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.