Monthly Report (May 2023)

09/05/2023
13:08

During this month, investors remain uncertain about the future of the monetary policy in the US after the FED decided to raise interest rates by 25bps as widely expected, hinting at a pause in the rate-hiking campaign and closing the door for a potential rate cut in the near term.
However, Chairman Powell announced that the FED’s future policy will likely be data-dependent, and inflation will continue to be monitored actively.

Meanwhile, we have seen a strong employment report in April as the Non-Farm payrolls rose to 253K compared to expectations of only 181K, in addition, the average hourly earnings increased from 0.3% to 0.5% while the unemployment rate fell from 3.5% to 3.4%.
For now, all eyes will be on the upcoming inflation data as the latest CPI is expected to have risen from 0.1% to 0.4% which can push the FED to extend its monetary policy tightening.

From a wider angle, the US banking crisis continues to weigh on investor sentiment following new bank failures which can keep stocks under pressure in the short term, on the opposite, a strong earnings report can help the market recover some early losses.

The US Dollar is likely to continue trading sideways in May until we see new developments, while gold is expected to remain well-supported in the current market environment as it is considered an import safe haven asset.

On the other side, following a short-term recovery, the US stock market might stabilize until we see how the FED will react to upcoming economic data.

WTI prices rose during the previous month reaching $83 per barrel as mentioned in our previous report after oil producers within the OPEC+ group agreed to lower production by more than 1M barrels per day. However, the upside is expected to be limited and oil may face selling pressure due to growing recession fears.

Now let us have a look at the monthly technical outlook for major currencies, commodities, and indices.

EURUSD

The Euro is still looking for a clear direction since the beginning of last month as the bullish momentum decreased due to the lack of economic releases from the Eurozone.
The single currency is trading inside a defined range located between the 1.0900 and 1.1100 levels, traders should wait for a clear breakout outside of this zone to confirm the next direction for the rest of the month.

From a wider angle, the pair is respecting a series of higher highs and higher lows which reinforces the probability of a breakout to the upside after the ECB decided to raise interest rates by 25bps as inflation remains high.

Technically, a close above 1.1100 can lead to a new advance toward the 1.1185 level followed by 1.1270 in extension. On the other side, an important support zone is located between 1.0945 and 1.0900 levels, a break below it should lead to a trend reversal and expose 1.0830 in the coming days.

GBPUSD

The British Pound is following a strong uptrend as buyers managed to push prices above the 1.2600 psychological barrier.

Since the beginning of the year, the pair was trading inside a wide range located between 1.1800 support and 1.2440 resistance. Looking at the recent price action, we can see that the trend has changed from neutral to bullish after Sterling successfully broke above the upper range level at 1.2440.

Therefore, the current trend is expected to persist while prices continue to trade above this level which now will become a new support for this pair. The key levels to target are 1.2670 followed by 1.2750 in extension.

Finally, traders will keep an eye on the upcoming Bank of England rate decision in addition to the UK’s inflation expectations.

USDJPY

The currency pair faced strong sellers from the 138.00 barrier, and the trend has turned neutral again. The pair is expected to remain under pressure while this level holds.

Technically, we can see a continuation of the existing bearish momentum, however, a breakdown below the 133.00 support is needed, to aim for lower prices that can reach 132.00 in the coming days. Moreover, we will be looking at the potential penetration of the rising trendline drawn from the March 24th low to confirm a continuation lower.

To summarize, if the pair remains well below the key monthly resistance of 138.00, any recovery attempt is likely to face heaving selling pressure for a continuation lower. Overall, the bearish momentum is expected to stay unchanged.

USDCAD

USDCAD’s recent advance stalled at a key technical resistance which stands at 1.3670 and during this month the pair is likely to extend its decline targeting an important support zone that stands between 1.3260 and 1.3220 levels.

Initially, sellers can push prices toward the 1.3350 support from where we might see a price recovery before continuing lower toward the monthly support zone mentioned above.
When looking at the higher time frames, we can see that prices were moving sideways since September of last year between the 1.3850 high and 1.3220 low.

From a technical standpoint, the bearish momentum is likely to remain strong and sellers will likely stop any potential bounce below the 1.3530 level which is expected to act as a strong intermediate resistance for this month.

GOLD

Gold is likely to hold steady in May as buyers will look to challenge the all-time highs.
The yellow metal is expected to remain in an uptrend while prices continue to trade above the 1970-1960 support zone in the coming weeks.

Looking at the recent price action, the focus will be on the $2000 psychological level which was playing the role of strong resistance and is expected now to give support to prices. A price stabilization above the 2000 mark will keep gold on the positive side.
Technically, it is clear that the move is extended to the upside, however, the bullish momentum remains strong, consequently, traders should focus on a continuation of the dominant trend.

Moreover, if we do see a retracement lower, we will look for support between the 1970 and 1960 levels, on the opposite, a weekly close above $2060 will confirm another rally that can target all-time highs near the $2080 per ounce.

OIL (WTI)

Crude Oil failed to break above the 83.25 monthly resistance as sellers managed to push prices lower after filling the upside gap registered during April.

Looking at the biggest technical picture, Oil prices continue to trade inside a wide range formed by the 81.50-83.25 resistance zone from the top side and the 64 support from the downside. Last month, we have seen a failure from the key resistance of $83 per barrel as mentioned earlier which keeps the pressure to the downside. However, while prices continue to hold above the 64 low, the trend should remain neutral, and traders will wait for further price action to confirm the next direction.

Technically, the nearest resistance zone to watch lies between 71.70 and 72.50 levels followed by 76.80 in extension.

Finally, unless we see a breakout outside of the monthly range, the Oil trend is expected to remain neutral.

Dow Jones (US30)

The Dow Jones technical picture did not change from last month as the index failed to overtake the 34270-34350 resistance zone for the third time this year.

From a wider angle, the US index is looking for a clear direction and we can see that the trend remains neutral. We expect this index to stabilize in the coming days as prices bounced near the 50% Fibonacci retracement of the recent advance that started from the 31430 low.

The support zone that buyers should defend in May is located between the 32900 and 32800 levels, in addition, an important rising trendline stands at the same zone. A weekly close below it, should put the index under pressure and lead to more decline in the direction of the 32450 level followed by 31780 in extension.

On the other side, if the Dow holds above the support zone mentioned above, a move back toward the 34270 resistance cannot be ruled out.

S&P500 (SPX)

The S&P500 tried to break above the 4200 monthly resistance but failed as the bullish momentum is lacking strength. In the meantime, the index remains well supported above the 4050 support initially, and any potential retracement is expected to find strong demand from this level as it was a formerly broken resistance that turned into support by now.

In May, we continue to expect the index to see rising demand and start another advance for a re-test of the 4200 level. Moreover, traders should focus on the series of higher highs and higher lows formed during the recent advance to assess the strength of the current trend.

Finally, a successful breakout above the 4200 barrier should trigger a big rally toward the 4325 level.

NASDAQ 100 (NAS)

The Nasdaq is still in an uptrend as the index entered a bull market during last month.

For the time being, the index is testing an important resistance located at the 13250 level. A successful breakout above it can lead to a continuation higher in the direction of the next resistance located at 13550 followed by the 13725 level in extension.
Technically, prices have formed a series of higher highs and higher lows from the 11,675 bottom. Therefore, the bullish momentum is likely to remain unchanged unless we see a daily close below the 12730 level which represents the key support to watch in May. In the coming days, if the index fails to break above the 13250 level, the trend is likely to turn from positive to neutral.

Economic Analyst
Amine Hiani