Week Ahead: On the brink of crisis

Despite the holiday-shortened week ahead for US and UK financial markets, the US debt ceiling saga will remain centre stage as the clock ticks towards a potential June 1st “hard deadline”.

On top of this, traders will be dished up a series of top-tier economic data including the NFP, which could trigger more market volatility:

Monday, May 29

• US Memorial Day Holiday

Tuesday, May 30

• EUR: Eurozone economic confidence, consumer confidence
• USD: US Consumer confidence, Richmond Fed President Thomas Barkin speech

Wednesday, May 31

• CNH: China Manufacturing PMI, non-manufacturing PMI
• CAD: Canada GDP
• EUR: Germany May CPI, unemployment
• USD: Philadelphia Fed President Patrick Harker, Boston Fed President Susan Collins and Fed Governor Michelle Bowman speech

Thursday, June 1

• US Treasury Secretary Janet Yellen “hard deadline” to raise US debt ceiling
• CNH: China Caixin manufacturing PMI
• EUR: Eurozone Manufacturing PMI, CPI, unemployment
• GBP: UK S&P Global / CIPS Manufacturing PMI
• USD: US initial jobless claims, ISM Manufacturing

Friday, June 2

• US May nonfarm payrolls (NFP)

The US debt ceiling negotiations have certainly held markets captive. A sense of tensions is set to grip global financial markets ahead of Treasury Janet Secretary Yellen’s June 1st “hard deadline” for raising the US debt ceiling.

While there have been recent reports of US negotiators moving closer to striking a deal, this is not the first time such headlines have boosted sentiment only to be followed by disappointment.

On the data front, the US May non-farm payroll report on Friday could offer major clues on the Fed’s next move. The US economy is expected to have created 180,000 jobs in May, a noticeable decline from the 253,000 jobs in March. The unemployment rate is forecast to tick higher to 3.5% while average hourly earnings are expected to rise 4.3% year-on-year. Ultimately, signs of cooling labour markets may support expectations around the Fed cutting interest rates later this year.

With the clock ticking on the US debt ceiling and key data due in the week ahead, here are 3 potential trading opportunities:

• USInd to rally towards 105?

The potent combination of heavy-risk events could result in heightened volatility for the US Dollar Index. 

There is a possibility that the US debt ceiling developments overshadow key economic data including the NFP on Friday. 

• If a deal is reached before Yellen’s deadline, this could come as a major relief to global financial markets and boost buying sentiment towards the USD. Such an outcome may push the US Dollar Index to levels not seen since early March 2023 at 105.00.
• A scenario where a deal is not reached before the predicted June 1st deadline could spark explosive levels of uncertainty and hit confidence in the world’s reserve currency – ultimately weakening the dollar. The USDInd may slip back towards the 100-day SMA around 102.80.
• While the dollar may react to the NFP report on Friday, this could depend on what happens on or before the June 1st “hard deadline” to raise the debt ceiling.

 

• SPX500_m ready to breakout?

After bouncing within a range for the past 2 months, could the S&P 500 experience a breakout in the week ahead?

It has felt like the same old story for the SPX500_m as prices traded within a wide range on the daily charts. Support can be found at 4050 and resistance at 4200.

• If a deal is reached before Yellen’s June 1st, investors may acquire an aggressive appetite for risk as relief sweeps across global markets. This may propel the SPX500_m towards the 4200 level and beyond.
• Should US negotiators fail to strike a deal, the index could tumble back towards 4050 and 4000, respectively.
• We could see some reaction to the NFP on Friday, but again this will depend on what happens in the days prior.

• What next for gold?

It may be wise to fasten your seatbelts because gold could see heightened volatility in the week ahead.

The precious metal is heading for its third weekly loss amid growing expectations around the Federal Reserve keeping rates higher for longer. Given the slate of US economic data and heavy risk events in the week ahead, gold could be placed on a rollercoaster ride.

• Positive news and breakthrough on debt talks could see gold tumble toward $1900
• More complications and talks extending beyond Yellen’s 1st June deadline could boost prices back toward $2000
• A solid jobs report that fuels speculations around the Fed hiking rates could fuel downside losses, dragging prices toward $1900 and lower.

Debt Federal Reserve USD SPX500_m Gold inflation Rates