The calendar for the
week after the NFP is usually light in economic events, but this doesn’t mean
there can’t be opportunities in the FX market. 

 

Traders will be
paying attention to the US inflation which will be in the spotlight with
expectations to keep rising. The US PPI m/m data will also be closely
watched. 

 

The UK GDP is also
coming Thursday and is expected to reflect a slower economic growth. Even if
the UK economy has been resilient overall since the beginning of the year,
elevated energy prices had a negative impact, especially on consumer purchasing
power. Services activity and retail sales were also affected. 

 

At the last FOMC
meeting the federal funds rate rose 50 basis points with another rate hike
expected in June. Meanwhile, some Fed speakers are scheduled to deliver remarks
this week.

 

The war in Ukraine
remains a major concern for the euro area and will influence the market for the
foreseeable future.

 

EUR/USD expectations

 

The euro has room to
weaken further as the Euro area will be influenced in the near future by the
economic slowdown in China. There is a risk of recession and the French
parliamentary elections in June could also have an impact. Even if expectations
for the ECB to raise rates are growing and some members like Villeroy mentioned
that above-zero rates by year-end are „reasonable“, a rate hike in
June is still seen as unlikely according to analysts from Scotiabank, so unless
this becomes a strong possibility, there won’t be significant movements in the
market for EUR. 

 

EUR/USD closed the
week near the 1,0485 level of support. From a technical perspective on the H4
chart EUR/USD needs a correction somewhere around 1.0740 or even 1.08450 and if
no significant event happens this week, it could resume its downtrend and test
the next level of support at 1,0365. 

 

USD/CAD expectations

 

On the H1 chart
USD/CAD looks good for buying opportunities. The pair is close to the 1.2940
level of resistance and a correction is expected until at 1,2780 which is the
next level of support. If rejected, the pair
could test the resistance at 1.3000.

 

The USD is still
strong and usually supported by volatility and uncertainty. The pair is
expected to appreciate further, but there can also be an opportunity to sell if
the pair reaches 1.3000. The Fed tightening already appears to be priced in the
market, but the market could re-evaluate the Fed expectations and reprice them
lower if upcoming US data is soft.

 

There are no
significant economic events in the calendar this week for the CAD, but for the
USD comments from several Fed speakers are expected: Mester, Bostic, Williams
and Waller. In conclusion, USD/CAD looks bullish in the short term.

 

 

This article
was written by Gina Constantin.

The Bitcoin chart isn’t too comforting at the moment after its latest attempt to get back above $40,000 last week faltered. Since then, it has been one-way traffic as price has slumped heavily following the market risk mood – more or less.Right now, we’re seeing price start to dribble below $33,000 to its lowest since July last year and will bring the focus towards key support around the $30,000 to $32,000 region. The former in particular is key for Bitcoin’s technical „vitality“ in my view.If stocks continue to hit the skids and Bitcoin follows suit, a technical break under $30,000 will start ringing alarm bells. Look out below.

S&P 500 futures -2.0%
Nasdaq futures -2.3%
Dow futures -1.7%

Things are not looking good in the equities space to start the week as last week’s drop on Thursday and Friday is carrying over to this week. Europe’s Stoxx 600 is also down 2% on the day now as the selling continues.
Tech is bearing the brunt of it as higher yields continue to prove to be a drag on sentiment this year. 10-year Treasury yields are up 5.7 bps on the day to 3.183% at the moment.
This isn’t a confident-looking chart by any means:

The 50.0 retracement level of the pandemic rally is the next key support but that stands at 11,421. That would represent a 6% drop from the Friday close.

There isn’t really any major significant expiries on the board for today.The only large one being for AUD/USD at 0.7100 but given prevailing dollar sentiment and the focus on the technicals being on the 0.7000 level, it is hard to see the expiry level coming into play.Once again, it is worth noting a lack of significant expiries for USD/JPY above 130.00 – as has been the case in previous weeks when we were talking about the general pockets above 120.00 and 125.00.For more information on how to use this data, you may refer to this post here.

MON: Chinese Trade Balance
(Apr); EZ Sentix Index (May).
TUE: Australian Retail Sales
(Q1); German ZEW Survey (May); UK Prelim GDP (Q1); EIA STEO.
WED: Chinese Inflation (Apr); UK
GDP Estimate (Mar); US CPI (Apr).
THU: Banxico; New Zealand
Inflation Forecast (Q2); IEA OMR; OPEC MOMR.
FRI: US Uni of Michigan Prelim
Survey (May).

Note:
Previews are listed in day-order

Chinese Trade Balance (Mon): April’s Trade Balance will be
impacted by the COVID situation in China – which remains fluid and contingent
on zero transmissions in some places. Production was largely shuttered with
supply chain problems also rising. A recent piece by RBC suggested global
supply chain problems look set to worsen, as China’s COVID-19 lockdowns and
Russia’s invasion of Ukraine cause longer delays at ports and inflate costs.
Export growth is expected to fall to 3.2% (prev. 14.7%) and imports are seen
contracting 3.0% (prev -0.1%). Overall, the trade balance surplus is expected
at USD 50.65bln (prev. USD 47.38bln).

 

Chinese Inflation (Wed): April CPI Y/Y is expected to
tick higher to 1.9% (prev. 1.5%), although the PPI Y/Y is seen easing to 7.8%
(prev. 8.3%). Taking the Caixin PMI as a proxy, the composite release suggests
“Prices data showed the rate of overall input cost inflation moderated slightly
from March, but remained marked overall. Composite selling prices meanwhile
fell for the first time since May 2020, albeit only marginally”. Nonetheless,
as inflation remains rampant overall, Chinese policymakers are seemingly more
focused on growth, with markets expecting the PBoC and the government to both
maintain easy policies.

 

US CPI (Wed): Headline consumer prices are
seen rising 0.2% M/M in April (prev. 1.2%), and core consumer prices are
expected to rise 0.4% M/M (prev. +0.3%). Analysts will be watching the data to
see if the trends in the March CPI and PCE data–where annualised rates eased,
leading to many ‘peak inflation’ calls–will be seen again. Credit Suisse
expects the data will show a second month of slowing inflation, but notes that
consumer prices are still shooting well-above the Fed’s target. For the
headline, seasonally adjusted gasoline prices fell around 7% in the month,
which should drive the slowdown. For core, the Swiss bank believes that the
annualised rate of prices will pare back to 5.9% in April from 6.5% in March,
with used vehicle prices expected to ease for the third straight month. Shelter
inflation is expected to remain elevated, while services inflation is also seen
remaining high amid further reopening in April and the consumer shift in
spending to services from goods. “We expect the Y/Y readings in both headline
and core CPI inflation likely peaked in March, but inflation will still run
well-above the Fed’s 2% target,” CS writes, but warns that “Chair Powell has
laid out a base case of 50bps rate increases for the next two FOMC meetings,
but a significant upside surprise could leave room for more-aggressive
tightening.”

 

UK GDP (Thu): Investec’s analysts expect March
GDP will grow just 0.1% M/M (prev. +0.1%), and the 3m/3m rate is also seen
remaining at 1.0%. Investec says that the dynamics that we saw in the February
monthly data will be similar to those in the March report. “This would give
quarterly GDP growth in Q1 of +1.0% – somewhat slower than Q4’s +1.3%, but
firmly ahead of the Eurozone’s +0.2% and the US’s -0.4% (de-annualised) pace of
growth” Purchasing managers’ data suggest that manufacturing may have
contracted again, although services output will likely have remained positive,
and the bank sees less drag in March than February from human health and social
work activities, as much of the slowdown in Covid vaccinations and testing
appears to have taken place earlier. However, it adds that the potential for a
rebound in hospitality, entertainment and recreation after the peak of the
Omicron wave of Covid infections was probably largely exhausted by March. “More
generally, the data on hospitality and recreation output will shed light on the
extent to which the weakness in retail spending in late Q1 was due to high
inflation squeezing households’ purchasing power, or a rotation in spending
towards services, unwinding more of the pandemic shift in sales patterns,”
Investec writes, “the more spending on consumer services suffered too, the more
of a worrying signal this would be for the further outlook for activity.” The
bank says declining GDP will be hard for the UK to avoid in Q2 since this
period will include the impact of higher utility bills as well as an additional
bank holiday, but says that the depth and magnitude remain uncertain.

 

Banxico Preview (Thu): At its March meeting, the
Banxico voted unanimously to hike rates by 50bps to 6.5%, as the market had
expected; analysts also noted that the central bank did not describe the 50bps
increment of the hike as „on this occasion“, which might be taken as
a sign that it is comfortable with lifting rates by that magnitude at future
meetings. Banxico continues to take a data-dependent approach. Since the March
meeting, the latest bi-weekly CPI data showed inflation rising to 7.7% Y/Y in
the first part of April, amid broad-based price gains. Additionally, Q1 GDP
data rose 0.9% Q/Q, a little short of the 1.1% analyst forecast, and although
it was an encouraging start the year, analysts note the risks that lie ahead.
„Looking ahead, the economic outlook remains challenging,“ Pantheon
Macroeconomics said, „for a start, inflation will remain too high for
comfort, disposable income is under renewed strain, remittances from the US
likely will slow as the US housing market continues to roll over, and Banxico
likely will continue to tighten to at least 8.25% over the coming
meetings.“ Pantheon also notes that there is increased political
uncertainty after President Lopez Obrador’s populist policies, which will act
as a headwind to capex and business sentiment. Internationally, the war in
Ukraine is keeping inflation pressures alive, China’s lockdown is having an
impact on not only the domestic economy, but the global economy too, while the
Federal Reserve in the US is pursuing a hawkish trajectory. Other analysts have
said that this will keep the prospect of a 75bps rate hike at the Banxico’s May
meeting on the cards.

 

New Zealand Inflation Forecasts
(Thu): The
RBNZ’s quarterly survey of inflation expectations is expected to show a sharp
rise in forecasts over short-term horizons – namely the one and two-year
timeframes. Westpac suggested the jump higher in revisions in the Q1 release
underpinned the case for a 50bps hike in April. “A result in that vein would
support our forecast for another 50bp OCR hike in May,” Westpac says.

 

This article originally appeared
on Newsquawk.

Robert Holzmann is the Governor of Austria’s central bank and thus a Governing Council member of the European Central Bank.
On policy direction ahead 9do not he is towards the less dovish end of the ECB spectrum):

„I think it would be appropriate to take at least two or even three steps. These could be smaller ones, i.e. 0.25 percentage points each. If this were to happen by December, it would have the effect that by 2023 the deposit rates for banks, which are now minus 0.5 percent, would be in positive territory,“ 
„You’ll still be quite a bit away from the natural nominal interest rate. So there is still a long way to go. But it would be a good signal to the public.“

Info via Reuters 
–
The ECB will be, and is, slower to hike than other DM central banks. Think Fed, BoE, BoC, RBA, RBNZ. Not as slow as the BoJ though. 

ECBs Holzmann ponders the rate hike path

People’s Bank of China will launch a 100-billion-yuan ($15 billion) relending facility:

to support the transport, logistics and storage sectors

„Monetary policy should coordinate with fiscal and industrial policies to jointly boost the confidence of market players, stimulate market drivers, support the real economy and achieve the goal of stable growth,“ the bank said.

On Wednesday last week the PBOC announced similar support for the coal industry:

the Bank increased targeted re-lending quota of an additional 100 billion yuan to aid clean energy development

Info via state media outlet China Global Television Network (CGTN.com)
—
This tool from the PBOC will give financial institutions more incentives to boost lending at lower funding costs.
PBOC Governor Yi Gang:

The ongoing saga of the attempt to restart talks to revive Iran’s 2015 nuclear deal with world powers in … still ongoing. 
A couple of weekend updates.
The Financial Times reported the EU’s foreign policy chief Josep Borrell told the news outlet that he was seeking a “middle way” to end the impasse

FT link, which is gated
Yahoo ungated snippet

Aljazeera have an ungated report separately:

EU coordinator Enrique Mora to visit Tehran on Tuesday (he is the EU coordinator for talks on restoring Iran’s 2015 nuclear deal with world powers)
Iran making positive statements on the planned visit: “Considering the EU’s role in exchanging viewpoints between Tehran and Washington, Enrique Mora’s trip to Tehran can be regarded as a new step for constructive negotiations surrounding the few but important remaining issues,”. But added, less positively: „Iran has remained in the negotiations despite “the persistence of hostile approaches by the US against our country” that it said goes against the spirit of constructive negotiations.“

Pretty much every weekend we get some form of update on these negotiations. Talks to revive the nuke deal between Iran and the world have been on hold since March, though. Do not hold your breath. 

Shanghai officials today said the covid outbreak was under ‚effective control‘ on Friday and that cases have been on a ‚continuous downward trend‘ since April 22.
The city has been under lockdown since April 1 and there’s no visibility to when that will end. About 2.3m people are in sealed-off areas while 16.7m are in lower-risk ‚prevention zones‘ but how those rules are applied are a point of frustration for residents.
The latest number of cases was 4024 yesterday but the vast majority of those were in quarantine centers. There were 245 locally transmitted cases reported on Saturday.
A survey of Japanese manufacturers on Thursday showed how difficult it is to re-open factories under ‚closed loop‘ rules. According to the SCMP:

The
Shanghai Japanese Commerce & Industry Club said on Thursday of 54
firms that responded to a survey it conducted between April 27-30, 63
per cent responded that their factories had yet to resume operations.

Out
of the 37 per cent that have resumed operations, over three-quarters
said production was at or below 30 per cent of normal levels.
That’s a bit dated now but underscores how difficult it will be to reestablish supply chains.
Meanwhile, the centre of the outbreak appears to be moving to Beijing where the Chaoyang district ordered another round of mass testing along with a stop to construction work and office closures. On Saturday, 78 cases were reported compared to 68 a day earlier.
Here’s a great chart from Exante showing what looks like a de facto lockdown in Beijing:

   

US April non-farm payrolls +428K vs +391K expected
Canada April employment 15.3K vs. 55.0 K estimate
Fed’s Barkin wants to raise rates as ‚fast as feasible‘
Kashkari: The Fed must follow through on its forward guidance ‚at a minimum‘
Fed’s Kashkari: We have to do our best to achieve our dual mandate
ECB’s Elderson: Weaker incoming data don’t suggest so far that we’re entering recession
Baker Hughes oil rig count rises by 5 to 557 in the current week

Markets:
Gold up $7 to $1883WTI crude up $2.34 to $110.60US 10-year yields up 5 bps to 3.12%EUR leads, CAD lagsS&P 500 down 23 points to 4123 — first streak of 5 weekly losses since 2011
The non-farm payrolls report was right down the fairway. Jobs were a bit high but unemployment a tad disappointing. The main focus was on avg earnings and those were a fraction below consenus. That led to a brief dip in USD/JPY and short-dated yields but it didn’t last.
Instead, it was equities and deleveraging taking over once again. A swoon in stocks and bonds and several fledgling rallies lent some support to the dollar but the FX market was largely sidelined in this episode. Cable skidded along the bottom near 1.2340, as did the Australian dollar.
The loonie came under some selling pressure and USD/CAD rose above 1.2900 but couldn’t get above last week’s high of 1.2914 and there was some selling as risk trades made a bit of a stand late and oil — once again — found a bid.
In all those noise, the resilience in crude may be a true slgnal.  Oil closed the week above $110 to end a series of lower highs in what looks like a break from the wedge. That it could make the move in such a dicey market adds credence to the break. Natural gas though reversed on Friday to $8 after touching $9.
In Europe, the EU continues to debate a ban on Russian oil but Hungary might block it; there’s talk of giving them an 18-month timeline. Slovakia is also looking for an exception. There isn’t much chatter on the Iran nuclear front.
In USD/JPY, the pair added 42 pips on the day but it was all in Asia and we stayed within the range in New York trade. However it was the ninth week in a row of gains for the pair in what’s been an absolute screamer of a trend trade.

Have a great weekend.