We’re getting ready for another interesting week ahead. Many analysts are predicting the commodity rebound will continue to the end of the month. We on the other hand, believe the impressive bullish run of 2010 and early 2011 is over. Precious metals are likely to shuffle forwards and the EUR/USD is expected to weaken as Greek debt is edging ever closer to default. The majority of actionable trading catalysts will be coming late next week as GDP is released on Thursday and then on Friday PCE prices and Michigan Sentiment will be released.
The Euro finished the week roughly unchanged against the US Dollar, but late-week developments suggest risks remain to the downside on heightened uncertainty surrounding Greece and broader fiscal crises. Traders sent the EURUSD sharply lower through late Friday trade as Norway suspended its fiscal aid payments to Greece and Fitch further downgraded credit ratings for the debt-stricken government. A week of relatively limited economic event risk leaves market focus squarely on developments surrounding Greece and broader financial market trends.
Gold prices rebounded last week, adding 1.2 percent having suffered heavy losses over the preceding 10 days. Tellingly, the yellow metal has carved out an increasingly strong link with the S&P 500 – the go-to proxy for tracking overall risk appetite – with correlations between the two now near the strongest levels in six months. Indeed, gold faced aggressive selling pressure in the first two weeks of May even as shares collapsed and the US Dollar rebounded, tying it up firmly into risk on/off bipolar trading dynamics it had largely avoided previously.
This Week’s Financial Main Events
Monday, May 23
US Economics
No Releases
Global Economic Data
China PMI
German PMI
Euro-Zone PMI
Tuesday, May 24
US Economics
New Home Sales
Global Economic Data
Japan Economic Report
New Zealand Reserve Bank Inflation expectation
Euro-Zone GDP
German IFO
Great Britain Public Sector Net Borrowing
Japan Merchandise Trade Balance
Wednesday, May 25
US Economics
MBA Mortgage Purchase Index
Durable Orders
Durable Orders ex- Transportation
FHFA Housing Price Index
Crude Oil Inventories
Global Economic Data
Australia Conference Board Index
Australia Consumer Inflation Expectation
Australia Capital Expenditure
Great Britain GDP
Great Britain Price Consumption
Great Britain Government Spending
Great Britain Total Business Investment
Thursday, May 26
US Economics
GDP-Second Estimate
GDP Deflator- Second Estimate
Initial Claims
Continuing Claims
Global Economic Data
Swiss Trade Balance
Japan CPI
Japan Retail Trade
Friday, May 27
US Economics
Personal Income
Personal Spending
PCE Prices- Core
Michigan Sentiment-Final
Pending Home Sales
Global Economic Data
German Retail Sales
Euro-Zone Economic Confidence
EUR/USD
Considerable uncertainty surrounding the magnitude and timing of European Central Bank interest rate hikes suggest any sharp surprises could produce similarly pronounced reactions out of the single currency. According to Overnight Index Swaps, interest rate traders predict the ECB will hike rates by a cumulative 95 basis points in the coming 12 months—the second-highest sum of any G10 central bank. Indeed, rate forecasts remain a key source of support for the EURUSD and risks arguably remain to the downside on disappointments. Short-term momentum is effectively bearish as the Euro remains stuck in a wide range against the US Dollar. It will be important to watch whether the first trading day of the week sets the pace for later price action. Once the downtrend begins, make sure you take advantage of any rise in volatility.
Stop Loss: 1.4236
Take Profit: 1.4000
USD/JPY
The yen continued to slide against the greenback this week as one of the world’s largest exporters confirms a double-dip back into recession. Japan’s Q1 GDP figures showed the economy contracting 0.9% q/q, far surpassing estimates that called for a print of just -0.5% q/q. Annualized GDP came in even weaker with a print of -3.7%, missing estimates for a read of -1.9%. The data came just days after remarks by Bank of Japan Governor Masaaki Shirakawa slammed the yen, citing that the domestic economy remained in a “very severe” state after the devastation caused by the March disasters. Later in the week, disappointing prints on capacity utilization, industrial production, and the all-industry activity index confirmed the downturn and accelerated the yen’s losses. This grim situation will continue to hamper any counter-trend development. We advise you to sell if you any strong uptrend movement.
Stop Loss: 82.12
Take Profit: 80.49
USD/CAD
The Canadian dollar continued to weaken against its U.S. counterpart, with the USD/CAD rallying to a fresh monthly high of 0.9792, and Loonie may depreciate further in the week ahead as interest rate expectations falter. As the headline reading for inflation holds steady at an annualized 3.3%, the Bank of Canada will certainly keep the benchmark interest rate at 1.00% in May, and Governor Mark Carney is likely to reiterate his pledge to ‘carefully consider’ future rate hikes given the substantial margin of slack within the real economy. As the near-term rebound in the USD/CAD gradually gathers pace, with the exchange rate pushing above the 100-Day moving average for the first time since November, there’s certainly a risk that the pair could approach the 2009 high around 0.9900 in the week ahead as currency traders scale back their appetite for risk. It appears to have carved out a bottom in May. We are bullish on this currency.
Stop Loss: 0.9737
Take Profit: 0.9800
Published by www.SolidityBrokers.com
