May Week 3, Looking Back and Looking Forward

EUR/USD Struggles as Worst Performer in May

Looking back to the previous week, With ten full trading days remaining in the month of May, EUR/USD finds itself in the relegation zone as the month's worst performer among forex majors. Traders are now wondering if the selling pressure on EUR/USD will continue in the coming weeks.

Bearish Sentiment Surrounds EUR/USD Futures Traders

EUR/USD futures traders have been heavily bullish leading up to this point, with net-long exposure reaching levels usually associated with a major downturn for the currency pair. The upcoming week presents a range of influential factors, including global flash PMI data, the German Ifo report, an ongoing debt-ceiling feud in Congress, and US inflation data, which will play a crucial role in determining whether EUR/USD will be forced lower or given another bullish chance.

Recap of Last Week's Market Highlights

The previous week witnessed several notable events across the global markets. President Biden and Republican House speaker McCarthy expressed optimism about reaching a deal to raise the debt ceiling, boosting market sentiment. The Nasdaq 100 and S&P 500 reached nine-month highs, while gold experienced a decline. Additionally, various central bank officials shared hawkish views, and economic indicators from different countries highlighted challenges and opportunities in the market.

Looking forward to the Upcoming Week

The week ahead presents crucial events and themes that are likely to impact forex markets, including the US debt-ceiling talks, flash PMIs, German Ifo sentiment, and the RBNZ meeting. These events will shape market sentiment and provide insights into the future direction of major currencies.

RBNZ Meeting: Potential Final Hike and Changing Inflation Expectations

The Reserve Bank of New Zealand (RBNZ) is set to announce its cash rate decision, which could mark the potential conclusion of its tightening cycle. After raising rates multiple times, the RBNZ may opt for a smaller increment due to a sudden decline in inflation expectations. Market analysts expect a 25bp hike, and the central bank's quarterly monetary policy statement will provide further guidance on future rate changes. Traders will closely analyze the statement and minutes to assess if this is indeed the final hike, at least for now.