UPCOMING
EVENTS:
Tuesday:
S&P Global US PMIs
Wednesday:
BoC Policy Announcement.
Thursday: US
Jobless Claims.
Friday: US
PCE.
Last week
the risk sentiment was hit by a big miss in US
Retail Sales data, which showed also a lower revision to the previous
numbers. We saw the classic risk off response in different asset classes: the
stock market sold off, the bond market rallied, the USD got bid and commodities
weakened.
That didn’t
last long, as the next day the US
Jobless Claims beat expectations yet again reversing all the
weakness seen after the Retail Sales report. The market is clearly focused
more on the labour market data now and the continuing beats are not supportive
for the US Dollar.
Technically,
the DXY (US Dollar Index) is approaching a swing support level at 101.25. The
price is trading in a falling channel with a falling momentum into the level,
as it can be seen with any oscillator.
This may
signal that a bottom is near and the DXY should bounce and target a rally to
the top of the channel at 108.00. A clean break down would spell trouble for
the USD as the technical setup would be invalidated and the sell off might
intensify with momentum taking off.
Tuesday: The
S&P Global PMIs have been showing a weaker state compared to the ISM ones,
especially for the Services sector. The latest ISM Services PMIs though tumbled
into contractionary territory converging with the S&P Global readings after
diverging for months. Although the market focuses more on the ISM PMIs, with
this latest development the market may look more at the S&P Global ones as
they are timelier.
Wednesday: The Bank
of Canada is expected to deliver a 25 bps hike bringing the Bank Rate to 4.75%.
The recent weak activity data and neutral core inflation report suggest that
the BoC should hike at this meeting and pause as per their recent
communications.
Thursday: The US
labour market data are now more important than the inflation data in my
opinion. Last week, Jobless Claims surprised again with a stronger reading,
which helped lifting risk sentiment with the stock market rallying and bonds
falling. This week, Initial Jobless Claims are expected to show a 197K
increase, while Continuing Jobless Claims are expected to come at 1640K. A
little miss to the expected numbers shouldn’t be market moving, but a big one
should start worrying the market.
Friday: The US
Core PCE is expected at 4.4% Y/Y from the prior 4.7% and 0.3% M/M from the
prior 0.2%. Unless we see a big surprise to the upside, the Fed will still hike
by 25 bps as they follow market pricing. They haven’t surprised the market for
all 2022 when they should have, thus it’s very unlikely to see them doing it
now, unless they want to see the markets falling hard on purpose.
This article
was written by Giuseppe Dellamotta.