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The market’s twin themes of a debt ceiling resolution and the chances of a Fed pause at its June meeting will again drive price action this week. It may be wise to also keep a close eye on key economic reports from major economies which are likely to influence market sentiment.

Monday, May 22

• EUR: Eurozone consumer confidence
• USD: Fed speeches

Tuesday, May 23

• EUR: Eurozone S&P Global Eurozone Manufacturing & Services PMI
• GBP: S&P Global/ CIPS UK Manufacturing PMI
• USD: US new home sales, Dallas Fed President Lorie Logan speech

Wednesday, May 24

• NZD: Reserve Bank of New Zealand rate decision
• EUR: Germany May IFO business climate
• GBP: UK April CPI, Bank of England Governor Andrew Bailey speech
• USD: Fed minutes

Thursday, May 25

• EUR: Germany Q1 GDP (final)
• USD: US initial jobless claims, Q1 GDP Annualised QoQ (second)

Friday, May 26

• AUD: Australia's April retail sales
• JPY: Japan May Tokyo CPI
• USD: US April PCE report, University of Michigan consumer sentiment   

Fed Funds futures pushed up the odds of a 25bps rate hike next month above 40% last Friday afternoon before falling after Chair Powell confirmed risks are more balanced and a pause in rate hikes possible. A vote on a deal to raise the debt ceiling could possibly come as early as this week though doubts still remain.

The dollar has enjoyed two weeks of gains for the first time since February after it broke above long-term trendline resistance a couple of weeks ago. Solid data has been a boon to the greenback and we get a slew of fresh data releases to confirm the idea that the US economy is still ticking over. Numerous analysts are waiting for the very aggressive tightening cycle and recent banking crisis to kick in and boot the economy down. It is very hard to manage tightening credit conditions during a hiking cycle as credit contrasts very slowly at first and then accelerates. The Fed’s favoured price pressure gauge, the core PCE deflator, PMIs and the FOMC minutes also this week will keep the market on edge about a June rate hike.

Risk sentiment has been boosted by the prospect of an end to the fiscal drama – is there one final surprise in the offing as we get close to approval? Any kind of breakdown in talks would see risky assets trashed. We could also get a “buy the rumour, sell the fact” type move in markets if a deal is signed. The benchmark S&P 500 closed just below previous resistance around the early February high at 4195/4200. Whether this is a false break or the bulls can continue to confound the sceptics could be influenced by Nvidia’s earnings. The giant chipmaker is expected to report a decline in earnings amid macroeconomic headwinds in the first quarter. But the stock has been a darling of the tech bulls, more than doubling since the start of the year and within sight of its all-time highs.

The UK gets the latest inflation data on a busy Wednesday calendar, along with the RBNZ meeting and important German IFO business sentiment gauge. Markets expect a 25bps June rate hike in the UK but there is another CPI report to come before that Bank of England meeting. Much could depend on whether there is a surprise surge in services inflation. The RBNZ is widely tipped to hike rates by another 25bps taking the cash rate to 5.5%. This would be the highest among G10 nations and the twelfth straight increase. That was projected by the bank’s own forecasts and new ones are released this week to guide markets, with a possible hawkish bias expected.

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