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The coming week is going to be more important than you may think, not only because there are many risk events on the doc that can spur volatility but also because it can mark the turn in the equity market. Don't call me wrong because I'm not calling a crash just a major correction. Since this can be a major topic on itself I'm not going to talk about it here as there are many details that need to be covered. However I'm just going to give you a major hint and I would recommend to watch ES reaction on NFP release, the market is quite nervous and has started to sell of on good news.
But lets now focus on what is happening with the FX Market and what to expect in the coming week
- UK Election Would Pose Risks to GBP currency
Over the last 4 UK general election, GBP/USD have been underperforming each time and we had a negative weekly bar. Not only that the general election have negative effect on cable but also the May seasonality pattern suggest a negative bias. Over the last 5 year, we had 100% negative price close on May, and over the last 15 years we had 80% negative price close on May.
- USA Economic Data
There is no doubt that the major risk event coming out from US is the NFP report which will show the health of the US labor market. After last figure coming in worse than expected and which was attributed to transitory effects, the market is eager to find out if we can post again a figure above the 200k mark. Any figure above that number will restore confidence that Fed is going to proceed with raising rates.
- Grexit Talks
When it comes to EU it's all about the talks regarding Greece ability to deliver on his reform an more importantly if it can succeed to repay the IMF and EU debt tranche. Figure below will put in perspective the timeline around Greek debt obligations and Euro-area policy meetings, watch out for this days as it can alter EUR currency pairs.
- RBA Rate Decision
When it comes to RBA rate decision there is a high probability of a rate cut, last time they decided to keep rates on hold and I was wrong on my assumption of an imminent rate cut. However the recent bad US economic data and coupled with the rally that we saw in AUD/USD over the recent weeks can force RBA to cut rates. The OIS market is pricing in an 80% chance of a cut in May as both the, aussie 90 day bill and 12 month bill are pricing in a rate cut quite aggressively. There is a strong case for RBA to cut rates at this meeting and us such I'll be looking for a bearish move.
Best Regards,
Daytrader21
