Another month has passed, and financial market participants are preparing for the summer. It is typical for the summer months to be characterized by a lull price action, but it may be different this time around.
Here are some of the things to consider for the upcoming month:
· May Non-Farm Employment data
· ECB Meeting
· JPY pairs bullish run
· Oil holding above $100/barrel
May NFP Data
Later this week, the NFP data for May will be published. Again, the market expects solid job gains for the month, and the key here is what will the unemployment rate show.
Also, whenever the NFP is due, one should focus on revisions of past data. One thing is sure – the Fed sees the job creation mandate as filled, and the focus now is on bringing inflation down.
Next week, the ECB Meeting is critical to euro traders. The central bank hinted in the past that it would end negative rates by September.
Yet, the market expects the ECB to remain on hold at the upcoming meeting. However, this week’s inflation data showed that the prices of goods and services have risen to their highest level ever in Europe, so the ECB may start raising rates this month.
Or, in any case, if it doesn’t, then it may signal a 50bp rate hike in July. In both cases, the euro should bounce on the news, as it currently finds buyers at the 1.07 area.
JPY Pairs Bullish Run Continues
The main theme in the financial markets this year was the bullish run in the JPY pairs. After pausing for a while, they are back at the highs, with the USD/JPY and EUR/JPY flirting with 130, respectively 140 again.
As shown below, the USD/JPY is back at the highs, and the 130 level should act as a pivotal one. A daily close above leads to a possible contracting triangle, a consolidation over the summer, before another leg higher.
Oil Holds Above $100/barrel
The price of oil continues to be influenced by the Russia-Ukraine war. Europe plans to cut its dependency on Russian energy in the aftermath of Russia invading Ukraine, and so it imposed a number of sanctions.
Oil sits comfortably above $100/barrel, trading close to $120/barrel, fueling inflation and creating a challenging environment for central banks.
Inflation is on every central bank’s mandate. Price stability is the goal, and when inflation is well above the definition of price stability, central banks have a credibility problem.
Take Europe, for instance. Yesterday, inflation in Europe surprised to the upside, coming out at 8.1% YoY. Yet, the ECB has the rates in negative territory, in, perhaps, the biggest disconnect in financial markets ever seen.
But inflation is expected to peak later this year in Europe. If that is the case, the sooner we see proof, the better.