Markets Week Ahead: Nasdaq 100, US Dollar, NFPs, Canadian Dollar, BoC, China PMI Data
Market sentiment roared higher this past week. On Wall Street, futures tracking the Nasdaq 100 soared 7.28%, the best 5-day performance since March. This is as S&P 500 and Dow Jones futures gained 6.76% and 6.39% respectively, the most since November 2020. Things were also looking good in Europe where the DAX 40 climbed 3.44%. The Hang Seng Index pushed up 2.89%.
Virtually all G10 currencies outperformed against the US Dollar, including the New Zealand Dollar, Australian Dollar, Euro, British Pound, Canadian Dollar and Japanese Yen. The DXY Dollar Index is down 1.32% over the past two weeks, the most since April 2021. What could explain this dynamic? Look no further than the Federal Reserve.
In recent weeks, we have seen the markets materially pull back 2023 Fed rate hike expectations. Cautious commentary from the central bank has been cooling chances of a 50-basis point rate hike in September. It seems traders have been shifting their focus from concerns about inflation to recession. Data since early May hints that markets are seeing the Fed increasingly fall behind on tackling CPI one year out.
This has been resulting in a broad decline in Treasury yields. The combination of this and a weaker US Dollar has also been benefiting gold prices. Now, in the week ahead, all eyes will be on non-farm payrolls on Friday. Could the markets be getting ahead of themselves? Jobs creation is expected to slow, but the unemployment rate and wages are seen to remain robust.
Outside of the world’s largest economy, the Bank of Canada is expected to deliver a 50-basis point rate hike on Wednesday. Australia releases its first-quarter GDP figures. China will also be closely watched for its May manufacturing PMI data. Softer data could amplify concerns about a slowing global economy, perhaps pressuring the Yuan. What else is in store for markets ahead?
US DOLLAR PERFORMANCE VS. CURRENCIES AND GOLD
The Australian Dollar has a solid fundamental backdrop for now, but external factors continue to bump the currency around. Will AUD/USD take its own path?
Bitcoin continues to tread water above key support as JP Morgan says there is tremendous upside for the space. Is a breakout in the making?
There was some much needed respite among the major global equity indices this past week, but that relief was likely a by-product of the liquidity drain before a holiday weekend. With growth forecasts collapsing and central banks committed to bring down inflation, further bearish retreat seems inevitable.
Gold prices may continue to recover in the coming days if U.S. economic data worsens and cools bets for a more aggressive Federal Reserve monetary policy outlook.
The Canadian Dollar may continue to pull back unless the BOC manages a convincing hawkish surprise at the upcoming monetary policy announcement. That looks like a tall order.
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The DXY Dollar Index has been on a year-long, relentless climb; but the currency seems to have taken a breather. With a retreat from 105 – or bounce from 1.0350 for EURUSD – we now find the Greenback in immediate conflict with important support levels.
Crude oil prices are challenging the top of the range locking them in place amid uncertainty about Russia’s invasion of Ukraine. Will they break higher or slump back into congestion?
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