Bank failures, runaway inflation, geopolitical tensions, and obscure Federal Reserve policies have wrapped financial markets in a deepening fog of uncertainty that has made traders leery in the treacherous landscape. Most were in search of clarity as Q2 2023 got underway, with seesawing market conditions.
Will the forthcoming key economic events, including the US Consumer Price Index and the Federal Open Market Committee minutes, provide the guidance in earnest?
This week is shaping up to be quite a pivotal one for traders. With a full economic calendar, traders should get ready for events that will shape the direction of major asset classes. Attention will fall on the CPI data, FOMC minutes, the WASDE report, OPEC updates, and Canadian interest rate decisions. Knowing how to react to these events may be what separates strategic trading from very expensive mistakes.
Here’s a breakdown of what the series of upcoming events will probably result in and how you should prepare for market movements.
Monday: Market Outlook – Post Easter
Monday trading’s usually subject to holiday fatigue from Friday and market participation doesn’t quite get off in earnest. One of the more interesting currency pairs likely in holiday-thinned conditions: is the Euro-British Pound. The EUR/GBP has carved out pretty clear channel over the past two months between support 86.75 and resistance coming in at 88.50.
Traders looking to take advantage of said price oscillations might focus in on sell opportunities into higher bounds of the channel and buy up those approaches to the lower bound for potentially better positioning.
Tuesday: WASDE Report and Agricultural Trading Corn Price Impact
It is a momentous day – Tuesday – in terms of a report for the agricultural trading sector, when we will consider the World’s Agricultural Supply and Demand Estimates, WASDE for short, to be another major event in agricultural terms. Results can be an extreme shock to market sentiment, primarily as we progress into plantings. To say the least, volatility can be explosive in the corn market; the current trend has formed a daily downtrend by breaking below important support with a 200-day moving average crossover.
Surprising changes in the report might make corn prices take jarring movements and test the low at $600.
Wednesday: High Volatility Day – CPI & FOMC Minutes
The data on the CPI comes along this Wednesday, a very significant gauge of inflation in the US, hence will come along core March and headline CPI at 0.4% and 0.3%, respectively, compared with 0.5% and 0.4%. Given that inflation has remained one of the most pivotal drivers of market sentiment of late, any deviations here will likely spur major moves in the markets.
Of particular sensitivity will be the US Dollar Index, DXY, with key support at 101.00 and resistance at 105.88. Traders should prepare for a potential breakout or reversion strategy pending the CPI outcome.
FOMC Minutes: The minutes of the FOMC, following the release of the CPI data, make things more complicated during this day. Minutes usually give insight into the Federal Reserve’s decision-making and insight into future monetary policy.
Given the recent bank failures and financial stress, market participants will be looking for clues on how the Fed plans to navigate these challenges. If the minutes reveal a more dovish stance, expect a potential pullback in the US Dollar and a rally in equities.
Thursday: OPEC Monthly Report Crude Oil Market Watch
The monthly report from OPEC normally does not lead to massive market fluctuations. However, traders should be prepared for surprises. The unexpected announcement of a production cut-off in early April showed that unexpected news from OPEC can send oil prices skyrocketing. This week’s report may give an indication of the production trend and global oil demand.
Be wary of the possible spillover into WTI crude, which has just formed an island reversal pattern, thereby potentially suggesting some bearish pullback. Levels to be considered for support are between $78 and $76.75.
Friday: Retail Sales Data
Consumer Spending: The week ends with US retail sales for the month of March. Normally, retail sales are not a market mover, but with the state of the economy as it is, this might be another story. If retail sales are worse than expected, this may indicate weaker consumer spending and increased fears of recession. Forecasts are for core retail sales to drop -0.1% and total sales to drop by -0.3%, in tune with the recent trend of cautious consumer behavior.
S&P 500 Technical Analysis
The S&P 500 had been stuck in a very tight range, tracing what’s known as a bilateral rectangle by technical analysts. That’s a pattern that, as the name suggests, implies the market is coiling up to make a breakout.
The key levels to watch are the 2023 high at 4195 and the 2023 low at 3792.5. Traders can look to buy above 4195 or sell below 3792.5 depending on the market’s reaction to retail sales and other late-week data.
Key Takeaways
Set Up for Volatility
This week’s events may provide significant market movement with the CPI and FOMC minutes. Be prepared with a plan, which could include reversion strategies on the DXY, breakout perspectives in the S&P 500, or even farmland commodities like corn.
Flexibility is Key
With the unpredictability of economic data and central bank policy, one needs to be adaptive. Avoid chasing the market; have a disciplined approach to risk management.
Watch Key Economic Indicators
Inflation metrics and retail sales will bear watching most, as either could well provide the leading indications of the future direction of both policy and market; surprises cannot be ruled out, and the key to success in this uncertain environment will be a preparedness to adapt your strategy.
