement where lower highs and lows had been posted until a break of the bearish trend line occurred. The market reversed and moved higher above  the strong resistance line (now support) around the 1.2410 mark. A lower correction has been posted to this zone which might lead more buyers jump back in an impulsive wave and push it to the upside.

USD/JPY (H4 Candlestick Chart)

USD/JPY broke the bullish trendline to the downside after posting a double top above the resistance area (129.370). The market could not sustain higher than the mentioned zone and tumbled where it breached a bearish flag formation. Probability favours a continuation move all the way down toward the 125.10 support.

AUD/USD (H4 Candlestick Chart)

The Aussie is moving to the downside where it is respecting a bearish trendline and posting lower highs and lows. The price failed to close above the recent resistance around the 0.7044 lev where it might test it again, but since it is an area of confluence made by the trend line and the resistance, it might be hard to break it to the upside. So, we could see a higher move to test this zone (0.7450) and then a move lower in the same direction of the main trend toward the 0.6825 mark.

USD/CAD (H4 Candlestick Chart)

Loonie is trading inside a bullish channel formation where it succeeded to break it to the downside after a double top formation above the 1.2920 mark. The market started to post lower highs and lows signalling that the sellers are in control and closed below the new resistance (previously support). Currently the market is inside a bearish flag, if the price manages to break it, then we might see the Loonie reaching the 1.2560 mark.

Gold (H4 Candlestick Chart)

The yellow metal is moving to the downside by posting lower highs and lows. It found buyers near the 1786 mark which pushed it temporarily higher. Now, the price is trading inside a bearish flag where we could see a higher move to the area of confluence made by the bearish trend line and the higher end of the flag formation. This will give a better position for sellers and might restart the downtrend which could lead to a move lower toward the previous swing low around 1786.

Brent Oil (H4 Candlestick Chart)

UK Brent oil is still ranging between two key levels which are 100.50 & 113.50. The market tested the higher end of this channel and was rejected where the sellers posted an engulfing bearish pattern near this zone (highlighted in yellow). The market could continue its move lower toward the 100.63 USD mark.

US 500 (H4 Candlestick Chart)

As it is obvious the US500 is in a downtrend. Yesterday, the price succeeded to break the bearish flag after finding sellers near the 4095 mark. Now, the price is testing the previous swing low around 3860, and it could still find support, but a major breakdown is looking increasingly likely.


Thank you very much for reading – and have a great week trading!

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