Recessions have gone from being a potential consequence of high inflation and rapid monetary tightening to an increasingly likely scenario. Central banks are pushing back less and less against a period of negative growth, with Fed Chair Powell last week acknowledging it is “certainly a possibility”.
Investors are looking for any indication that inflation has peaked and is on a fast and sustainable direction lower, enabling central banks to take the foot off the gas and avert too much damage to the economy. We may have to wait a while longer yet.
Wall Street will continue to focus on the strength of the US consumer and pay close attention to personal income/spending data, another set of inflation readings, and a few key corporate earnings from the major retailers. A series of economic datais expected to confirm the trend of weakening business activity. US consumer confidence is expected to publish a strong decline, as personal incomes strive to keep up with inflation.
Next week, Monday starts with the G7 Meetings which will certainly give us some talking points throughout. The most important economic data releases next week will be as below:
• On Monday the US will publish its monthly Durable Goods Orders and Pending Home Sales.
• Early Tuesday the ECB President Lagarde will Speak and then the US will release its CB Consumer Confidence and Richmond Manufacturing Index.
• On Wednesday the German monthly Prelim CPI will be released and later the US quarterly Final GDP figure. Later we will have speeches from ECB President Lagarde Speaks, BOE Gov Bailey Speaks and Fed Chair Powell Speaks.
• Thursday a series of low impact releases around the day with the most important the US Core PCE Price Index and Unemployment Claims but also the Canadian monthly GDP figure.
• A quiet Friday with Canadian banks will be closed in observance of Canada Day but in the afternoon the US ISM Manufacturing PMI will be announced.
Major Currencies Performance and Signals
EUR/USD
The euro has displayed much resilience against the US dollar last week particularly after weak eurozone PMI figures.Nevertheless the momentum is still looking down and we are still bearish this week.
FORECAST: SELL
Resistance: 1.0600, 1.0650, 1.0700
Support: 1.0550, 1.0500, 1.0450
GBP/USD
The pound had some rather tricky data prints to route this last week with UK inflation and retail data alongside Jerome Powell’s two-day testimony.We expect the pair to be bearish this week.In the absence of positive GBP catalysts in the week ahead, there will be little to spur Cable higher, apart from a weaker dollar. We are bearish this week.
FORECAST: SELL
Resistance: 1.2300, 1.2350, 1.2400
Support: 1.2250, 1.2200, 1.2150
AUD/USD
Australian Dollar price swings echoing evolution of global recession fears.Growth forecasts fade amid inflation fight, China lockdowns, Ukraine war. G7, NATO and ECB summits compete for influence with top data ahead.We are bearish on the pair.
FORECAST: SELL
Resistance:0.7000, 0.7050, 0.7100
Support:0.6950, 0.6900, 0.6859
USD/JPY
USD/JPY remains highly volatile and entirely correlated to the US/Japan interest rate differential. We may still be a long way from Bank of Japan intervention. We continue to be bullish on the pair.
FORECAST: BUY
Resistance: 135.50, 136.00,136.50,
Support: 135.00, 134.50, 134.00
USD/CAD
Canada’s politicians criticize the Bank of Canada for failing to control inflation.A lot of domestic data from the US could cause volatility for USD/CAD in the coming week. We are bullish for this week.
FORECAST: BUY
Resistance: 1.2900, 1.2950, 1.3000
Support: 1.28501.2800, 1.2750
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