A look back at the past week
Most asset classes seemed to stay stuck in their most recent ranges last week, apart from DXY. The Dollar Index finally broke out of its range, closing above 102.
EUR growth data continues to surprise with lower, yield differentials longer a supporting factor. With DXY breaking higher, this has resulted in the overcrowded long of EURUSD breaking through support at 1.0926.
Any further lower move here will be a result of US news, and the follow through of the seasonal performance expected from USD in May.
The Week Ahead
The upcoming week holds important data, awaited by the market:
- Tuesday: GBP Labour Market Report - forecasting no change 3.8%
- US Retail Sales on Tuesday - forecast of a slight increase m/m
- Tuesday CPI print from Canada - further falls expected
- Wednesday BoE governor Bailey makes his speech
- Thursday Unemployment Claims from the US
- Thursday BoC Macklem speaks
- Fed Chair Powell speaks on Friday
With very little data coming out of the EUROZONE, the driving factor will be USD, which is catching a bid this month. This could be a prime opportunity to sell as the market pulls back into resistance.
Recent inflation data out of Switzerland has been disappointing. In fact, after seeing EURUSD breaking out of the range, this could be a lead indicator for USDCHF to push higher. With more US data coming out this week, and Fed Chair Powell speaking on Friday - a move above 0.8990 resistance is on the cards for the pair.
The main focus this week lies around Retail Sales on Wednesday - are consumers feeling the pinch and activity slowing?
The overall market health is being closely eyed, with claims rising over 20% historically results in a recession. As we are currently seeing a 21% Y/Y, we're left wondering whether this should be a concern.
As mentioned earlier, the DXY broke out of the range. We were closely mointoring 102.
Based on seasonal factors, May is by far the best performing month of the year for the USD. As a matter of fact, we could expect to see another move higher until the end of the month.
The next set of talks for the raising of the US debt ceiling is due this week, with the deadline approaching early June. This will pose significant liquidity risks, the bias will most likely be to buy pullbacks on USD.
Last but not least, the market has been looking forward to the UK jobs report.
The labour market has held up much better than markets were actually anticipating. March numbers came in with 169k, but wages growing at a rate of 5.9% YY still doesn't match headline inflation.
The recent strength in GBP has seen a EURGBP breakout, and could be an ideal chart for more downside on any retracements back to resistance with 0.8600 being the next area of support.
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