Week Ahead: 3 potential trading opportunities

Shifting expectations surrounding Fed rate hikes remain the primary driver of financial markets.

Yet, the week ahead still features several other potential catalysts for more opportunities for various assets:

Monday, April 17

• GBP: Speech by Bank of England Deputy Governor Jon Cunliffe
• USD: Speech by Richmond Fed President Thomas Barkin

Tuesday, April 18

• AUD: Australia March household spending; RBA April meeting minutes
• CNH: China 1Q GDP; March retail sales, industrial production, jobless rate
• EUR: Germany April ZEW survey expectations; Eurozone February trade balance
• GBP: UK February unemployment rate; March jobless claims
• CAD: Canada March CPI
• SPX500_m: Q1 earnings from Goldman Sachs and Bank of America

Wednesday, April 19

• JPY: Japan February industrial production (final)
• EUR: Eurozone March CPI (final)
• GBP: UK March CPI
• USD: Fed Beige Book
• Crude: EIA weekly US stockpiles data

Thursday, April 20

• NZD: New Zealand 1Q CPI
• JPY: Japan March external trade
• CNH: China loan prime rates
• EUR: Eurozone April consumer confidence; ECB March meeting report
• USD: Fed speak; US weekly initial jobless claims

Friday, April 21

• JPY: Japan March national CPI; April PMIs
• EUR: Eurozone April PMIs
• GBP: UK April PMIs and consumer confidence; March retail sales
• CAD: Canada February retail sales
• USD: US April PMIs

 

 

1) Brent oil to climb higher towards $90?

With markets now having a stronger grasp of the supply outlook in light of the OPEC+ production cuts, oil markets are set to focus their attentions towards other factors over the coming week:

Look out for the data releases that speak to the health of major economies, such as China’s data dump on Tuesday, as well as PMI readings out of the likes of Japan, the Eurozone, the UK, and the US on Friday.

Of course, there’s the weekly EIA report on US crude stockpiles due on Wednesday to consider as well.

• If markets are given fresh evidence that these major economies, especially China, are losing growth momentum, that may drag oil prices lower on fears that global demand may not be robust enough to even absorb the lowered oil supplies.
  Similarly, a larger-than-expected build in US crude stockpiles tend to translate into oil prices moderating back towards the $84.47 Fibonacci support (23.6% Fib level from the 2022 high down to the March 2023 trough).
   
• On the other hand, better-than-expected economic data and/or a larger drawdown in US oil stockpiles may boost prices to a new cycle high closer to $90/bbl.

Note that from a technical perspective, Brent still appears “overbought”, which suggests a technical pullback may soon ensue.

 

 

2) USDInd to touch 100?

The Fed’s Beige Book due on Wednesday, along with the slate of public speeches by Fed officials on Thursday, should offer insights into what Fed officials will be considering at its upcoming rate decision.

Note that this is the last few chances to hear from Fed officials before they enter a blackout period beginning this Saturday, April 22, ahead of the next FOMC meeting to be held on May 2nd - 3rd.

• Should the Fed’s Beige Book present anecdotal evidence about worsening US economic conditions, that may prompt the Fed to ease up on its “demand-destroying” rate hikes. Combined with more Fed officials who state publicly that they’re willing to consider a pause with its rate hikes, such dovish signals may drag the USD index closer towards the psychologically-important 100 mark.
   
• On the other hand, if the Fed’s Beige Book is a repeat of its previous release in suggesting that the US economy remains on solid footing, coupled with Fed officials signalling their continued desire for even more rate hikes to vanquish inflationary pressures, such a hawkish scenario might prompt the USD Index to test resistance around its previous cycle low at 101.385.

 

 

3) USDJPY to touch 131?

The Japanese Yen has been lagging behind its G10 peers in taking advantage of the weaker US dollar.

So far in April, JPY has gained by merely 0.23% against the greenback, putting it in last place among its G10 counterparts’ month-to-date performance against the buck.

This has been largely due to markets paring bet their bets over a rate hike by the Bank of Japan, under the stewardship of new governor Kazuo Ueda.

However, Japan’s national consumer price index (CPI) release on Friday may provide enough reason to reawaken expectations that the BoJ can finally move closer to exiting negative interest rates, perhaps first by further tweaking its YCC (yield curve control) programme.

• A higher-than-3.2% headline inflation print may allow the Yen to play catch up and push USDJPY back lower and closer towards the psychologically-important 130 level.
   
• A lower-than-3.2% headline inflation print may force markets to further delay their bets for when that BoJ rate hike may eventually occur, potentially translating into a breach above its 50-day and 100-day simple moving averages (SMAs) for USDJPY.

From current levels at the time of writing, Bloomberg's FX model is now pointing to a slightly higher chance (42%) that USDJPY will touch the 131 mark rather than the 134 level (38% chance) over the next one-week period.

 

 

Week Ahead Brent US crude inventories USDJPY Japanese Yen Bank of Japan rate hikes inflation Fed speak US Dollar Dollar index