Week of May 22

Currency markets trended lower with a focus on negotiations around the debt ceiling in the US while the dollar and stocks moved up. The week ahead is expected to be relatively quiet, setting up for the next round of interest rate decisions with the release of the UK CPI and the minutes from the last FOMC meeting unless the weekend has a surprise. 

Top Events in Review

The week started in a sober mood after a scheduled meeting between US President Joe Biden and congressional Republicans was delayed. But generally, positive news from a meeting held on Tuesday, further commentary on Thursday, and hawkish Fedspeak helped buoy risk appetite despite some worrying macro data. Nasdaq saw an incredible ~4% rally toward 14000. Negotiations are set to continue through the weekend, with staff working while the President jetted off to the G-7 meeting, which was expected to focus primarily on Russia. 

Disappointing data included the worst performance in the Empire manufacturing survey since covid, an unexpected drop in Eurozone manufacturing, and a surprise jump in joblessness in both the UK and Australia. 

News that surprised on the upside included better-than-expected GDP figures from Japan. The favourable situation in Japan is fanning rumours that the PM might call for general elections to be held soon. Nikkei soared nearly 5%, breaking past 30k and receiving rejection at the 31k handle.

Canadian CPI surprised on the upside and sped up for the first time in ten months after the BOC paused the rate hiking. USD/CAD traded as low as $1.34 throughout the week but recovered closer to $1.35 on dollar strength.

BOE officials also talked up worries about inflation, with Governor Andrew Bailey being the first major central banker to admit that secondary effects drive inflation. Pound flirted with $1.24 for the first time since April, with chances at $1.2550 reduced drastically.

Biggest Market Movers

Gold fell as much as 3.40%$ from its peak, breaking substantially below the $2,000/oz handle as the dollar gained strength, with traders pricing in another Fed rate hike at the next meeting. $1930 per ounce is the next major support as long as bulls fail to recapture 2k.

WTI jumped after the IEA saw demand exceeding supply later in the year, reaching a 4.70% gain before retracing lower. Bulls have claimed control of $70 per barrel, with a move higher opening the door to $76.70 per barrel. 

The Nikkei trended higher through the week, aided by a series of positive data points, but USD/JPY rose nearly 2% to 139.00, where it faces resistance. 

Top Events in the Week Ahead

EUR/USD Hangs on Debt Ceiling 

Unless the Sunday meeting between US President Joe Biden and congressional leaders leads to a surprise deal, the main theme for the week is expected to be the evolution of negotiations over the debt ceiling. US Treasury Secretary Janet Yellen has most recently set June 1 as the date when funds will run out but would update any chances due to extraordinary measures throughout the week. 

The other US event that could shake up markets is the release of the FOMC's minutes, with investors looking for more clues about just how decided the Fed is on pausing at the next meeting. Most traders still believe there will be no rate hike in June, but that majority has been diminishing constantly. US Durable goods orders are expected to fall, while personal spending is expected to increase.

Both events can significantly impact the dollar, hence EUR/USD. The pair lost $1.08 and put a 7-week low in after another week in the red. If bulls can push prices higher, $1.09 might act as resistance, but falling under $1.07 might expose $1.0520 in the medium term. 

UK CPI and RBNZ Decision in Focus

On Wednesday, the BOE is expected to finally get some relief on prices, as the annual inflation rate is expected to fall to 8.5% from 10.1% prior. The core rate is also expected to come down to 5.7% from 6.2%, with the BOE expected to hike by another 25bps. Monthly retail sales in the UK are also expected to return to positive at 0.3% compared to -0.9%, but annual retail sales change is still expected to remain negative. 

The RBNZ will meet on Wednesday, with another quarter-point rate hike expected after the government's new budget now forecasts a recession can be avoided, leaving the Reserve Bank more room to bring prices to heel. Kiwi advanced more than 1% after putting a low in at 62 cents, but bulls met stiff resistance at 0.6265. Moving past the top might see an attempt toward 0.6362.

Other Events and Earnings

Tuesday has flash PMI readings from select countries. On Wednesday, the Ifo will release its German business climate survey. Thursday sees German GfK consumer confidence. Friday has the Michigan consumer sentiment index. 

Earnings season reaches its unofficial close this week, with major names expected to report, including Ryanair, Zoom, Lowe's, AutoZone, Nvidia, Costco, NetEase, and Booz Allen Hamilton.