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Week Ahead: Search for Next Catalyst as Month-End Approaches

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Fundamental analysis of Forex market

There is no assumed or outstanding catalyst which markets are focused on to drive price.

Let’s face it:  Although last week brought some nice 2-way volatility, this week the markets will be searching for the next catalyst.  The two big stories from last week were the sell-off in crypto-land and rumors of a US-Iran agreement (that the US would lift some sanctions on Iran, allowing them to export oil once again, albeit a small amount).  Those running stories may carry over into this week. In addition, there is a noticeable divergence in economic data between the US and UK.   Will it continue this week?  And what about EU data?  Also, the RBNZ meets this week to discuss interest rate policy.  With the US and UK are on holiday next Monday, their last trading day for the month will be Friday.  This could cause some volatility as we head into month end.

Crypto sell-off

Although crypto currency moves are something that are generally contained to their own sector, it may be time that other markets take notice.  Last week in the Chart of the Week, we highlighted how BTC was putting in a rounding top formation and may be in a correction phase.  BTC fell like a rock this week. The cryptocurrency is down 35% in 2 weeks, as well as, under previous resistance of 40,000.  BTC wasn’t the only crypto in trouble as ETH fell 36% over the same timeframe.  Although Elon Musk said Tesla will not accept Bitcoin as a form of payment any longer, they purchased $1.5 billion worth of BTC in February. Square and other large companies have also diversified some of their assets into crypto.  Although stock markets are off their highs, they are near unchanged for the week.  When will traders begin to worry about the selloff in cryptos affecting the bottom line of some of these companies?  We may have to wait for Q2 earnings in July to find out.  Also, Gold and Silver are higher.  Are crypto holders (HODLs) beginning to rotate out of BTC and ETH as inflation fears creep in?  Markets will be paying attention to cryptos again this week!

Is there or isn’t there a US-Iran agreement?

The other big story to keep an eye on, which may carry over from last week, is that the US and Iran may have reached an agreement to revive the 2015 nuclear deal.  Iranian President Hassan Rouhani said that a major agreement had been reached, including lifting sanctions on oil, banking and shipping. However, Russian and European officials said a deal has not been reached yet and it seems as though any increase in oil output wouldn’t be until the latter half of 2021.  To make the matter even more uncertain, the US has not commented on the matter as of the time of this writing.  Watch for more on the story this week and keep an eye on crude oil.

Follow the vaccine……

You may recall from earlier this month that US manufacturing, employment, inflation, and retail sales for April were all worse than expected.  Add housing to the list, as housing starts and existing home sales were also weaker than expected.  In contrast, except for inflation, UK manufacturing, employment and retail sales have all been better than expected.  However, recall that as the US vaccine rollout began in earnest in February and March, the US data was much better than expected for March! (Remember that +916,000 NFP print that was later revised down to +788,000?)  At that time, the UK was still under lockdown.  Now, the vaccine rollout in the UK is progressing rapidly and stores, pubs, and restaurants are reopening.  Although the BOE has begun tapering, one must consider that perhaps the UK data may be weaker than expected in 1 months’ time, which would drive the Pound lower.  And it seems like the EU is beginning to reopen nicely.  Will EU data be stronger than expected next month? Today’s EU Markit PMI data was already stronger than expected.  Take a guess which country’s PMI data wasn’t good:  Japan, who only has a small portion of its population vaccinated and may extend the current State of Emergency (in 40% of its total economy) into mid-June.  By the way, the Summer Olympics in Tokyo are just over 2 months away!

Earnings

Earnings season is over, however there are still a few stragglers coming out this week.  The most notable ones are as follows:   BIDU, TOL, INTU, NVDA, PPD, SNOW, BBY, DG, COST, DELL, DLTR, GPS, CRM, MDT, PETS

Economic data

As mentioned above, the US housing data has been worse than expected thus far.  This week will wrap up May with end of month data, which includes April’s US New Home Sales and US Pending Home Sales. In addition, watch to see if sentiment increased for April in Germany with the Ifo Business Climate and the GfK Consumer Confidence (for JUNE!)  In addition, New Zealand will release Q1 Retail Sales data and the RBNZ will meet for their Interest Rate Decision Meeting (recall that the New Zealand government was very concerned about the increased housing speculation).

Saturday

  • EU: ECB Guindos Speech

Monday

  • New Zealand: Retail Sales (Q1)

Tuesday

  • Germany: GDP Growth Rate Final (Q1)
  • Germany: Ifo Business Climate (MAY)
  • Canada: Manufacturing Sales Prel (APR)
  • US: CB Consumer Confidence (MAY)
  • US: New Home Sales (APR)
  • US: Richmond Fed Manufacturing Index (MAY)
  • EU: ECB Lane Speech
  • US: Fed Quarles Testimony
  • US: 2-Year Note Auction

Wednesday

  • New Zealand: Trade Balance
  • New Zealand: RBNZ Interest Rate Decision
  • US: 5-Year Note Auction
  • US: Fed Quarles Testimony
  • Crude Inventories

Thursday

  • Germany: GfK Consumer Confidence (JUN)
  • EU: ECB Guindos Speech
  • US: Durable Goods (APR)
  • US: GDP Growth Rate 2nd Est (Q1)
  • US: Pending Home Sales (APR)
  • US: 7-Year Note Auction
  • US: President’s FY2022 Budget

Friday:

  • Japan: Unemployment Rate (APR)
  • Japan: Tokyo CPI (MAY)
  • EU: Consumer Confidence Final (MAY)
  • EU: Economic Sentiment (MAY)
  • US: Personal Income (APR)
  • US: Personal Spending (APR)
  • US: PCE Price Index (MAY)
  • US: Chicago PMI (MAY)
  • US: Michigan Consumer Sentiment Final (MAY)

Chart of the Week: Ethereum 240 Minute (ETHUSD)

Source: Tradingview, FOREX.com

Normally we wouldn’t look at a cryptocurrency 2 weeks in a row.  However, given the volatility (and raising the questions as to when it will affect the overall market), it seems appropriate.  Instead of BTC this week, lets look at ETH.  Talk about volatility! On April 23rd, ETH touched was at 2000.  By May 12th, the cryptocurrency put in a high of 4358.16, up over 115%.  One week later, on May 19th, ETH had given back all its gains and made a low of 1900 before recovering to is current price just below 2500.  Yikes! Because the move higher and pullback happened so quickly, its difficult to draw trendlines on the data.  However, first resistance is at the confluence of a horizontal trendline and downward sloping trendline near 3108.  The 50% retracement of the move is slightly higher at 3147 and then the 61.8% Fibonacci retracement at 3442.  Support is at the May 20th spike low of 2145, then the phycological round number support at 2000. The next support is at the spike low of the recent move to 1900.

This is the type of week where traders must be very focused on the markets.  There is no assumed or outstanding catalyst which markets are focused on to drive price.  However, it is month end for the US and the UK.  Keep that in mind as we head into the fixes each day this week.  And watch for a catalyst.  You never know where it can come from!

Have a great weekend!