Welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of May 12, 2022. 17:00 GMT
In case you missed it….
US inflation slows but by less than expected. US CPI eased slightly to 8.3% YoY, down from 8.5%, but was still higher than the 8.1% forecast, suggesting that the Fed still has a lot of work to rein in CPI.
Oil sees wild swings. Oil has seen high levels of volatility, with prices falling 10% across 2-days before rising 6%. Fears of slowing global growth hurting demand have been up against Russian oil supply concerns.
UK GDP shrank by -0.1% in March. Surging inflation has resulted in consumers cutting spending. The data supports the BoE’s dire outlook. GBPUSD fell to a fresh 2022 low, FTSE tumbles to 7200
King dollar. The USD rose to a fresh 20-year high, boosted by expectations of a more hawkish Fed and safe haven flows, amid growing fears of a slowdown in global growth.
ECB hints at a July rate hike. After German inflation confirmed the preliminary reading of 7.4% YoY in April, ECB’s Lagarde hinted at a July rate hike. Momentum appears to be building for the move at the central bank. EUR/USD fell to a fresh multi-year low of sub 1.04 on USD strength.
Disney falls to a two-year low. Disney drops on weak earnings despite subscriber numbers coming in well above forecasts at almost 9 million, a relief after the Netflix horror show.
Brexit returns to haunt the pound. The UK government threatens to scrap the Northern Ireland protocol, which would prompt retaliation from the U & possibly start a trade war. GBP/USD falls to a fresh 23-month low.
Bitcoin breaks below 30k. The cryptocurrency traced tech stocks lower amid expectations for a higher interest rate environment and a broader downturn as Terra plunges. BTC/USD wipes out 2021’s gains. Is crypto winter coming?
The Swiss Franc hits parity with the USD. This is the first time the two currencies have reached parti since 2019.
Shell targets 100,000 EV stations in the UK by 2030. Following Q1 results that showed Shell’s profits surged thanks to soaring commodity prices, windfall tax talk has been building. Heavy investment in green energy could keep Rishi Sunk happy.
The chart shows the US 10-year treasury yield.
The 3% level has been the ceiling for almost a decade, but how much longer? Last week, plenty of data could have acted as a catalyst to push Treasury yields over the 2013 and 20188 high, but that didn’t happen. Instead, treasury yields have fallen almost 10% across the week, the first in 5 weeks.
If yields continue to respect this resistance, could we see the S&P push higher?
“We expect the U.S. 10-year to stabilise in the 3% area as global financial conditions have tightened dramatically in response to the Fed’s erratic shift to tight policy,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management in New York.
“If we are correct about the bond market stabilising, U.S. stocks should be able to find a bottom in the S&P 4,000 area as Treasury rates are a key driver of all public stock valuations, not just technology stocks,”
Source: FX Street
The UK unemployment fell to 3.8% in the three months to February, its lowest level since 2019, and is expected to continue falling in March to 3.6%. The falling jobless rate highlights the tighter labor market and focuses on wage growth, which is expected to rise to 5.5%, adding to inflationary pressures.
Last month the Chinese central bank surprised the market by keeping a key interest rate unchanged at 2.85%. As Beijing grapples with ongoing COVID lockdowns and as PPI falls to the lowest level in a year, expectations are growing, and the PBoC could cut rates this month.
US retail sales data is expected to show that consumers are still spending at a faster rate in April than in March. Sales are expected to rise 0.6% MoM, up from 0.5%. If this is the case, it will offer a glimmer of hope for the US economy, even as inflation remains close to a 40-year high.
In March, consumer prices rose to 7% YoY, a 30-year high, and are expected to keep rising, squeezing household incomes and fueling the cost of living crisis. The BoE warned that double-digit inflation was on the cards and warned of recession. With the UK economy contracting in March, there is little room for the central bank to manoeuvre without tipping the UK into recession
Neither of these readings will be preliminary, and second readings are usually less market-moving. However, with the EURUSD trading at a 5-year low and with momentum building for a July rate hike from the ECB, eurozone data will be under the spotlight. CPI is expected to confirm 7.5% YoY, and Q1 GDP is expected to confirm just 0.2% growth.
In this technical analysis we cover the major asset classes (FX – Commodities – Indices):
EUR/USD (H4 Candlestick Chart)
The EUR/USD pair succeeded in breaking the bearish flag to the downside, where big bodied bearish candles were posted. This shows that the sellers are in control of the market. 1.055 from the broken flag is near term resistance. A break over 1.065 would be needed to reverse the bearish bias.
GBP/USD (H4 Candlestick Chart)
Cable managed also to break the bearish flag formation (dollar correlation) with the help of a big bodied bearish candle. The market is still posting lower lows and highs which shows that the downtrend is healthy. A move over 1.2405 would negate the bearish bias.
USD/JPY (H4 Candlestick Chart)
USD/JPY could not break the strong resistance around the 131 mark where it posted a head and shoulders pattern. This shows that the bears took control of the market in the near term, possibly bringing in 126 support from the prior swing low into view.
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 0.702 and left a bar with a huge wick on top, signalling that the sellers are ready to push the price lower. A break back over 0.702 could imply a retest of the bearish trendline.
USD/CAD (H4 Candlestick Chart)
Loonie is traded inside a bullish channel formation. The price succeeded to breach the strong resistance around the 1.295 mark and close above it. A lower correction has been posted to the new support level (previously resistance) where buyers might jump back and push the price to the upside.
Gold (H4 Candlestick Chart)
The yellow metal failed to reverse and move higher around the 1895 mark which led to a breakout of the bearish wedge formation to the downside. Any higher retracement could find resistance from the bearish trendline. 1800 is next major support.
Brent Oil (H4 Candlestick Chart)
UK Brent oil is still range bound inside a large triangle pattern. Recent price action defined two key levels which are 102.74 & 111.44. The market tested the lower level and was rejected and buyers posted an engulfing bullish pattern near this zone. The market could now re-test the upper level.
US 500 (H4 Candlestick Chart)
US500 is trading inside a bearish channel formation where the price reached the lower end of this pattern. The market is oversold and could present more opportunities for sellers with a correction to the upside, since it is facing an area of confluence made of the support level (3957 USD) and the lower end of the channel.
Thank you very much for reading – and have a great week trading!
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