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The Week Ahead 22nd – 26th May: The key figure of the US PCE Core

Started by PocketOption, May 20, 2023, 06:15 am

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PocketOption

The Week Ahead 22nd - 26th May: The key figure of the US PCE Core

Welcome to Key to Markets preview of the Week Ahead.


Currency Pair Performance


5-day performance as of May 18, 2023, 10:00 GMT.



Source: finviz.com



10 Big Stories Last Week


In case you missed it...


China’s growth worries rise. Chinese data continues to miss expectations across April, raising worries about its economic recovery. USD/CNH rises to a 2023 high.


Debt ceiling deal optimism rises. Talks are ongoing and the two sides are cautiously optimistic that a deal can be reached. USD rises to an almost 2-month high.


Vodafone cuts 11,000 jobs. The telecoms giant fell 7% after the announcement and after the CEO said that the company needs to change.


UK unemployment rises to 3.9%. This takes the pressure off the BoE to hike rates aggressively at the June meeting. However, average earnings ticked higher to 6.7%, clouding the picture.


Home Depot's outlook disappoints. The DIY retailer posted its post underwhelming revenue performance in over 20 years as Americans tire of doing up their homes. Yearly sales targets were also slashed.


Japan's Topix Index rises to a 3-decade high. Japanese stocks rise to the highest level since December 1990 as foreign investors return to Japan. The Nikkei also rose to its highest since 2021.


Tesla will deliver the Cybertruck this year. At the Tesla annual shareholder meeting, Elon Musk announced that the keenly awaited EV would be delivered in H2.


UBS expects a $17 billion hit from the Credit Suisse takeover. The hit comes after UBS agreed to take over its rival for $3.2 billion in March amid the global banking turmoil.


ChatGPT & OpenAI CEO testifies before the US Senate. Sam Altman calls on the US to regulate artificial intelligence, which can create human-like responses but can also be wildly inaccurate.


DAX rises to a 15-month high. The German index breaks out above 16000, rising to a 15-month high on optimism surrounding US debt ceiling talks.



Chart of the Week



Source:@WillieDelwiche


Apple is now worth more than all the stocks in the Russell 2000. The tech giant has reached a market cap of $2.7 trillion, worth more than the 1909 stocks in the small cap index by around $100 billion.


This has been achieved after decades of innovation, diversification and through the creation of one of the most valuable brands in the world. But can it keep up this pace of growth?


If there was a stock that could potentially continue growing at such a pace, it would be Apple. However, there is most likely a size after which growth slows.


So should you buy Apple over the Russell 2000? The Russell 2000 brings safety in diversification but Apple's returns are impressive. Owning both in a barbell approach could be a stronger strategy.



5 Things to Watch This Week


1. Eurozone PMIs

PMI data from the region is expected to highlight the continuing divergence between the manufacturing sectors, which remain in contraction, and the services sector, which has rebounded into expansionary territory. Strong service sector activity could boost the growth outlook for the region. The eurozone composite PMI is expected to rise to 55.5 from 54.1.


2. UK CPI

UK inflation remains stubbornly high compared to the US or the eurozone, which has meant the BoE continues to hike rates and reiterated its commitment to lower inflation. However, the central bank has also said that it expects inflation to cool significantly from April as the base effect from higher energy prices is removed. Hotter-than-forecast inflation could fuel bets of another rate hike in June.


3. FOMC minutes & US Core PCE

The minutes of the May Fed meeting, in addition to the core PCE index, the Fed's preferred gauge for inflation, could offer further insight into the Fed's next move. Federal Reserve Chair Powell hinted that the central bank could pause rate hikes at the June meeting. However, Fed speakers have continued to sound hawkish. Headline CPI unexpectedly cooled; should core PCE cool further, this could fuel bets of a pause in the tightening cycle in June.


4. Nvidia Q1 earnings

Nvidia is due to report Q1 earnings on Thursday, 24th of May, which come as the share price trades over 100% higher so far this year thanks to the popularity of OpenAI's ChatGPT and Nvidia's dominant position in the AI space. Wall Street is expecting EPS of $0.92, a 32.4% YoY decline on revenue of $6.51 billion, down 21.5% from the same period last year amid moderation in end market demand and on inventory issues. Comments regarding AI and end market demand will be watched closely.


5. RBNZ rate decision

The RBNZ unexpectedly raised interest rates by 50 basis points in April, to 5.25%, a 14 year peak, as it continued to fight against inflation, which it says is still too high. The meeting comes after Q2 inflation expectations cool to 2.79% QoQ, down from 3.3% prior. This marks the lowest level since Q3 2021 and supports the view that the RBNZ could be nearing the end of the hiking cycle. The market is pricing in a peak rate of 5.5%.


Economic Calendar Highlights



Source: FXStreet.com



Technical Analysis:


TA of the major asset classes (Forex – Commodities – Indices...).


EUR/USD (Daily Candlestick Chart)



EUR/USD is in a downtrend, making lower lows and highs and below the 50 SMA.

The price has made another sharp leg lower, falling under the 50% Fib retracement of the rally since March, as well as 1.08. The new downtrend follows a failed breakout over the January high. The next supports lie at 1.074, then 1.069.


GBP/USD (Daily Candlestick Chart)



GBP/USD is in a correction within an uptrend, making lower lows and highs but above the 50 SMA. The December '22 and January '23 peaks are major support, where a break lower could signal a new downtrend.


USD/JPY (Daily Candlestick Chart)



USD/JPY is in an uptrend, making higher highs and lows and above the 50 SMA.

The price is attempting a close above major resistance at 138. The breakout would confirm a new long-term uptrend. The next resistance sits at the 140 level. A fakeout would imply a re-test of recent lows near 134.


Gold (Daily Candlestick Chart)



XAU/USD is in a downtrend, posting lower highs and lows and below the 50 SMA.

Price has broken below its rising channel after hitting a new all-time high. The January peak at 1950 is now major support, where a bounce could re-test the underside of the broken channel. A move under 1950 brings 1900 into play.


Brent Oil (Daily Candlestick Chart)



XBRENT is in the correction of a downtrend, having posted one higher low but below the 50 SMA.

Brent has surged off the lows, offering hope of a long-term double bottom. However, a close over 77.5 is needed for confirmation that the downtrend is over. 73.5 is near-term support, followed by 71.3.


US500 (Daily Candlestick Chart)



XUS500 is in a sideways trend with no clear directional bias.

A bullish engulfing pattern that engulfs the bodies of 7 prior candles indicates a possible range break. A close above 4200 is needed to confirm the breakout. The next major resistance comes from the August '22 high at 4325.


Thank you very much for reading - and have a great week trading!


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