Forex Signals Brief May 23: Manufacturing and Services PMI
Today the services and manufacturing PMI report from all over the world will be the highlight of the day.
Yesterday started with the Reserve Bank of New Zealand meeting early in the morning. The RBNZ left interest rates unchanged at 5.50% and had a hawkish RBNZ stance. But despite that, the NZD ended up lower after the initial jump higher. The NZD/USD price faced rejection at the 200 daily SMA, leading to a pullback.
In the UK, CPI inflation came in stronger than expected, beating the previous numbers as well and Prime Minister Sunak scheduled an election for July 4. The USD strengthened as major indices and yields also experienced gains. The release of the Fed’s minutes from the early May meeting was perceived as more hawkish, indicating that it would take longer than anticipated to achieve greater confidence in the inflation decline.
Although some analysts pointed out that these statements were made prior to more recent data showing reduced inflation and retail sales, the short-term yields still rose in response. The 2-year Treasury yields increased by 4.23 basis points to 4.88%. In the forex market, the USD climbed higher during the North American session. Earlier in the day, the GBP and NZD had outperformed the USD, but they eventually ended up lower following the release of the FOMC minutes.
This shift suggests that market participants interpreted the Fed’s stance as an indication of continued vigilance against inflation, potentially leading to more prolonged higher interest rates than previously expected. This hawkish tone contributed to the strengthening of the USD against other currencies by the end of the trading day.
Today’s Market Expectations
Today started with the Q1 Retail Sales report from New Zealand, which was expected to show another decline. The Q1 retail sales report for New Zealand exceeded expectations, with a quarter-on-quarter increase of 0.5%, compared to an anticipated decline of -0.3%. This marks a positive turnaround from the previous quarter, which saw a revised increase of -1.8% from the initially reported -1.9%. Core retail sales also surpassed expectations, rising by 0.4% compared to the forecasted 0.09%. The previous quarter’s core retail sales were also revised higher, showing a decrease of -1.6% instead of the initially reported -1.7%. Overall, the Q1 retail sales report indicates resilience and growth in New Zealand’s retail sector, which bodes well for the country’s economic recovery.
Today the attention will be mostly on the Flash PMIs Day for many advanced economies with the greatest focus as usual on the Eurozone, UK and especially the US PMIs:
- Eurozone Manufacturing PMI 46.6 points expected vs. 45.7 in April.
- Eurozone Services PMI 53.5 points expected vs. 53.3 in April.
- UK Manufacturing PMI 49.2 points expected vs. 49.1 in April.
- UK Services PMI 54.8 points expected vs. 55.0 in April.
- US Manufacturing PMI 50 points vs. 50.0 in April.
- US Services PMI 51.5 points expected vs. 51.3 in April.
Initial Claims have been hovering near cyclical lows, indicating ongoing strength in the labor market, while Continuing Claims have remained relatively steady around the 1800K mark. Projections for this week’s Initial Claims suggest a slight decrease to 220K from the previous figure of 222K. However, there is no consensus yet on Continuing Claims, as the previous release showed a slight uptick to 1794K compared to the expected 1785K and the prior 1781K.
Yesterday the volatility picked up, with the USD making a reversal and getting us on the wrong side, since we were long on GOLD and on EUR/USD , given the recent bullish momentum in both. The stock market also retreated, as traders waited for the Nvidia earnings to be released.
Gold Retreats Below $2,400
Yesterday the Gold price retreated lower after XAU/USD achieved a significant milestone last week by closing above $2,400 for the first time in history, signaling a potential for further upward movement in the near term. The market’s response to weaker-than-expected CPI data prompted a flight to safe-haven assets, particularly gold, which propelled XAU back towards the $2,400 level. But after a couple of doji candlesticks on the daily chart, the price reversed lower yesterday, as the USD fought back.
XAU/USD – H4 chart
Higher Retail Sales Don’t Save NZD/USD
The NZD/USD pair has shown resilience over the past two months, but it has struggled to overcome strong resistance at the 200-weekly SMA. While the RBNZ’s hawkish stance briefly provided support, broader market factors, including USD strength and expectations of disappointing New Zealand retail sales data, led to a bearish reversal. Although Q1 sales increased by 0.5%, providing some temporary support for the NZD, it did not alter the overall downward trend. Despite the RBNZ’s hawkish tone, the fundamental outlook for the NZD remains weak. The pair has faced significant resistance at the 200 SMA on the daily chart and the 100 SMA on the weekly chart, hindering upward movements.
NZD/USD – Daily Chart
Cryptocurrency Update
Bitcoin Holds Close to 70K
The recent decline in Bitcoin’s price to approximately $61,000 presented an opportunity for investors to buy, as the 100-day Simple Moving Average (SMA) has now become a support level, aligning with our own position. Previously, technical indicators like the 50-day and 20-day SMAs acted as resistance, impeding Bitcoin’s upward momentum. However, these resistance levels have been surpassed, suggesting that the 50-day moving average is likely to act as a new support level on the daily chart. On Monday, Bitcoin exceeded $70,000, confirming the continuation of its upward trend. This upward movement highlights Bitcoin’s resilience and strong demand at lower price levels, indicating that the cryptocurrency market remains optimistic about Bitcoin’s potential for further appreciation.
BTC/USD – Daily chart
Ethereum Fails to Reach $4,000
The SEC’s approval of the Bitcoin ETF in January significantly boosted sentiment in the cryptocurrency industry. Now, with the potential for a spot Ethereum ETF on the horizon, bids in the cryptocurrency market have once again surged. The SEC’s more positive stance on spot Ether ETFs has increased market confidence, leading to Ether reaching a recent high of $3,832.50. Ethereum has sustained its upward trajectory, rising from a low of $3,049 yesterday. This rapid growth has propelled Ethereum’s price up by over 25% in just two days. The renewed optimism surrounding the potential introduction of a spot Ethereum ETF is driving this robust market performance, indicating strong investor interest and confidence in Ethereum’s future prospects.
ETH/USD – Daily chart
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