Welcome to the Key to Markets preview of the Week Ahead.
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5-day performance as of May 26, 2022. 11:30 GMT
In case you missed it….
Snap falls 30%. Snap warned on profit in Q2, raising fears that advertising spend has peaked, hitting those tech stocks reliant on advertising spend such as Meta, Alphabet, Twitter & Pinterest.
UK petrol prices soar to a record high. Unleaded petrol hit £169.61 per litre, despite the government reducing fuel duty by 5p. This will be a blow for households and businesses, which move products or services.
ECB’s Lagarde nods to Q3 rate hikes. The ECB President said that the ECB should be able to lift rates out of negative territory by the end of September. She even hinted that a 50 basis point hike could be considered if needed. EURUSD rose above 1.07.
US new home sales plunge. New home sales dropped 17% in April and dropped 27% YoY more than expected on a combination of high prices and a steep rise in mortgage rates.
Davos recession fears rise. Deteriorating macroeconomic data, profit warnings from corporate America, and the Davos set flagging risks of global recession have hurt sentiment. USD falls to a one-month low, and the S&P 500 briefly hits bear market territory.
UK services PMI plunged to a 15-month low. UK services PMI dropped to 5.8 versus 57.3 expected as the cost-of-living crisis worsened in May. Business expectations have dropped considerably for the year ahead.
Nvidia drops 7% post earnings. The chipmaker warned that the gaming market would decline in the current quarter and warned of further supply chain issues from China’s COVID.
Amazon shareholders approve the stock split. Shareholders voted in favour of a 20:1 stock split at the AGM for implementation in early June. The move makes the stock more affordable.
RBNZ raises interest rates. The central bank hiked rates by 50 basis points taking the OCR to 2%. The RBNZ also signalled more outsized rate hikes to come. NZDUSD rose above 0.65 to a 3-week high.
Sunak announces the cost-of-living support package. The Chancellor of the Exchequer laid out a £10 billion package to support households as energy prices are set to rise a further £830 to £2800 in October.
Source: US Bureau of Labour Statistics
Will the US fall into recession? This has been a key question across the week.
Over the past 75 years, each time inflation has risen over 4%, while unemployment was below 5%, the US economy has fallen into recession within two years.
With inflation at 8.3% and unemployment at 3.5%, this doesn’t bode well for the US economic outlook.
Source: FX Street
Eurozone inflation is expected to rise to a fresh record high in May of 7.6%, up from 7.4%. The data comes after the ECB adopted a more hawkish stance last week, and as several ECB policymakers say that a 50 basis point hike could be a possibility.
The BoC raised interest rates by 50 basis points in the May meeting and is expected to do so again in the June meeting in an attempt to rein in 30-year high inflation. The Short-Term Interest Rate markets (STIR) are currently pricing in a 100% probability of a 50 basis point rate hike. If the BoC fails to deliver, CAD could fall.
China’s manufacturing PMI fell to 47.4 in April, below the key 50-point marker and its lowest level in two years as COVID curbs hit the economy. Manufacturing activity is expected to remain weak in May, with the PMI forecast at 49.6 as lockdown restrictions continue.
Shareholders approved the 20:1 stock split last week, which will take place on Friday, 3rd June. Amazon is the latest major tech firm to move forward with a stock split, following in the tracks of Apple, Alphabet, and Tesla. While the move doesn’t change the company’s value, it makes shares far more affordable for investors, which is considered a positive.
The US jobs market recorded 428k new payrolls in April, well ahead of forecasts. The unemployment rate fell to 3.5%, the lowest level since the 1960s. With a record 11 million job vacancies, the labour market remains very tight, with the intense need for workers fueling faster wage growth, making the Fed’s job all the more challenging.
Technical analysis of the major asset classes (Forex – Commodities – Indices…).
The EUR/USD changed direction after failing to continue its move below the 1.0486 mark. The market reversed and moved higher by posting higher highs and lows. Most probably, the Euro will continue its move higher toward the 1.0807 level, the March low.
Cable has continued trending higher after breaking a bearish trend line to the upside after finding buyers below the 1.2490 mark. We have good momentum to the upside represented by the big-bodied bullish bars highlighted in yellow. The market most likely is heading toward the 1.2683 level, the September 2020 low.
USD/JPY is still in a downward trend, where a series of lower highs and lows has been posted after breaking the bullish trendline and leaving a double top formation near the 129.40 mark. If the sellers continue to overwhelm buyers which is what we expect, the price of this pair could reach the 125.0 level.
The Aussie managed to break the bearish trend line similarly to the other major pairs. However, we can notice that the price is traded inside a channel formation where many bearish bars have been posted inside it. The market is below a strong resistance now (0.7100) and it is going sideways. This could lead to a reversal and a breakout of the channel to the downside toward the 0.6825 mark.
After breaking the bullish channel formation to the downside, USD/CAD entered into a range where neither the buyers nor the sellers are dominating the market. In a case of a range, the price will bounce between the extremes until a breakout. Since the price is sitting around the lower end of this range, the buyers could push it back to the upside toward the 1.2889 mark.
Gold was in a downtrend before successfully breaking the bearish trend line to the upside. The price entered into a bullish channel but failed to hold above the 1853 level and posted a small double top pattern. Since then there has been a breakout of the channel to the downside which is another red flag for buyers. Any further decline could test the previous low (1788).
UK Brent oil on the higher time frame is still trading inside a range made of the 100 & 113 levels. In addition, if we look closely at the 4 hour time frame, the price is now ranging inside a small parallel channel (blue lines) which shows indecision and this is reflected by a sideway movement. The smaller range being near the top of the bigger range favours an upside break.
The US500 is in a clear downward movement and this can be seen by the lower highs and lows left, plus the highlighted big bearish bodied bars. The market entered into a bearish wedge formation which is a continuation pattern. If the market succeeds to break it to the downside, then the price could reach the 3813 yearly low point.
Thank you very much for reading – and have a great week trading!
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