Home Tools Weekly FX Market Recap: May 23 – 27

Weekly FX Market Recap: May 23 – 27

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The New Zealand dollar took the crown this week after an expected rate hike from the Reserve Bank of New Zealand, and arguably on a potential shift in broad risk sentiment.

Notable News & Economic Updates:

The Chinese government announced on Monday that it is preparing 140B yuan ($21B) in tax relief to support the economy

Russia launched an all-out assault on Tuesday to trap Ukraine troops in Donetsk and Lunansk in the Donbas region

The Reserve Bank of New Zealand raised the official cash rate to 2.0% from 1.50% and expects the rate to peak near 4.0% in 2023

Russia said on Wednesday that it will open sea corridors to Ukrainian ports amid growing global food crisis

Chinese Premier Li Keqiang said that the economy may be worse off in some ways than in 2020 during the pandemic; urged local governments to take action to lower unemployment rate

The latest FOMC meeting minutes showed that most members agreed on 50 bps hikes over the next couple of meetings

Ether’s price falls below $1800 after Ethereum Beacon Chain briefly forked

China’s industrial Profits: -8.5% y/y in April vs. +12.2% y/y in March

U.S. Core PCE (the Fed’s favorite inflation metric) came in at +0.3% m/m; annualized read continued the trend lower at +4.9% vs. the 5.2% read in March

Intermarket Weekly Recap

Dollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-Hour

Dollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-Hour

Broad market price action was a little bit calmer this week despite a fresh round of economic data pointing to a souring global economy.

Most notable from the bunch was a deeper dip in the preliminary U.S. GDP read for Q1 to -1.5% q/q vs. -1.3% q/q forecast, and falling retail sales numbers across the globe. It looks like we’re finally seeing signals that high prices and interest rates are finally destroying consumer demand and slowing down the global economy.

We also got a round of business and consumer sentiment data, signaling further slowdown in economic activity may be ahead, coupled with expectations from those surveys that prices will remain high looking forward.

But also did get signals that high inflation rates may be topping out as core consumer reads seem to be stabilizing, most notable was a read from the U.S. as core PCE continued its trend lower to 4.9% y/y.

All put together, these developments may be changing the outlook on future monetary policy moves, lowering the odds of the aggressive stance that seems to have been priced in over the better part of 2022. This could be characterized by the rally in equities this week (S&P 500 Futures up +5.60% & Nasdaq 100 Futures up +6.25%) and weakness in U.S. bond yields (U.S. 10-yr Treasury yield back below 2.75%) and the U.S. dollar (which ended up being the worst major currency performer this week).

In the forex space, the New Zealand dollar was the big gainer of the week, lifted by both an expected 50 basis points hike from the Reserve Bank of New Zealand on Wednesday and a change in expectations of how high interest rates could go. The RBNZ shifted their OCR target from 3.35% to 3.90% in 2023, and Governor Orr stated that a recession is not likely at this point.

USD Pairs

Overlay of USD Pairs: 1-Hour Forex Chart

Overlay of USD Pairs: 1-Hour Forex Chart

U.S. New Home Sales fall sharply to 591K in April, below forecast & the lowest read in 2 years

Richmond Fed Manufacturing Index fell to -9 in April from 14 in March

S&P Global Flash US Composite PMI: Manufacturing PMI dipped to 57.5 in May vs. 59.2 previous; services at 53.5 vs. 55.6 in April, a 4-month low

Federal Reserve Bank of Atlanta President Raphael Bostic suggests a possible September pause if inflation falls more than expected

FOMC meeting minutes showed most members agreed on 50 bps hikes over the next couple of meetings

U.S. Durable Goods Orders in April: +0.4% vs. a downwardly revised +0.6% in March

US MBA mortgage applications for the week ending May 20: -1.2% vs -11.0% previous

First-quarter GDP declined 1.5%, worse than thought; jobless claims edge lower 8K to 210K vs. previous week

U.S. Pending home sales fell 4% m/m in April; supply of homes for sale rose 9% y/y last week

U.S. Core PCE rose +4.9% y/y in April vs. 5.2% y/y in March

U.S. Consumer spending for April came in at +0.9% m/m, above forecast 0.7%, but below March read of +1.4%

University of Michigan Consumer sentiment read for May was revised lower to 58.4 VS. 59.1 in April

GBP Pairs

Overlay of GBP Pairs: 1-Hour Forex Chart

Overlay of GBP Pairs: 1-Hour Forex Chart

Rightmove: U.K. house prices have soared by a ‘record-breaking’ £55,000 since the pandemic began

U.K. to start legislating against Brexit deal within three weeks

Flash U.K. Manufacturing PMI slipped to 54.6 in May vs. 55.8 in April; flash services PMI fell to a 15-month low at 51.8

Bank of England faces fine balance when setting rates -Tenreyro

EUR Pairs

Overlay of EUR Pairs: 1-Hour Forex Chart

Overlay of EUR Pairs: 1-Hour Forex Chart

Germany Ifo Business Confidence Index rose to 93.0 in May vs. 91.9 in April.

ECB rate hikes in July and September are likely a done deal, France’s Villeroy says

ECB President Lagarde said “liftoff possible” from negative rates starting in July and likely to exit negative rates by September

French flash manufacturing PMI down from 55.7 to 54.5 vs. 55.3 forecast; flash services PMI dipped from 58.9 to 58.4 as expected

German flash manufacturing PMI up from 54.6 to 54.7 vs. 54.1 forecast; flash services PMI fell from 57.6 to 56.3 vs. 57.2 consensus

Germany GfK consumer confidence -26.0 vs -25.5 expected in June

European Central Bank member Knot says a 50 basis point hike in July is not off the table

CHF Pairs

Overlay of CHF Pairs: 1-Hour Forex Chart

Overlay of CHF Pairs: 1-Hour Forex Chart

Swiss National Bank Chairman Thomas Jordan says monetary policy is in an unpleasant situation of high inflation and falling economic activity

CAD Pairs

Overlay of CAD Pairs: 1-Hour Forex Chart

Overlay of CAD Pairs: 1-Hour Forex Chart

Canadian housing starts was 257,846 units in April, up from 253,226 units in March – CMHC

Statistics Canada says higher prices lifted manufacturing (+2.5%) and wholesale sales (+0.3%) in March

Canada Industrial Product Price Index (IPPI) rose 0.8% m/m in April; Raw Materials Price Index (RMPI) slipped by -2.0% m/m

Canada retail sales in March was virtually unchanged at C$60.1B vs. a +1.4% forecast

NZD Pairs

Overlay of NZD Pairs: 1-Hour Forex Chart

Overlay of NZD Pairs: 1-Hour Forex Chart

The Reserve Bank of New Zealand raised the official cash rate by 50 bps to 2.0% and revised the terminal rate from 3.35% to 3.90%

RBNZ governor Adrian Orr said on Thursday that an aggressive path is best for achieving their inflation goals; RBNZ doesn’t see a recession at the moment

AUD Pairs

Overlay of AUD Pairs: 1-Hour Forex Chart

Overlay of AUD Pairs: 1-Hour Forex Chart

Australia Labor party voted into power during the weekend with the election of Anthony Albanese during the weekend

RBA Assistant Governor Chris Kent said on Monday that there was no plans to sell bonds

Australian flash manufacturing PMI down from 58.8 to 55.3 in May; flash services PMI fell from 56.1 to 53.0 in May

AU quarterly construction work falls by 0.9% in Q1 2022 vs. 0.9% increase expected

Australia Private Capital Expenditure: -0.3% q/q vs. +2.3% previous

JPY Pairs

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Japanese flash manufacturing PMI dipped from 53.5 to 53.2 vs. 53.8 forecast

BOJ core CPI climbed from 1.1% to 1.4% y/y in April

BOJ’s Kuroda says surging global inflation among challenges for central banks; commits to ultra-loose policy as inflation still viewed as transitory

Japan Services PPI: +1.7% y/y; +0.0% m/m

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