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Weekly Market Outlook

Weekly Market Outlook: RBA, BoC Statements, and US PMI Figures to watch!

Weekly Market Outlook – This week, the RBA and the Bank of Canada’s policy decisions will be the focus, as the rest of the agenda seems relatively quiet. In the United States, the only significant release will be the ISM services PMI. As Congress averted a default by suspending the debt ceiling, the dollar may drift downwards throughout the week. Prior to all this, OPEC and non-OPEC countries will meet on Sunday to decide whether more oil production cuts need to be made. 

Highlights of last week’s activities:    

  1. As anticipated, the negotiations over the debt ceiling were prolonged, but the bill successfully reached a vote, passing through the Republican House and the Senate, and is currently awaiting President Biden’s signature to become law. 
  1. The recent increase in PCE inflation reignited expectations for a Federal Reserve rate hike in June, but Vice Chair Jefferson hinted at a potential pause while cautioning that it might not mark the end of the tightening cycle. 
  1. The euro experienced a decline to a three-month low due to lower-than-expected inflation figures from Spain, France, and Germany. However, the prompt reversal of losses in the EUR/USD pair was driven by hawkish remarks from ECB President Lagarde and dovish comments from certain Federal Reserve members. 
  1. Tech stocks emerged as the clear winners on Wall Street in May, with the Nasdaq reaching its highest point in thirteen months. You can refer to the monthly candle charts of major indices to observe the performance in May. 
  1. The Hang Seng index entered a technical bear market, dropping by 20% from its previous peak. 
  1. China’s manufacturing PMI contracted for the second consecutive month at its swiftest pace in six months, while the services PMI reached a four-month low. 
  1. Australian inflation proved to be uncomfortably strong, with a monthly increase of 0.5% and a yearly rise of 6.8%. This intensifies the pressure on the Reserve Bank of Australia to raise interest rates on Tuesday. 
  1. Inflationary pressures continued to ease, leading to the CRB commodities index closing at its lowest level in sixteen months. 

What to watch on the Economic Calendar this week: 

The week ahead highlights include central bank meetings in Australia and Canada, with a potential shift towards more hawkish rhetoric in preparation for a possible hike in Q3. China’s trade data is expected to show a larger surplus despite recent contraction in exports. Weak price pressures may lead to speculation of rate cuts or reduced reserve requirements. Additionally, July WTI prices rallied to adjust for the possibility of voluntary production cuts by OPEC countries to accommodate increased production from Russia, Iran, and Venezuela. 

Stock Market: Bullish 100 Days Bring Good News for 2023

Sunday, June 4: 

  • All: OPEC-JMMC Meetings 

Monday, June 5:    

  • CNY: Caixin Services PMI 
  • EUR: German Trade Balance 
  • CHF: CPI 
  • EUR: Final Services PMI 
  • GBP: Final Services PMI 
  • USD: Final Services PMI 
  • USD: ISM Services PMI 

Tuesday, June 6:     

  • AUD: RBA Rate Statement 
  • EUR: Retail Sales 
  • CAD: Ivey PMI 

Wednesday, June 7:     

  • AUD: GDP 
  • CNY: Trade Balance 
  • CHF: Foreign Currency Reserves 
  • CAD: Trade Balance 
  • USD: Trade Balance 
  • CAD: BOC Rate Statement 
  • CAD: Overnight Rate 
  • USD: Crude Oil Inventories 

Thursday, June 8:     

  • JPY: Final GDP  
  • AUD: Trade Balance 
  • EUR: Revised GDP 
  • USD: Unemployment Claims 

Friday, June 9:    

  • CNY: CPI 
  • CAD: Unemployment Rate 

Keeping up with upcoming Forex events, announcements, and data releases is easy with the Global Economic Calendar


OPEC Alliance Extends Reduced Oil Production 

OPEC, along with its allied nations, agreed to extend the oil production cut during a meeting in Vienna. The decision was made by the OPEC Joint Ministerial Monitoring Committee (JMMC), consisting of representatives from OPEC’s 13 member nations and 11 non-member countries. After extensive discussions, JMMC decided to extend the production cuts beyond December 2023 and into 2024.  

Additionally, the bloc announced a further reduction of 1.4 million barrels per day in overall production targets from 2024 onwards. Saudi Arabia’s Energy Minister, Prince Abdulaziz, stated that the country would voluntarily cut its crude oil production by an additional 1 million barrels per day from July. This meeting followed OPEC’s core members convening their 186th regular meeting the previous day. OPEC had already implemented a series of production cuts, resulting in a total reduction of almost 3.7 million barrels per day.  

The aim of these cuts is to address what OPEC perceives as a global oil surplus and raise the selling price. OPEC is responsible for about 40 percent of the world’s crude oil production. Other major oil producers outside of OPEC, such as the United States, have previously offset some of OPEC’s cuts by increasing their own production. The voluntary production cut announced in April briefly raised oil prices by $9 per barrel, but they subsequently settled at around $76 per barrel. The objective of the recent agreement is to rebalance the market and prepare for future challenges. 


Australia / AUD: Will the RBA deliver another unexpected rate hike?  

The Reserve Bank of Australia surprised markets with a rate hike last month. There’s a possibility of another 25-basis-point increase in borrowing costs at the June meeting. However, recent economic data has been mixed, which might lead the RBA to pause and assess the situation. The jobless rate increased slightly in April, and there are signs of a modest slowdown in economic activity in May. On the other hand, April’s monthly inflation readings were higher than expected. 

Upcoming first-quarter GDP growth figures and the AIG manufacturing index, both scheduled for Wednesday, may not be fully factored into the RBA’s decision. Additionally, the RBA is concerned about the weakening recovery in China, as it impacts Australian exporters who heavily rely on China as a market. The RBA is expected to delay a rate hike in June while maintaining a tightening bias. Investors share this view, with a 55% chance of no change in June. However, an August rate hike of 25 basis points is already anticipated. 

AUD/USD at 6-Week Low Following Softer Inflation
The Australian dollar hit a yearly low below $0.6460 in May. It then had a strong two-day rally, gaining almost two cents. After the US jobs report, it stalled but found support during a sell-off and reached nearly $0.6600, which is the bottom of its previous two-month trading range. Momentum indicators and technical analysis suggest a positive outlook. If it moves above $0.6640, it may re-test $0.6700, which is the middle of the previous trading range and the 200-day moving average (~$0.6695). 

The trade balance data on Wednesday will reveal the performance of exports and imports in May. On Friday, the latest consumer and producer price indices will offer insights into the strength of domestic demand. 


Canada / CAD: BoC could have more rate hikes in store! 

The Bank of Canada has maintained a pause since March, similar to the RBA, but they are now considering a rate hike. In the first quarter, the Canadian economy experienced a strong rebound in GDP growth, with a quarterly expansion of 0.8%. The labor market is showing signs of heating up again, and there was an unexpected acceleration in headline inflation in April. 

However, underlying measures of inflation are still declining, which may convince enough policymakers to continue the pause for another meeting in case the increase in headline CPI was just a temporary fluctuation. 

Market expectations suggest that the Bank of Canada will keep interest rates unchanged at least until September, before resuming their tightening cycle. However, if policymakers demonstrate a strong inclination to raise rates soon, the focus will likely shift to the employment report for May, which will be released on Friday. If the job numbers are strong, it could bring forward the bets on a rate hike and boost the value of the Canadian dollar. 

The US dollar initially tested the upper end of its two-month trading range against the Canadian dollar at CAD1.3650 but later reversed lower. It found support at CAD1.3400 before the release of US jobs data and rebounded to CAD1.3450. There is additional resistance near CAD1.3465, with the CAD1.3500 area being more significant. The daily momentum indicators have turned down, although solid support can be found at CAD1.3400. 

 
United States / USD: Quiet week is on the horizon for the Dollar! 

In the United States, the upcoming week holds key events such as the ISM non-manufacturing PMI on Monday, while April factory orders, also scheduled for the same day, might attract some attention. Despite recent signs of a slowdown in the American economy, it is important to note that it still retains its momentum. The ISM survey specifically focused on the services sector, is expected to provide insights into the state of affairs in May. 

As the June 14 FOMC decision approaches, the Federal Reserve‘s communication has been somewhat contradictory. However, more recently, it seems that the more dovish members, possibly led by Chair Powell, are making a case for a pause in the upcoming meeting. Although there is another CPI report yet to be released before the meeting, the ISM PMI holds significance due to the increasing divisions within the Federal Reserve. 

If there is a shift in the odds, favoring a June interest rate hike once again, the US dollar could regain strength and assert itself in the market. 

Rate Hike Bets keep USD on Track for 3rd Weekly Gains, PCE in Focus
The Dollar Index hit a 12-week high at 104.70 on May 31, dropped to 103.75 before the jobs data, and stalled around 104.10 after the post-jobs rally. A move above 104.20 could improve the technical outlook. We anticipate selling pressure as the May CPI approaches on June 13, but a slight new high around 105.00 is possible. 

Japan / JPY: Will the Yen continue its rebound? 

The Japanese yen has been benefiting from the recent decline in the dollar, as it rebounds from its six-month lows. While next week’s data from Japan may not have a significant impact, they could still contribute to the recovery if they show positive trends. 

Starting on Tuesday, household spending statistics for April will be released, along with cash earnings for the same period. An increase in wage growth could reinforce expectations that the Bank of Japan will sooner rather than later abandon its yield curve control policy. On Thursday, the estimate for Q1 GDP is expected to be revised upward following a positive revision in capital expenditure. 

After a four-session decline last week, with a low of JPY138.45 on June 1, the dollar rebounded towards JPY140 following positive employment data and rising US rates. Breaking above this level aims for a re-test of the JPY140.95 high, while the crucial resistance lies around JPY142.50. From a broader perspective, the dollar seems to be forming a potential peak. 

Eurozone / EURO: Retail Sales data to watch! 

After declining in March and February, retail sales are expected to recover. However, this news is unlikely to have a significant impact before the ECB meeting on June 15. The swaps market predicts a more than 90% chance of a quarter-point hike at the meeting, and the market also anticipates another hike in July, fully discounted at the mid-September meeting. The US two-year premium over Germany has increased recently. 

The euro initially rose but was capped by the rise in US rates and retreated. It may encounter resistance near $1.0730 at the beginning of the new week. On the downside, a break of the $1.0690 area would require further consolidation to establish a solid base, as indicated by the momentum indicators. 

United Kingdom / GBP: PMI highlights! 

The latest news comes from the May construction PMI, which has remained above the boom/bust level of 50 since February. Previously, it was stagnant at 48.8 in December and January. There are reports indicating that the Prime Minister is considering implementing “voluntary” price controls, similar to the French arrangement. The French plan involves supermarkets identifying certain items, especially their own brand products, that will be subject to a price freeze or even cuts. 

The British pound rebounded from around $1.2310 on May 25-26 and reached $1.2545 before the release of the US employment data. This level represented a retracement of 61.8% from the decline observed since the year's high on May 10 (~$1.2680). However, the pound experienced a pullback ahead of the weekend, ending a five-day streak of gains, which was the longest of the year. It tested the support band at $1.2440-50, with nearby support expected around $1.2400.  

The momentum indicators have turned higher, indicating a possibility of buyers re-entering the market during the pullback. 


China / CNY: Trade Balance and CPI on focus! 

China holds the most currency reserves in the world at over $3.2 trillion in April. Recent changes are mainly due to valuation adjustments. In May, the dollar value of China’s reserves decreased by around $50 billion, likely due to the decline in exchange rates of other reserve currencies against the dollar and the mixed performance of global bonds. 

China also reported a trade surplus in May, with a cumulative surplus of over $294 billion in the first four months of this year, compared to less than $203 billion in the same period last year. Despite improvement from last year, exports and imports fell in April (-6.4% and -9.8%, respectively). China’s CPI was at a two-year low of 0.1% in April, with weak demand and excess capacity in some industries contributing to the soft inflation.  

Dollar rose to CNY7.1235 on June 1, then fell to CNY7.0560 before jobs data. Ended week near CNY7.0880. Dollar's movement indicates yuan's soft start to the new week. Dollar's performance against euro and yen guides its direction against yuan. 

Key currency pairs to watch in the week ahead: 

Weekly Market Outlook,PMI,OPEC,Dollar Market Analysis
  • AUD/USD: Trading this currency pair is highly advantageous due to its responsiveness to price zones, resulting in the formation of intriguing patterns for trades with a high probability of success.
  • CAD/JPY: In the realm of Forex trading, the CAD/JPY currency pair has secured a position among the top 10 pairs to trade in 2023.
  • USD/JPY: It is anticipated that the USD/JPY exchange rate will attain 136.00 by the conclusion of 2023 and 129.00 by the conclusion of 2024.
  • GBP/USD: This currency pair tends to exhibit a negative correlation with USD/CHF and a positive correlation with EUR/USD.

It is crucial to acknowledge that the recommended currency pairs may vary depending on the source and timeframe. Traders must undertake their own research and backtesting prior to making any trading decisions.


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