8 May 2023

Weekly Outlook - US Inflation Expected to Keep Falling

Technical Analysis

After the Fed hiked but signalled a potential pause, implying it would be looking closely at the data before taking action, markets will keenly anticipate US CPI data this week.

3 Top Stories for the Week Ahead

  • BOE interest rate decision not different from other CBs

  • US inflation expected to fall below interest rates

  • Airbnb earnings’ optimism upward on positive airline data

BOE Expected to Hike By 25bps

The BOE is expected to hike once more and then set up for a potential pause at the next meeting, in line with the actions taken by other central banks. This is despite the UK having a much higher inflation rate than other major economies, but notably, the threat of a recession is seen as more serious when compared to other major economies. UK’s central bank might be banking on base effects to bring down the annual inflation rate. The vote is once again expected to be split 7-2, with the dissenters voting for a hold.

If the British pound were to follow market norms like the dollar and euro did last week following FOMC and ECB, weakness should be expected unless the voter split shifts to one side or another. GBP/CAD makes a good candidate if BOE offers no surprises, as bearish price action is supported by a double divergence signal spotted on the RSI. 1.7152 might have been the top in such a case, with the break under 1.6865 kicking the door towards 1.60 wide open after a potential drop below 1.6542. If dissenters receive a blow, breaking past the peak could lead the pair to yearly highs near 1.74.


Tradingview Chart: British Pound / Canadian Dollar

US CPI Seen Below Interest Rate

US CPI figures are under renewed focus after the Fed implied that it could pause at the next meeting if inflation kept coming down. But the market expects core inflation to remain steady at 5.6%. The headline CPI change is expected to drop to 4.9% from 5.0%, below the monetary policy rate, which is considered a prerequisite to bringing inflation back down to target.

Assuming the headline inflation comes in as expected or changes little, core increasing would imply dollar strength and vice versa. USD/CHF could continue its ascend after pouting in a double divergence signal on the lower end of the trend at 0.8820. Breaking past the 0.90 handle could encourage long positions, with 0.9065 as a major barrier for further action toward 0.93 and the round levels acting as potential resistance levels in the interim. Losing the swing low on the back of a potential drop in core would suggest a move toward 0.88, with its breakdown clearing the path to lower round levels.

Tradingview Chart: U.S. Dollar / Swiss Franc

Airbnb and the Recession

Airbnb will report earnings on Tuesday after the market close, with investors focused on guidance as tourism is particularly sensitive to potential economic downturns. Airlines have reported positive booking trends so far this summer, which could boost the roomshare company. Revenue is expected to notch a second consecutive quarter of slowing growth at $1.8B, with earnings also expected to slip to $0.21.

Missing expectations could drive a dive into double digits if $108 succumbs to selling pressure, with $82 as a last resort for any respite. If the earnings report does not disappoint, we could see prices fluctuate between the short-term support and $130 as the RSI converges unless investors engage in long bets due to bearish inactivity. In such a case, moving past the short-term resistance could see the share prices of Airbnb rise to $145 and perhaps beyond $157.

Tradingview Chart: Ainrbnb, Inc

Top stories last week and how related assets fared

  • First Republic Bank was taken over by the FDIC, spreading worry of contagion in the banking sector and weighing on market sentiment. Two banks saw inter-session drops of over 50% of their stock value.

  • The Fed hiked rates in line with expectations of 25bps and dropped language indicating that more rate hikes were coming, sending the dollar lower as markets priced in a sooner rate cut.

  • The ECB hiked by a quarter of a point as expected but was also not committed to more rate hikes, which weakened the euro.

  • Crude prices dropped despite drawdowns in inventories as investors worried about the state of the global economy after Chinese Manufacturing PMIs fell back into contraction.

Major Calendar Events 08-12 May (GMT)

Source: investing.com

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It does not take into account your personal circumstances or objectives. Any information relating to past performance of an investment does not necessarily guarantee future performance.

Trinota Markets (Global) Limited does not give warranty as to the accuracy and completeness of this information.

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