08 May 2023 Weekly Analysis
GCMAsia Weekly Report: May 8 – 12
Market Review (Forex): May 1 – 5
US Dollar
The Dollar Index which traded against a basket of six major currencies teetered near the brink of collapse as the renewed banking worries and impasses of rising the debt ceiling continued to weigh on the US dollar market.
Earlier in the week, the heightening of US default risk has disrupted the financial market. Treasury Secretary Janet Yellen notified US Congress that the US could default on its debt once it ran out of measures to repay its debt on the 1st of June 2023. At this point in time, the impasse of passing the bill to increase the debt ceiling continues amid head-butting between the Republicans and Democrats over the spending cuts issue. Without raising the debt ceiling, it is expected to spark a 2008-style economic catastrophe that would wipe out millions of jobs and sets the US in a recession for an unforeseen period of time.
Besides, the US dollar experienced a huge selling pressure following the Fed May’s meeting. As widely expected, the FOMC raised its interest rate to 5.25%. However, with the backdrop of heightening risk of crisis and sign of growth slowing down, the attention of the market was more on the future path of the monetary policy. Fed Chairman Jerome Powell said at Wednesday’s press conference that no decision was made today to pause the interest rate, but they open door to rate hike pause. While comparing to the last meeting’s statement, the Fed skipped a line that had appeared in the previous statement that “the committee anticipates that some additional policy tightening may be appropriate” to achieve the Fed’s 2% inflation target. Such a tentative hint might indicate that the current tightening cycle is at an end, dragging down the appeal of US dollar.
On top of that, the losses of the currency extended after a report said the PacWest Bancorp was weighing strategic options, including a possible sale. It shows that the persistent Fed’s rate hike and the prior fallout in US banks are possibly brewing a crisis, where a lot of companies are actually struggling with a risk of financial problem.
Despite this, the unfavored situation did not last until the end of trading session as the upbeat Nonfarm Payroll data revived the appeal of dollar index. As a conclusion, the market attention is all over the progress of rising the debt ceiling as well as the banking sector in the US.
USD/JPY
The pair of USD/JPY extended its losses last week while closing its market price at 134.80. The pairing hammered by the market’s dovish bet, where the market participants are largely expecting the Fed to raise the cash rate by 25 basis point in the Fed’s May meeting. On the other side, the sentiment of Japanese Yen market turned brighter as the investors have largely digested the tendency of ultra-loosening monetary policy by Bank of Japan.
EUR/USD
The pair of EUR/USD managed to end the trading session with a higher price level at 1.1015. Similarly, the pair of EUR/USD were traded higher in the earlier of the week as the dollar’s weakness lifted the appeal of Euro. However, the single currency did not perform well in later of the week amid a smaller rate hike by ECB. Last Thursday, the European Central Bank (ECB) raised interest rates by 25 basis points to 3.25% in May’s meeting, in line with market expectations, and signaled more rate hikes in the future in order to combat the stubbornly high inflation. It is noteworthy to highlight that the ECB adjusted its interest rate upward by an unprecedented series of 75 and 50 basis point increases in the prior meetings. With this month’s smaller rate hike, it disappointed the investors and hence exerted huge selling pressures in the Euro market.
GBP/USD
The pair of GBP/USD posted huge gains last week while ending last week’s session at the price of 1.2635. Similarly, the gains of the pairing were found from the weakness of the dollar index, especially the renewed banking turmoil and debt ceiling issue were still weighing on the dollar market. On the economic front, the announcement of a series of upbeat economic data such as Composite PMI, Services PMI and Construction PMI had been providing some huge buying momentum to the pound sterling throughout the week.
Market Review (Commodities): May 1 – 5
GOLD
The gold price skyrocketed throughout the week while closing its market price at $2016.80 per troy ounce. The rally of the gold price was extended sharply amid the weakness of dollar index with the backdrop of ongoing banking turmoil and the impasses of debt ceiling issue. As of now, the impasse of passing the bill to increase the debt ceiling continues amid head-butting between the Republicans and Democrats over the spending cuts issue. With that, the risk of defaulting US bond heightened and prompted the investors to move their capital to the traditional safe haven asset – GOLD.
CrudeOIL
Crude oil prices plummeted throughout the week and ended last week at $71.20 per barrel. Last week, the oil prices extended a two-week slide after data from China renewed concerns about a shaky economic recovery in the world’s largest crude importer. China’s manufacturing activity unexpectedly contracted in April, data showed on Sunday, a sign that the economy may be struggling to regain momentum from an earlier downturn. Besides, the heightened of market worries over the banking turmoil weighed on the oil product. Despite, the crude oil prices received some support after hitting the lowest level since November of 2021 , as Iran seized an oil tanker in the waters of the Strait of Hormuz, the second such incident in the region in a week. Separately, Russia accused Ukraine of attempting an overnight drone strike on the Kremlin aimed at killing President Vladimir Putin. As a result, crude oil prices are being supported amid rising geopolitical tensions.
Weekly Outlook: May 8 – 12
For the week ahead, investors would continue to focus on crucial event such as Consumer Price Index (CPI) this week in order to determine further direction. Besides that, the ongoing banking turmoil in the US will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: May 8 – 12
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 8th May 2023 | |||||
| N/A | |||||
| Tuesday –9th May 2023 | |||||
| 09:30 | AUD | Retail Sales (MoM) | – | 0.4% | 0.2% |
| Wednesday 10th May 2023 | |||||
| 00:00 | CrudeOIL | EIA Short-Term Energy Outlook | – | – | – |
| 04:30 | CrudeOIL | API Weekly Crude Oil Stock | – | – | -3.939M |
| 14:00 | EUR | German CPI (MoM) (Apr) | – | 0.4% | 0.8% |
| 20:30 | USD | Core CPI (MoM) (Apr) | – | 0.4% | 0.4% |
| 20:30 | USD | CPI (YoY) (Apr) | – | 5.0% | 5.0% |
| 22:30 | CrudeOIL | Crude Oil Inventories | – | -1.100M | -1.280M |
| Thursday –11th May 2023 | |||||
| 19:00 | GBP | BoE Interest Rate Decision (May) | – | 4.50% | 4.25% |
| 19:00 | GBP | BoE MPC Meeting Minutes | – | – | – |
| 19:00 | CrudeOIl | OPEC Monthly Report | – | – | – |
| 20:30 | USD | Initial Jobless Claims | – | 245K | 242K |
| 20:30 | USD | PPI (MoM) (Apr) | – | 0.3% | -0.5% |
| 21:15 | GBP | BoE Gov Bailey Speaks | – | – | – |
| Friday –12th May 2023 | |||||
| 14:00 | GBP | GDP (YoY) (Q1) | – | 0.2% | 0.6% |
| 14:00 | GBP | Manufacturing Production (MoM) (Mar) | – | -0.1% | 0.0% |
| 22:00 | USD | Michigan Consumer Sentiment (May) | – | 63.0 | 63.5 |
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