Weekly trading forecast May 13 - 17

Will the risk aversion continue or should the financial markets come back to the uptrend started at the beginning of the year? That’s the central question for smart traders in the upcoming week. The rule ‘sell in May’ and go away worked well for global equities so far, but the buyers should come back to the market as prices became more attractive rather than at all-time high levels. Any development in the trade deal between the U.S. and China would force investors to get back to long-term investments, while Trump’s aggressive moves to further confrontation might ease the risk appetite. Therefore, geopolitical headlines will play a massive role in the price action this week, besides the traditional impact of the cyclical economic events. The calendar is full of essential reports, even though no central bank will meet this week. China will report industrial production and inflation data, Eurozone will update the GDP growth and retail sales figures, while several key events will take place in the United States. For instance, the U.S. Federal Reserve will monitor the Housing sector and trade balance, while the retail sales report will show consumer sentiment. WTI Crude Oil price will traditionally be affected by the U.S. inventories figures, monthly OPEC meeting and the situation in Iran and Venezuela. Safe-haven assets such as Japanese Yen, Swiss Franc and gold would depend on overall risk appetite and geopolitical tensions in China and North Korea.

Even though Monday is forecasted to be comparatively quiet due to the lack of event in the global economic calendar, weekend gaps and high volatility might happen if geopolitical headlines appeared in the media space. The leading market players’ expectation is related to China’s government reaction on Trump’s decision to pull the trigger and impose a new round of sanctions against Chinese exporters. Import tariffs worse 200 billion dollars might become a real nightmare for Chinese exporters, and there might be some steps to conclude the trade deal to avoid the economic recession. A number of economic events will happen during the Asian trading session, while European and U.S. traders’ activity might be limited with the technical analysis and trading volume only. First, the Australian economy will publish Home Loans data for March, China will release the FDI report, while Japanese traders will watch Coincident Indicator and Leading Index. However, the overall importance of those events is quite low so that the volatility might be rather low on Monday.

Tuesday will start with Adjusted Current Account and Bank Lending reports, which are crucial for the Bank of Japan in the light of monetary policy decision. The financial sector was rather robust so far, and the yen strengthened. Both factors are in favour of a dovish scenario for the regulator. Westpac Consumer sentiment should affect the Australian dollar as traders will seek support from the fundamental environment to recover the losses from the previous week. The trading activity will resume in the European session with a pack of economic reports: German, Spanish and Eurozone Consumer Price Index, German ZEW economic sentiment index, European Industrial Production. EUR/USD could be vulnerable to more considerable volatility, and of the data confirmed economic activity, the pair might keep strengthening. The Producer Price Index will test the Swiss Franc's bullish performance. Sterling traders will monitor Average Earnings Index, Claimant Count Change Employment change 3M/3M, and the unemployment rate in March. That data will directly affect consumer spending in the U.K., and thus Gross Domestic Product. Therefore, if the figures were able to beat the market expectations, the Sterling could come back to growth versus the U.S. dollar and Japanese yen. OPEC Monthly report will finish two-day meeting as oil exporters will publish production and output results. If the supply/demand issue shifted towards the right side this month, we'd see oil prices coming back to the uptrend, and possibly even require local top of the chart. The United States will report the Import and Export Price index and Redbook survey. FOMC Member George is also due to speak late Tuesday. So, the monetary policy prospects might influence the greenback's price action.

Wage Price Index is one of the most crucial reports for the Reserve Bank of Australia. So far, analysts expect the index to grow to 0.6% compared to the 0.5% in the previous month. If that confirmed, the Aussie might pick up the bullish momentum. The second largest world's economy is scheduled to publish four essential figures for the global economy: Fixed Asset Investments, Retail Sales, Unemployment Rate and Industrial Production. Those reports will have an impact not only on the USD/CNH currency pair but also on other emerging markets assets and global equities. Latest data was not too optimistic, therefore, we could expect another round of sell-off in high-yield assets in case of disapointment. French CPI, E.U. employment, German and Eurozone GDP - these reports will affect the single European currency. If Draghi's words about the economic recovery were confirmed on Wednesday, then we'd see EUR/USD completes the bullish reversal pattern on the daily timeframe. Otherwise, another round of selling pressure might influence the pair on the road to parity. US April's Retail Sales are forecasted to come in at 0.3%, much lower than in March (1.6%). However, recent Non-Farm Payrolls were robust, the GDP showed fast growth pace, so there is a room for a positive surprise for U.S. equities investors and the greenback. Subsequent events to watch are Industrial and Manufacturing production and Business Inventories. U.S. Crude Oil inventories should determine the faith of the black gold for the rest of the trading week.

Thursday's data will finish the series of fundamental factors for the Aussie as employment report will be released, and RBA Assitant Governor Bullock will speak. E.U. Trade Balance and Italian CPI are among the drivers for Euro traders, while the main event is tentative as Eurogroup Finance Ministers will publish the meeting's results. U.S. Philadelphia Fed Manufacturing Index and the Housing sector data will shift the trader's focus on the other side of the Atlantic later on Thursday, while Canadian economy will publish Foreign Securities Purchases and Manufacturing Sales (1.0% expected). If the data confirmed economic strength, USD/CAD would fall to 1.3300 support. Otherwise, we could see a bullish recovery. The Bank of Canada will also release its financial system review.

The New Zealand dollar will come back to the market's focus on Friday as the local economy will announce Business Purchase Managers Index and Producer Price Index. Those figures could force the Reserve Bank of New Zealand to change opinion on the interest rates as the regulator was extremely dovish last week. On the other hand, NZD/USD could continue the downtrend and plunge as low as 0.6500. Tertiary Industry Activity Index is traditionally crucial for the Japanese Yen, which has bee strengthening four weeks in a row. European speculators will stick to their trading terminals on Friday morning as the inflation report is scheduled for 10 AM GMT. Consumer Price Index is forecasted at the level of 1.7% year-over-year, in line with the previous reading. Monthly data is predicted to lower the inflationary pressure (0.7% versus 1.0%). If that confirmed, ECB President Mario Draghi would get the green light to soften the financial conditions in the Eurozone, as the justification to fight the inflation would disappear. Otherwise, EUR/USD could soar on the back of no quantitative easing by the regulator in the nearest future. Michigan Consumer Sentiment, Current Conditions and Inflation Expectations Indexes are scheduled for the New York open. If the report were ignored, the overall price action would be determined by the geopolitical environment and risk appetite in the equities market.
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