Japan’s Nikkei started out well early Thursday, climbing 2 percent initially but this changed abruptly. The Japanese index made a sharp turn, tumbling more than 7 percent, brought about by a confluence of events, one of which is concern that the US Federal Reserve might make steps to taper the bond-buying program in the coming meetings. The double-whammy was completed by the release of a weak China HSBC Flash Manufacturing PMI in May, which showed the Chinese economy contracted for the first time in seven months.
On Wednesday, Federal Reserve Chairman Ben Bernanke created confusion around the markets during his speech in front of the US Joint Economic Committee’s Economic Outlook and Monetary Policy in Washington DC. Overall, he made it clear that the future departure from the currently-implemented $85 billion monthly bond purchase program would be different from the prior Fed exits. In Bernanke’s own words, “a step to reduce the flow of (bond) purchases would not be an automatic, mechanistic process to end the program.” He expressed that very first “step” would come in “the next few meetings,” depending on how the economy performs.
Notable news-wise, the US Unemployment Claims made another strong advance in the week ending May 18th, as fewer-than-expected Americans filed their applications for jobless benefits. Unemployment claims eased to a seasonally-adjusted 340,000, fewer than the projection of 347,000. Actual data has beaten median projections in 4 of the last 5 releases.
Gold consolidated for the most part of the last seven days between $1,350 and $1,400, with Friday just trading an untypical $16 range. Except for Wednesday’s whipsaw, $1,400 has been able to confine price and buyers should aim for an immediate break of this level in the coming week. Next topside target is the range around $1,480-85.
Oil is looking no good as it slid in 4 of the last 5 days of the recently-concluded week, engulfing the prior 2 weeks’ candles range-wise. The multiple daily tops residing around $97 posed as strong resistance as expected, but so far buyers have held up well above the $92 level for the second week in a row. Traders can expect the $92-$97 range would persist unless the market finds an inspiration to break through this range soon.
Following a strong decline from the prior week, EURUSD bears struggled as bulls were able to support price around the 1.280 level for the entire week. Buyers attempted to reach 1.3000 in two occasions but failed; however, they were able to end the week with a positive tone at 1.2929. In order to negate the bearish outlook further, buyers must get past 1.3030-50 immediately next week.
USDJPY printed a new high this week, reaching 103.72 before the tide turned as the Nikkei suffered substantial losses since Thursday. The huge decline in the last two days could become an omen of things to come. Any downside move will surely attack the 99-100 area instantly.
GBPUSD buyers were surely sweating bullets as price approached the 1.5000 level last Thursday. Fortunately, momentum shifted just 13 pips from this level which enabled a good recovery in the last two trading days. The 20-day average sits around 1.5261, just ahead of significant resistance around 1.5270-1.5300. A break of this area can aid price back to 1.5450-1.5500.
The Week Ahead
Except for the release of the Bank of Japan Monetary Policy Meeting Minutes, it is going to be another quiet Monday. UK will observe the Spring Bank Holiday, while the United States will observe Memorial Day.
Tuesday is just a little bit more active with the release of Switzerland’s Employment Level and Trade Balance; Germany’s Import Prices; US S&P/CS Composite-20 HPI and Consumer Confidence.
Wednesday gets much busier with Japan’s Retail Sales and BOJ’s Kuroda speech; Australia’s Construction Work Done data and HIA New Home Sales; Germany’s Unemployment Change and Prelim CPI; Euro-area Private Loans and M3 Money Supply; UK CBI Realized Sales; Bank of Canada’s Rate Announcement and Statement.
Thursday sees the release of New Zealand’s Building Consents; Australia’s Private Capital Expenditure and Building Approvals; Switzerland’s GDP; UK Nationwide HPI; Canada’s RPMI, Current Account, and IPPI; US Unemployment Claims, Prelim GDP, Prelim GDP Price Index, and Pending Home Sales.
Friday will be the most jam-packed this coming week with the releases coming in the form of New Zealand’s Overseas Trade Index and ANZ Business Confidence; Japan’s Unemployment Rate, CPI, Household Spending, Housing Starts, and Prelim Industrial Production; Australia’s Private Sector Credit; Germany’s Retail Sales, France Consumer Spending; Switzerland KOF Economic Barometer; UK Net Lending to Individuals; Euro-area Unemployment Rate and CPI Flash Estimate; Canada GDP; US Personal Income, Personal Spending, Chicago PMI, Revised UoM Consumer Sentiment, and Core PCE Price Index.