29 May 2023

The Last Days to Get a Debt Ceiling Deal Through


Market moves depended on the optimism around getting a deal, and if the weekend deal isn't hammered out on Tuesday, the US Treasury is expected to run out of money before hitting the June 1 "x-date". 

3 Top Stories for the Week Ahead

  • NFP to Shed Light on Hiking Cycle Friday

  • EU CPI Unlikely to Change ECB Path Thursday

  • Canada GDP Also Important for BOC Wednesday

NFP Once Again Expected Below 200K

The US is expected to have added 180K jobs in May, below the 253K reported in April. Though, it should be noted that last month's report contained a revision of March figures to below 200K. The unemployment rate is forecast to tick back to 3.5% despite a slightly lower participation rate. Without a clear consensus among the FOMC members on whether to hike or not at the June meeting, a beat or miss could substantially incline the balance of expectations.

Beating estimates would imply that USD/JPY could continue into its predominant medium-term trend following a break past the upper channel trendline. 142.25 is the next major level of resistance bulls could face, with 142.56 being the golden pocket of the 151.95-127.23 leg. Conversely, missing expectations could see the pair lose the 140 handle and slide toward 137.90, a thesis supported by a technical momentum divergence.

EuroZone CPI Expected to Continue Lower

Eurozone Flash CPI is expected to decline to 6.5% from 7.0% prior, but the core rate is expected to be much more sticky, dropping only two decimals to 5.4% from 5.6% prior. Several ECB officials recently have repeated the "inflation is too high for too long" line suggesting that more rate hikes are coming unless there is a significant upset with the inflation data.

Despite the volatile price action, EUR/NZD has revealed bullish divergence at the 50% Fibonacci of the 1.6344 -1.8083 leg near 1.72, with the RSI convergence suggesting strength. If EZ CPI comes in higher than expected, the pair could have a decent attempt at the top and perhaps a tad higher in a false-breakout scenario. Otherwise, losing 1.7563 on poor CPI results could reopen the door to the said support unless 1.7422 holds firm.

Canadian GDP Expected to Return to Growth

After Q4 showed no economic growth in Canada, the Q1 figure is expected to improve to 0.5% substantially. But, the April GDP growth forecast at -0.1% compared to +0.1% could remove some positive impacts. The BOC recently announced a pause in its hiking cycle, and a strong GDP could be the impetus needed to bring back more tightening as the CPI level surprised to the upside in April.

A better-than-expected GDP figure would suggest that the BOC could consider hiking again, impacting CAD/JPY positively. Above the 50% retracement of the 110.37-94.05 Fibonacci at 102.21 but slightly far from the golden pocket, a beat could see prices breaking past 104.17 and marching towards 105.87. On the other hand, missing GDP expectations could send the pair towards 100.00, especially if bulls lose 100.92, following a potential slide below 102.21 on the back of an evident RSI divergence.

Top stories last week and how related assets fared 

  • Nvidia earnings above expectations, pulling up tech stocks and the Nasdaq.

  • UK core CPI hit the highest in over three decades, weakening the pound.

  • BOJ Governor Kazuo Ueda dismissed recent inflation data, reiterating his easing stance contributing to yen weakness.

  • FOMC minutes show a divide over the hiking path, suggesting that if there is a pause at the next meeting, the one after could provide another hike. The dollar was already gaining on safe-haven flows over the debt ceiling issue.

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