24 April 2023
Weekly Outlook - US Reports Critical GDP During Environment of Increased Recession Fears
So far, earnings reports for the season showed economic resilience, and China have shown better than expected GDP growth. Focus is now on the advance reading of Q1 GDP from the US.
3 Top Stories for the Week Ahead
US Q1 GDP on Thursday
BOJ Interest Rate on Friday
Australia Q1 CPI on Wednesday
US Expected to Report Critical GDP Data
US economic growth is expected to have slowed down slightly in the first quarter, at an annualised rate of 2.3% compared to 2.6% in the final quarter of last year. Recent industrial production reports and jobs data have increased worries that the US might be headed for a recession, and a beat in the GDP figure could help alleviate those concerns. A miss could reinforce the pressure on the dollar in recent sessions.
USD/JPY could see increasing pressure toward 132.00 if GDP data come in at or below expectations, with risk sliding toward the 130.00 hurdle increased in the latter case. Price action suggests the trend remains intact to the upside due to a diagonal pattern, however, they typically come with deep retracements and the GDP event is also due late in the week. So, if bulls capture the 135.18 top, we could see a leg toward 138.00.
Tradingview Chart: U.S. Dollar / Japanese Yen
First BOJ Meeting Under New Governor
The April BOJ meeting isn't expected to conclude with any policy changes, but will likely get a lot of attention from the markets since it's the first to be chaired by the new governor, Kazuo Ueda. Traders will be looking to see what changes he brings to the BOJ's outlook and how he will communicate to the markets. The expectation is that Ueda will largely reinforce recent comments that easing policy needs to continue for now, though revisions might be possible in the future.
If the rhetoric remains unchanged, CAD/JPY could reclaim triple digits and even have a possible attempt at the 50% Fibonacci shy above 102.00 should appetite for the haven diminishes. However, a hawkish tone could send prices down to 97.00 for a potential double bottom unless the RSI divergence plays out sooner than later.
Tradingview Chart: Canadian Dollar / Japanese Yen
Australia Q1 CPI Expected to Fall
Australia is expected to report that CPI fell substantially at 6.8% compared to the surprise 7.8% in Q4 of last year. This comes after the surprise drop in NZ inflation, which stunned markets; Australian and New Zealand economies often move in similar directions. The expected drop in inflation would affirm the RBA's case to keep interest rates on hold for another meeting.
Missing the depth of the expectation could lend Aussie the missing momentum to continue its rally toward the 1.10 handle and beyond, provided the divergence between the actual and the projection is larger than 20-30bps. In fact, the larger the divergence, the more extended the upward leg can be expected to be. Conversely, if the inflation figures come in as forecasted or lower, the RSI exhaustion could weigh on prices, with bears looking to settle closer to 1.08 unless bearish bets rise for an attempt at the golden pocket of 1.0719.
Tradingview Chart: Australian Dollar / New Zealand Dollar
Top stories last week and how related assets fared
US banks reported strong earnings, but markets lost risk appetite by the end of the week after jobless numbers led to worries about economic growth, putting downward pressure on the dollar
UK March CPI was above expectations, staying in double digits and making the case for more hikes from the BOE after the May meeting
WTI reversed almost the entirety of its post-OPEC+ gains on surprise builds in US gasoline inventories and worries of a global slowdown
Kiwi weakened substantially after a surprise drop in New Zealand inflation led to a reevaluation of whether the RBNZ would hike at the next meeting
Major Calendar Events 24-28 (GMT)
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