Weekly trading forecast May 27 - 31

Even though the financial markets could remain headline-driven amid many political events scheduled for the upcoming week, the importance of macroeconomic data should have a significant influence on traders’ and investors’ sentiment before the summer vacation season starts. The main event coming during the weekend is European Parliament elections to take part this Sunday. Currency and equity speculators will monitor the vote results carefully, and weekend gaps are possible on all Euro cross-rates’ charts. British developing story with Prime Minister resignation and another Brexit referendum will affect Sterling’s price action across the board. Also, of course, trade war tensions between the U.S. and China would impact volatility in global equities, emerging markets and commodity currencies. When it comes to the economic part of the fundamental environment, speculators will watch German unemployment and retail sales data, French and Spanish inflation reports, New Zealand and Australian Business confidence, U.S. GDP and consumer spending figures. The critical event for the monetary policy is the Bank of Canada’s interest rate decision and economic statement, as well as GDP report. Traditional cyclical demand/supply issues will affect the price of oil, while gold traders will follow U.S. 10-year Treasury yields.

Monday is expected to be comparatively thin as the U.K., and U.S. exchanges will be closed for holidays. However, European elections might force traders to change the risk aversion flows seen in the middle of the previous week, and the EUR/USD currency pair could gain strength if the vote results come in line with the expectations. Weekend gaps are also possible, as well as high volatility for Euro cross-rates. The Asian trading session will kick off with BoJ Governor Kuroda’s speech. The regulator chief should talk about monetary policy prospects in the third largest world’s economy. Leading Index is due to release in two hours after the press conference. Japanese yen is vulnerable to further strength on the back of safe-haven flows, but Kuroda could try to use verbal intervention to reverse that trend. Swiss unemployment rate will affect the price action for USD/CHF, which was trying to reach the parity in the past week. Bounces and whipsaws are possible. In Europe, French jobseekers number and ECB Coeure’s speech - these are the main events, but traders could ignore them as the elections will be in the markets focus on Monday.

Japan’s Corporate Service Price Index and BoJ Core Consumer Price Index will open the trading session in Asia early Tuesday. Swiss GDP and Trade Balance will continue the series of data in Europe, while British Nationwide HPI is tentative. The most volatile event will happen later as German inflation, French Consumer Confidence and Italian Trade balance could affect ECB’s rate decision in June. The single European currency would also be vulnerable to high volatility after EU M3 Money Supply, Business Climate and Consumer Confidence data will be released. After that, the market’s focus will shift to the other side of the Atlantic as U.S. reports will kick off the trading week. House price index, Chicago Fed Manufacturing Business Index and CB Consumer confidence - these are the headline events on Tuesday. The U.S. dollar could continue the bearish retracement started last week if the reports were weaker-than-expected. Stock indices could face another round of selling pressure in that case as well.

Wednesday is the day of commodity currencies as the Australian New Home Sales report should support the Aussie if the figures were positive, while the New Zealand economy will publish RBNZ Stability report and ANZ Business Activity survey. The Kiwi had a lagging price action last week, and the fundamental influence might cause support for the currency. The Reserve Bank of New Zealand Governor Orr is due to speak about financial conditions in the country at 02:10 AM GMT. NZD/USD might have whipsaws on intraday charts. European traders will monitor German Unemployment and French consumer price index, while the election consequence should keep weighing on EUR/USD and GBP/USD as besides other issues, new European Parliament will determine the fate of the Brexit saga and deal conditions with the U.K. ECB Financial Stability Review is crucial for the currency as the regulator could turn on the printing press as early as in June, implementing supportive measures and TLTRO credit programme. The main question so far is about the volume of additional liquidity injected into the financial system. EUR/USD could drop if the figures were soft. U.S. Richmond Manufacturing and Redbook survey could have a slight impact on the U.S. dollar index during the New York opening. However, investors will wait for the critical event this Wednesday - the Bank of Canada interest rates decision. Recent macroeconomic data showed that the Canadian economy is in much better shape than the regulator used to think earlier. BoC Governor Poloz would face pressure from the corporative and financial sector if he decided to stay pat on rates this month. Although there’s no press conference scheduled this week, the economic statement could have a considerable impact on USD/CAD as traders will stick to every single word in the text, trying to guess the regulator’s intentions. The range of 100 pips between 1.3400 and 1.3500 could be tested on both sides in a blink of an eye, while further direction will depend on the central bank’s rhetoric.

Thursday will continue the series of data in Australia (building approvals and building capital expenditure) and New Zealand (building consents and annual budget release). Both risk currencies retraced from multi-month lows last week, and the biggest question is how far the bullish trade can go before the downtrend will renew the selling pressure. Spanish CPI is the only significant event in Europe, while the U.S. Q1 GDP report is one of the main fundamental factors not only for the greenback but also for equities. There are lots of rumours in the financial world that the U.S. economic growth has been overestimated recently. The second reading of the report is expected to be revised down by one percentage point after a positive surprise of 3.2% quarter-on-quarter figure. Any shift towards softer number could cause a real sell-off in shares and other high-risk assets, while
Treasuries and Bonds could soar on safe-haven flows. The greenback might extend losses in that case. Crude Oil inventories might also weigh on the black gold price if U.S. consumption failed to absorb the spike of stocks last week. Canada’s current account and BoC Governor Council Member Wilkins’ speech should increase the volatility of USD/CAD.

Friday will start with Japan’s pack of economic reports as Jobs/Application ratio, Tokyo Core CPI, Unemployment rate and Industrial Production figures will be published. USD/JPY could keep plunging if the data failed to beat the market’s consensus. The main problem is that Japan is the country which reflected the U.S.-China trade war in the first queue as the export-oriented economy is hugely dependant on foreign trade issues. China’s Manufacturing and non-manufacturing PMI would add pressure on Chinese yuan and emerging markets. German Retails Sales and inflation, Italian GDP, PPI and CPI - these are the headlines in Europe on Friday. The only significant economic data in the U.K. this upcoming week is Friday’s BoE financial survey. However, the British Pound could already find the trend’s direction as the political situation will have more drivers for the currency. U.S. traders will stick to their trading terminals on Friday morning (N.Y. time) as Personal spending and income, as well as PCE Deflator and Core PCE Price index will be released. Those figures are significant for the Federal Open Market’s Committee in the monetary policy decisions. Last Fed’s meeting minutes were hawkish, but the regulator cannot tighten the financial conditions without justifications. Therefore, those reports are crucial for the Federal Reserve, and they will determine trends for the greenback, Treasury yields and stock indices for the upcoming month.
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