Calm start to the week ahead of the FOMC’s minutes and PCE

Most major instruments started the week without much movement as traders look ahead to the deadline for a decision on the US debt ceiling and the Fed’s minutes and personal consumption expenditures. This preview of weekly data looks at the releases to affect NZDUSD and EURGBP.

There were no meetings of major central banks last week, but Jerome Powell’s comments on Friday were somewhat negative for the dollar. Dr. Powell hinted that rates might not need to rise much further, which has strengthened, for now, the impression that the Fed is likely to pause this summer. However, expectations for the possible beginning of a pivot have shifted to November. The majority of participants, around 55%,  expect the funds rate to stay at 5-5.25% up to the fourth quarter.

This week the People’s Bank of China left both of its loan prime rates on hold as expected. The Reserve Bank of New Zealand and the South African Reserve Bank are both expected to call for single hikes to 5.5% and 8% respectively. Overall, it seems that progress is being made on inflation in most countries, apart from the UK and those with previous crises, such as Argentina and Turkey.

That makes this Wednesday’s British inflation one of the week’s most important releases, especially with the consensus of a 1.8% drop to 8.3%. The focus is also on Friday’s personal consumption expenditures from the U.S. since this is the Fed’s preferred measure for inflation.

New Zealand dollar-US dollar, daily

The greenback generally lost strength last week against most currencies, including the Kiwi dollar, as the debate over the debt ceiling in the USA continues and expectations have risen further that the Fed will pause tightening this summer.

The RBNZ is widely expected to call for a single hike to 5.5% early on Wednesday morning GMT and possibly hint that further hikes this summer might be appropriate. Annual inflation in New Zealand at 6.7% is down from the peak but significantly higher than in the USA and still more than double the upper region of the RBNZ’s target of 1-3%.

If there are signs of hawkishness from the RBNZ this week, NZDUSD might have significant room to gain in the medium term. The current area slightly below $0.63 coincides with the 23.6% weekly Fibonacci retracement, but a breakout from here may not be significant.

With the slow stochastic neutral and the price above all four moving averages, the upside seems favorable from indicators too. Although the RBNZ is this week’s main release for the Kiwi dollar, potential traders of this symbol mustn’t ignore the FOMC’s minutes or Friday’s inflation data from the USA.

Key data this week

Bold indicates the most important releases for this symbol.

Wednesday 24 May

• from 2.00 GMT: statement and press conference of the Reserve Bank of New Zealand

• 18.00 GMT: minutes of the FOMC’s meeting

Friday 26 May

• 12.30 GMT: monthly core PCE (April) - consensus 0.3%, previous 0.3%

• 12.30 GMT: American personal income (April) - consensus 0.4%, previous 0.3%

• 12.30 GMT: American personal spending (April) - consensus 0.4%, previous nil

• 12.30 GMT: American annual non-core PCE (April) - consensus 4.1%, previous 4.2%

• 12.30 GMT: durable goods orders (April) - consensus negative 1%, previous 3.2%

Euro-pound, daily

Although euro-dollar made some gains last week, the common currency remains close to 2023’s lows against the pound. One of the main reasons for that is the Bank of England’s determination to tackle inflation, which at 10.1% remains much higher than any other major economy. Although it seems likely that the European Central Bank will need to tighten further this summer, the Bank of England will still probably go higher. The Bank of England’s expectations for inflation have hardened in recent months, with a return to the target range not predicted until the first half of next year.

On the chart, £0.86 seems to be a very strong area which might drive another bounce if tested this week, barring any major surprise from the data. If British inflation declines by 2%, as currently expected, the euro could have room to rise to the weekly Fibonacci fan’s 50% above £0.87, or possibly higher in the short term.

However, in the event of a higher British inflation release compared to the consensus, there might be a retest lower, and maybe even a short-term GBP breakout from there. Traditionally, it would make sense for traders to avoid large positions until a major release like Wednesday’s shows a clear result.

Key data this week

Bold indicates the most important releases for this symbol.

Wednesday 24 May

• 6.00 GMT: British annual inflation (April) - consensus 8.3%, previous 10.1%

• 6.00 GMT: British annual core inflation (April) - consensus 6.2%, previous 6.2%

• 8.00 GMT: Ifo business climate (May) - consensus 93, previous 93.6

Thursday 25 May

• 6.00 GMT: German GfK consumer confidence (June) - consensus negative 24, previous negative 25.7

• 6.00 GMT: German annual GDP growth (final, Q1) - consensus negative 0.1%, previous 0.8%

• 6.00 GMT: German quarterly GDP growth (final, Q1) - consensus nil, previous negative 0.5%

Friday 26 May

• 6.00 GMT: British monthly retail sales (April) - consensus 0.4%, previous negative 0.9%

For details on any of these topics and more, please register for and attend Exness’ upcoming webinar.

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If you plan on trading the above events, expect volatility prior to the data release and potentially significant price action afterward. Make sure your trading account is fully activated, funded,  and ready to take advantage of any trading opportunities coming to NZDUSD and EURGBP this week.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Michael Stark

Michael has been investing in shares and currencies for 12 years, with a focus in the past seven specifically on CFDs. As an associate of the Society of Technical Analysts, Michael's primary concentration is on charts and indicators. His goal in educating traders is to simplify matters wherever possible and help them find their 'aha!' moment when they achieve what they're looking for from speculation with CFDs.