May 2022

EUR/USD – 1.0747 Euro's intra-day strong retreat in Asia on broad-based rebound in usd suggests recent corrective upmove from May's 5-year bottom at 1.0350 has possibly made a temporary top at yesterday's fresh 1-month peak at 1.0786 and further weakness to 1.0727/31 would be seen, below would head towards 1.0698, 1.0663 later. On the upside, only a daily close above 1.0786 would indicate aforesaid pullback over and risk one more rise towards 1.0807. Data to be released on Tuesday : New Zealand building permits, NBNA business outlook, NBNA own activity, Japan unemployment rate , industrial production, retail sales, consumer confidence, construction orders, Australia building permits, business inventories, current account, net exports contribution, China NBS manufacturing PMI, NBS non-manufacturing PMI. U.K. nationwide house price, Swiss exports, imports, trade balance, retail sales, GDP, France consumer spending, GDP, CPI, producer prices, Germany unemployment rate, unemployment change, Italy GDP, CPI, EU HICP, Canada GDP. U.S. monthly home price, Chicago PMI, consumer confidence and Dallas Fed manufacturing business index.

Easing in China may lead to new covid infections and subsequent lockdowns.  The US housing market is weakening, potentially leading to lower long-term rates.  Stocks staged a fierce correction and may be ready to fall. USD/JPY bearish – the broader trend is to the downside, and the most recent rise may prove to be a selling opportunity. Why? *Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content. 1) China has eased restrictions for residents in Beijing and factories in Shanghai, but that has come after covid cases dropped. For policymakers, recent developments only serve as a vindication for their zero covid policy. There would be fresh lockdowns when new cases appear – and with Omicron and its subvariants, contagion is high.  The yen tends to benefit in response to adverse news in China. Investors repatriate funds to Japan, undoing lending in cheap yen. That could happen again in response to the next flare up.  2) US housing weakness: Jumping to the other side of the Pacific, the US economy has recently shown signs of weakness, especially in the housing sector. Both pending and new home sales fell… Read More »Sell opportunity on USD/JPY? Three reasons for a potential fall + levels to watch

Key highlights EUR/USD gained pace and surpassed the 1.0700 resistance. A major bullish trend line is forming with support near 1.0665 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair gained pace above the 1.0700 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). The bulls even pushed the pair above the 1.0750 resistance. On the upside, the bears might remain active near the 1.0800 level. A clear move above the 1.0800 level might push the pair further higher. The next major barrier could be 1.0920, above which EUR/USD could rally towards the 1.1000 level. If not, the pair might correct lower below 1.0720. On the downside, there is a major bullish trend line forming with support near 1.0665 on the same chart. A downside break below the trend line could send the pair towards the 1.0620 support. The next key support is near 1.0500.

The rally is back on after a strong week for equity markets. The main indices avoid an eighth straight down week. US market still has had one of its worst starts to the year in history. The week began with peak fear and ended with optimism high. Surely it can't be that easy to turn things around. But investor sentiment appears markedly improved after a week of promising earnings from the retail sector, coupled with some strong consumption data to end the week on Friday. Interest rate markets also took a noted doveish turn and now have taken down estimates for year-end interest rates by a full 25 bps. One week ago Fed funds futures were pricing in a 2.75-3% year-end rate. Now they are looking at 2.5-2.75% as the rate by December.  Source: CMEGroup.com That curious move enabled equities to breathe a little easier. The dovishness was perhaps added to on Friday with the Fed's favorite measure of inflation, the PCE, coming in as expected and showing a decline versus a month earlier. This welcome decline was seized upon by equity markets which pushed aggressively higher throughout the day. However we must urge caution, inflation is spreading its wings out… Read More »Week Ahead on Wall Street (SPX QQQ): Return of the rally as yields fall and retail remains strong

Summary So far in 2022, inflation has outpaced income, yet real consumer spending has increased every month this year including another 0.7% in April as we learned in today's personal income and spending report. The source of funds for these outlays are not infinite. For real spending to be sustained, we'll need to see income outpace inflation. That happened in April for the first time since October 2021. Consumers getting close to the end of the lollipop? On the day after revised GDP numbers showed an even faster pace of consumer spending in the first quarter, fresh data today for April showed that momentum continued into the second quarter. Personal spending shot up 0.9% in the month and, after adjusting for inflation, real spending still added 0.7%; that comes on the heels of revisions that more than doubled March's real spending gain from 0.2% to 0.5%. Spending was relatively broad-based with real services outlays growing another 0.5% and real goods spending up 1.0%. Goods spending got a lift from motor vehicles, the category with the largest increase on a real basis. Other durables categories, where frankly we have been expecting some weakness like recreational goods and vehicles and durable household… Read More »Consumer staying power on full display in April

Europe It’s been a decent week of gains for markets in Europe, with the FTSE100 enjoying a particularly strong performance, on course for its best week in over two months. This outperformance has been helped by decent gains from the likes of Ocado, Kingfisher, B&M European Retail and Primark owner Associated British Foods, after yesterday’s fiscal stimulus package, took the pressure off UK consumer incomes with over £650 of help for the most vulnerable households, along with a £400 one-off payment to every homeowner. Having had a bit more time to dissect yesterday’s windfall tax announcement from the UK government we’ve seen further weakness in the UK oil and gas sector. While BP and Shell shares have held up quite well, they are still down today, after BP said it would review all of its investment in the UK and North Sea, which could well lead Shell to do the same thing. Earlier this year Shell submitted a new plan for its Jackdaw gas project with a delivery date in late 2025, after it was rejected last year. Could yesterday’s events prompt a reappraisal of that, even if it gets approved?    The smaller UK oil and gas companies have… Read More »FTSE100 hits a 3-week high, windfall levy weighs on UK oil and gas

The Canadian dollar hasn’t made any spectacular daily gains since May 13th, when it shot up 1.1%. The currency has, however, made slow but steady progress against its US cousin. Earlier today, USD/CAD touched a low of 1.2731, its lowest level in three weeks. Canada Retail Sales jump in Q1 Canada’s retail sales for March helped the Canadian dollar rally on Thursday. The headline figure was virtually unchanged, but core retail sales rose 1.5%. According to StatsCan, retail sales jumped 3.0% in Q1, its highest level since Q3 2020. Consumers continue to spend despite red-hot inflation, but if consumers decide to tighten the purse strings, the economy would likely take a hit and drag the Canadian dollar lower. The US dollar finds itself under pressure as risk appetite has rebounded. Investors were pleased with the FOMC minutes, as the Fed signalled that it planned to press ahead with 50-bps rate increases in June and July, which soothed concerns about a possible massive 75-bps hike. This gave the equity markets a boost and sent the greenback lower. The US economy may not be in a recession, but negative growth in the first quarter is certainly a concern. Second-estimate GDP came in… Read More »Canadian dollar higher on Retail Sales

USDCAD is extending its retreat from the recorded 17½-month high of 1.3076, heading lower towards the converged simple moving averages (SMAs), which are not now endorsing any sturdy price trend. The pair has retracted within the region of a trading range that had lingered for a period of nearly ten months.   The short-term oscillators are reflecting the increase in negative momentum. The MACD, in the positive area, has distanced itself below its red trigger and is approaching the zero mark, while the RSI is falling in bearish territory. Moreover, the renewed negative charge of the stochastic oscillator is promoting additional downward price action in the pair. To the downside, an initial fortified support section from the 1.2718 barrier until the inside swing low of 1.2646 exists. This includes all the SMAs and the lower Bollinger band and could prove to be a difficult task for sellers to accomplish. However, if this upside defence fails to dismiss selling intentions, the price may then tumble towards the April 21 trough of 1.2457, simultaneously testing the 1.2450 support too. In the event bearish pressures continue to overwhelm, the 1.2402 low and the adjacent 1.2351-1.2386 support band could draw traders’ attention. On the… Read More »Technical analysis: USD/CAD trickles toward SMAs as sellers retake control

Global stocks continued their recovery as investors have rushed to buy the dip. Futures tied to the Dow Jones and S&P 500 have risen by more than 0.50%. If this trend continues, it will be the first weekly gain since March. The same situation happened in Europe, where the German DAX and CAC 40 rose by almost 1%. Some of the top movers in the pre-market session were Kraft Heinz, Medtronic, and Centene, which fell by over 5%. Dollar General, Dollar Tree, and DXC Technology rose by more than 15% after these firms reported strong results. Other top gainers were firms like Dell and Ulta Beauty. The price of crude oil jumped sharply as the EU continued to debate measures to ban Russia’s crude oil. While many countries support the measure, a small group of them have opposed the measure citing the vast amount that they buy from the country. Meanwhile, oil prices rose even after a sharp decline in China’s industrial output. According to the country’s statistics agency, industrial profits declined by 8.5% in April compared to the same period in 2021. The contraction piles pressure on the government after it has implemented Covid-zero strategies.  The Japanese yen moved… Read More »Crude oil price spikes as China’s industrial output shrinks

The Dow Jones Industrial Average cash index traded higher on Wednesday, breaking above the downside resistance line drawn from the high of April 21st. The index continued its recovery today as well, reaching the 32755 resistance zone, marked by the high of May 10th. Bearing in mind that the index broke the aforementioned downside line, we would see decent chances for some more advances. A clear and decisive break above the 32755 zone could encourage the bulls to climb to the 33350 zone, marked by the high of May 3rd, and if they are not willing to stop there, then we may see them pushing towards the 34120 zone, which acted as a key resistance between April 25th and May 5th, or the 34320 barrier, defined by the inside swing low of April 19th. Should neither of those two zones hold, then we could see a test at 34800, the high of April 22nd. Shifting attention to our short-term oscillators, we see that the RSI flattened near its 70 line, but the MACD remains above both its zero and trigger lines. Both indicators detect strong upside speed, which supports the idea of further advances, but the fact that the RSI has… Read More »Dow Jones breaks above a downside resistance line