Key Economic Data Releases Are Due, But Volatility is Set to Increase

Economic data that is expected to be released this week between May 24 to May 29 by the relevant U.S. authorities will be the main driver behind June’s possible rate hike estimates. REUTERS/Kacper Pempel/Illustration

By Noureldeen Al Hammoury 

Global markets are expected to see higher volatility this coming week, ahead of some key economic data releases from Europe and the U.S., leaving the door open for further action to be taken by the European Central Bank (ECB) and the Federal Reserve going forward.

What Moves The British Pound
The British pound suffered from high fluctuations over the course of the past week from May 15 until May 22, rising to a high of 1.4660 at the beginning of the week’s trading before gains were trimmed all the way down to 1.4490.
The notable rise was aided by a Brexit poll, which showed a 55 percent majority in favor of staying in the EU. However, another poll that came out at the end of the week suggested that the percentage of those in favor of remaining part of the EU has dropped to 43 percent, while 45 percent voted in favor of Britain exiting the union.
Therefore, traders remain anxious as they continue to monitor Brexit-related polls until the day of the referendum on June 23. Of course, economic data releases expected throughout this week will have an impact on the currency’s pricing. But that effect will be short lived, and the Brexit polls remain a key driver of how the currency will fair until the end of June.

Demand For The Greenback Is On The Rise
Traders have raised their estimates with regard to a possible rate hike in June, right after the Federal Open Market Committee’s (FOMC) meeting minutes release, which surprisingly reflected hawkish remarks. This was a surprise given the fact that FOMC’s decision two weeks ago was mainly dovish.
Economic data that is expected to be released this week between May 24 to May 29 by the relevant U.S. authorities will be the main driver behind June’s possible rate hike estimates.
This week, traders need to keep an eye on the Core Durable Goods Data, Jobless Claims, Pending Home Sales and most importantly, the revised Gross Domestic Product (GDP) reading from the first quarter of 2016, which is expected to be revised higher to 0.8 percent from 0.5 percent.
If so, the demand on the greenback might increase further.

Europe Progress And EURUSD Trends
The recent economic data releases from Europe were positive and some of these figures have outperformed their counterparts in the U.S. Perhaps this is why the euro has been rising steadily over the past few weeks, reaching the 1.14 area against the U.S dollar.
Most of the released economic data suggested that the ECB policy will remain unchanged with no further actions at least until the end of this year.
This week, more economic data releases are set to support the idea of keeping the Eurozone’s fiscal policy unchanged, especially in terms of maintaining the current rate level.
Traders need to keep an eye on the Manufacturing and the Services Purchasing Managers’ Index readings due this week. In addition to that, traders need to follow the German & EU ZEW Economic Sentiment and the German IFO Business Climate data releases. Should these data releases show more progress in their figures, it is better to steer clear of betting against the Euro.

U.S. Equities Remain Bearish
Despite the notable rise in crude oil prices in the past few weeks, U.S. equities have shown further signs of depreciation. Technical indicators are still oversold, while the S&P500 is trading below its 50-day moving average on the daily chart. With that, the bearish outlook is unchanged.
For the time being, there is a possibility to test the 2,020 mark in S&P500 and 17,300 in DowJones industrial average, based on speculation that there will be yet another rate hike in June.
Traders, in the meantime, need to be aware of another wave of selling the U.S. equities, until the Federal Reserve releases another statement that could ease the current estimates regarding the rate hike in June.

Bank Of Canada Rate Decision
For the past few weeks, the Canadian dollar has been deteriorating, despite the fact that crude oil prices recovered notably nearing the $50 a barrel. But the economic releases from Canada are not positive enough to support the country’s currency.
Canadian economic data suggests that the economy is still in need of further stimulus.
The Bank of Canada (BoC) will release its decision on Wednesday, May 25, and we estimate that it will likely keep the current rate level unchanged at 0.50 percent. We still expect the BoC to give dovish remarks this week about further action planned for the coming months.

Noureldeen Al Hammoury is the Chief Market Strategist at ADS Securities.

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