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Weekly trading forecast May 6 - 10

Some investors use a rule ‘sell in May and go away’. May and June are traditionally tough months for global financial markets, but things show that this time it’s going to be different. Although global traders have already absorbed the most important events this spring - the US Federal Reserve’s rate decision and US Non-Farm Payrolls report - there is a suggestion that everything could change and the volatility main keep weighing on major financial instruments in the week ahead. Two major central banks meet this week for the interest rates decisions and financial statements - the Reserve Bank of Australia and the Reserve Bank of New Zealand. Two other regulators will publish the latest meeting minutes, pointing to further direction of the monetary policy - the European Central Bank and the Bank of Canada. Several crucial macroeconomic reports will be released this week: Retail Sales, Employment Data, Inflation Reports and so on. The second largest world’s economy will update global investors on Trade Balance and Consumer Prices. In addition, British Manufacturing Production and US CPI will be published on Friday, probably the most volatile day throughout the whole week due to the importance of those events for the global economy.

Comparatively thin market conditions would begin the trading week as Japan, South Korea and the United Kingdom will be off for holidays. Nevertheless, traders and investors will carefully monitor the economic calendar on Monday, especially in Europe, as Services Purchase Managers Indexes will be released in Italy, Spain, France and Germany. The Services sector is crucial for the Eurozone economy as it takes up to 55% in major countries. Therefore, investors will try to update the current situation with GDP growth in most important regions, as well as assess further steps by the European Central Bank. EUR/USD will be vulnerable to higher volatility during the European trading session on Monday. European Retail Sales Report will determine the price action later in the day. China’s Caixin Services PMI will also be crucial for emerging markets, which are trying to get support from the fundamental side of things. US traders will focus on FOMC Member Harker’s speech in light of the latest decisions by the regulator. Bank of Canada Governor Poloz is also due to speak on Monday, pointing next developments for the USD/CAD currency pair.

Currency speculators will focus on the Reserve Bank of Australia on Tuesday as the regulator will announce rate decision and economic projections for the region. Although it’s hard to expect RBA to make any moves on the financial conditions, investors will stick to the statement following the meeting. If the regulator indicated an unavoidable rate cut this year due to the economic slowdown and trade balance decline, the Australian dollar might lose the ground versus the US dollar and Japanese Yen. Otherwise, we might see a bullish recovery in AUD/USD and AUD/JPY after Friday’s wild price action. Anyway, volatility is guaranteed Tuesday morning. German Factory orders and Industrial Production will continue busy trading day in the European trading session. ECB will also publish its economic forecasts for the nearest future, which should affect the EUR/USD currency pair on its way to 1.1000 technical support. US JOLT jobs openings and Canadian Ivey PMI will determine the price action in the North American region. 

Asian region will continue attracting traders’ attention amid two momentous events. First, the Bank of Japan will publish the latest meeting minutes, underlining the need for a softer monetary policy to support local exporters in fierce competition overseas. The Japanese Yen could weaken in that case. Another major central bank will appear in the headlines as the Reserve Bank of New Zealand will announce its rate decision. The situation is similar to Australia, however, the Kiwi looks more attractive for international investors as the trade balance was healthy recently, while the unemployment data beat the market consensus. Analysts expect the RBNZ to be much more hawkish than in the previous meeting. Nevertheless, the press conference will put things in the right places. Pairs to watch NZD/USD and NZD/JPY. Third central bank to monitor for global investors will be the ECB as the regulator will release meeting minutes as well. EUR/USD and other Euro cross-rates would be under a threat of further weakening if the regulator were dovish. Crude oil inventories are traditionally crucial for the price of oil, which retraced from six-month highs. The main question of whether US consumption kept slowing down or was that just a temporary spike in oil stocks. WTI Crude could renew the uptrend if the report showed any figure close to 3 million barrels or less. 

China will shift the focus of the global financial markets as local trade balance will be released early Thursday. The last reading was extremely positive for risk assets and global equities, however, some analysts predict the figures worsening in April. China’s inflationary pressure is also due to release in the Asian trading session, therefore, equities and risk currencies will be vulnerable to wild price action. US Producer Price index will start two-day series of inflation reports in the leading world’s economy. The importance of that data became higher after the Federal Reserve Chairman Powell stated that the only thing which holds the regulator from hiking the interest rates is inflation. Therefore, the greenback might surge if the data was stronger than economists expect. USD/CAD would try to renew the uptrend if Canadian data failed to meet the market’s expectations. Trade balance and Housing sector figures are traditionally crucial for the Bank of Canada in the decision-making process related to the financial conditions and monetary policy.

Primary Friday’s events are shifted closer to the New York open. The Sterling will be vulnerable to a pack of British reports. First, the UK GDP will be announced. Economists expect the growth pace to remain at the level of 1.8% year-over-year, but there is a room for a positive surprise. GBP/USD and GBP/JPY could soar if that confirmed. Several other reports will also determine the price action: Industrial and Manufacturing Production are among them. However, the critical event of the week is US CPI. Consumer Price Index is predicted to grow to 2.1% year-over-year, and any figure above that will lift the US dollar put pressure on US stock indices. Canadian employment data will affect USD/CAD on Friday.


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