Weekly Trading Update 20.05.2022

Week of May 23

Volatility remains the theme as the market looks to data next week that could indicate whether central banks will stay the course.

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The week in review

• The Dow experienced the biggest daily loss since 2020 on Wednesday as it plummeted 3% from 32480 to 31482. Next support lies 100 points lower. Reports that China could be easing covid restrictions helped support optimism toward the end of the week. Bulls have put 32284 back on their watchlist. 

• The Geopolitical situation appears to be on hold as the war in Ukraine continues with little hope for a peace agreement. Finland and Sweden's bid to join NATO hit an obstacle over objections from Turkey. The stalemate is somehow supporting more upside on WTI. There is now decent support at $105.88/bbl, and resistance above $118/bbl.

• On Brexit, EU negotiators are heading to London after PM Johnson toned down the possibility of a unilateral change to the Northern Ireland protocol. GBP/USD could flip $1.25 to support, and head to $1.2634 from there. On the flip slide, 1.2336 is weekly support.

• Earnings from Target and Walmart showed little growth in sales, stoking worries that the US consumer is being hurt by high inflation. Despite the double bottom at 3860, SPX remains susceptible to 3722. Upwards, only getting past 3975 can lead to 4k and above.

Top 5 events for the week ahead

Participants wait for fresh insights into inflation

The focus for next week is likely to be around flash PMIs. Traders are anxious to see if there is any moderation in inflation. Some more insight is expected from the release of the FOMC minutes and PCE deflator, which is a key metric used by the Fed in determining policy. The DXY eyes the 102.29 support, but it’s likely to be a temporary stop before 101.00. Resistance lies at 103.17 and 104. 

Comments late last week have put focus back on the ECB, with a rate hike expected in July. That would put an end to years of negative rates. Also, there is a Eurogroup meeting on Monday. EUR/USD might revisit $1.0750 but needs to recapture $1.0640 first. Support lies at $1.0460.

Aussie election & AUD

Over the weekend Australia goes to the polls, with projections showing a victory for the Labour coalition. However, there is increased anticipation over the results. AUD/USD could head to 0.7168 if it survives above 70c. Across the Tasman Sea, the RBNZ is expected to hike rates by 50 basis points despite weakness in the domestic economy. NZD/USD might have trouble getting through 64c, otherwise 65c is possible.

Emerging markets

Other central bank meetings expected during the week include Indonesia, Turkey and South Korea. The Turkish lira was one of the few emerging market currencies that didn't appreciate last week ahead of the meeting, as traders are expecting the unorthodox easing bias to persist. USD/TRY could tag 16.38 for the first time after Dec ’21. 

Other data and events

From Germany there is the Ifo Business Climate survey, GfK consumer confidence, and the second reading of Q1 GDP figures. New Zealand also reports quarterly retail sales data. The US also discloses durable goods orders. With retail sales from Canada rounding out the week. Scheduled earnings include Marks and Spencer's, Nvidia, Zoom and Best Buy