Weekly Outlook - US Consumers Resilient Despite Headwinds

With US inflation continuing its slow downward trajectory, traders price in three rate cuts this year. Attention this week will predominantly turn to US retail sales data.

3 Top Stories for the Week Ahead

• Japan's Q1 GDP Seen Accelerating

• Canadian CPI Keeps Falling

• US Retail Sales Expected to Expand

Japan's Q1 GDP Forecast to Jump

Amongst a busy data schedule out of Japan, Q1 GDP figures stand out as analysts expect annual growth to jump to 0.8% on an annualised basis, up from 0.1% prior. It could mean that the BOJ is finally seeing the organic growth it was hoping for and, in turn, support further speculation that it could move towards ending YCC. Governor Kazuo Ueda has repeatedly said that action won't be taken until the conclusion of a policy review conducted over the coming months. Japan will also report CPI figures later in the week, expected to come in unchanged at a 3.2% annualised rate.

EUR/JPY met a huge stumbling block at 150.00 on May 2 after breaking outside its triangle pattern. Supported by a daily divergence on the RSI, prices reached a low of 146.00. If Japanese data disappoint, bears could push prices under the swing support and 145.57, opening the door to 140.00 wide open. Otherwise, the pair could spike to the 150.00 barrier again.

Tradingview Chart: Euro/ Japanese Yen 1D

Canadian Inflation Expected to Keep Falling

Another drop in Canada's inflation could turn the BOC's pause in interest rate hikes into something permanent. Monthly core inflation is expected to halve to 0.3% compared to 0.6% in March, while the annual core inflation rate is expected to drop to 3.8% compared to 4.3% prior. Most recently, BOC Governor Tiff Macklem insisted that hikes were still an option but did say that the stress in the banking system increased the risk of overtightening.

Price action in EUR/CAD peaked at $1.50 after bulls failed to move past the ceiling, forming a false break to $1.5118. Notably, a double divergence signal had formed, pressuring the pair downwards to $1.4630, where it printed local support. Further inflation drops could see the pair rise to $1.4940 to mark the right shoulder of a potential H&S pattern. But if CPI comes in as expected or higher, EUR/CAD could head toward $1.4240 should the interim support by $1.4491 succumbs to increasing shorts.

Tradingview Chart: Euro / Canadian Dollar 4H

US Retail Sales Expected to Rise

Despite wages keeping up with inflation, US April Retail Sales are expected to show a monthly expansion of 0.7% compared to the 0.6% reported in March. This comes after the Bank of America Institute reported that credit card spending dropped the most since February of 2021, which could imply the data will miss the consensus. Retail sales, excluding gas and autos, are expected to grow at just 0.2%, though that is still an improvement over the -0.3% reported in March.

If Retail Sales beat estimates, USD/CHF could spike toward 0.90 since the pair appears supported by several momentum divergence signals. Depending on other drivers and the deviation between actual and forecasted data, the pair could accelerate to 0.9070, but it is unlikely to break past the said swing as it resembles a triangle. Conversely, a slide under the low of 0.8821 could teleport prices to the Jan '21 low of 0.8750.

Tradingview Chart: US Dollar / Swiss Franc 4H

Top stories last week and how related assets fared

• PacWest reported a substantial increase in deposit withdrawals last week, dragging on risk sentiment with the Russell 2000 index, which contains many of the regional banks the most affected

• US inflation came in largely within expectations, affirming the case for a pause at the next Fed meeting and weighing on the dollar as traders priced in three rate cuts this week

• The pound gained strength after the BOE raised rates by a quarter of a point as expected, warning that further hikes might be needed

• China's April trade fell, with imports coming well below expectations and hurting commodity prices

Major Calendar Events 15 - 19 (GMT)

Source: investing.com

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