Hello, welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of February 10, 2022. 18:00 GMT
In case you missed it….
WTI hits $90. The benchmark US crude oil futures contract rose to a 7-year high over $90 per barrel this week.
FTSE post-pandemic high. The FTSE 100 reached its highest since January 2020, outperforming most global indices this week.
Dollar dumps after CPI. The US dollar continued its descent this week despite consumer prices continuing to rise.
Gold retakes 1840. The price of gold gained for 5-days on the trot thanks to US-dollar weakness.
Hyperinflation? US inflation reached a fresh 40-year high after CPI rose 7.3% y/y in January.
US 10-yr rises over 2%. The US 10-year Treasury yield, what many consider to be the default ‘risk-free’ asset in markets rose to 2%.
Lagarde walks back. ECB President Christine Lagarde made some dovish adjustments to the latest ECB meeting statement after the strong reaction in markets.
Bullard turns mega hawk. Boston Fed President James Bullard said he favours a 100 basis point increase in rates by July.
6 HIKES? Fed Swaps markets have now priced in 6 US rates hikes this year.
Peloton fires 1800. The digital fitness tech darling of the pandemic has announced it will be making 1800 employees redundant.
Source: Bianco Research
Of course this report is not a place to discuss politics. But politics can affect markets. US President Joe Biden’s approval ratings have been tanking – the honeymoon is over! With US midterm elections coming in November – The White House will need to fix these ratings before then. One of the biggest things Biden will want to do is bring down inflation – and especially bring down the price of oil. It’s not clear this can be achieved – but there is a lot of political pressure on the Federal Reserve to hike rates and bring down inflation because of the above chart. A new nuclear deal with Iran might help bring oil prices lower.
Source: FX Street
It was the January meeting (when these minutes were recorded) that the Fed laid the groundwork for a March rate hike. Investors will now be parsing them for any sign that a 50-basis point move could be on the cards.
Inflation and unemployment data all support the Fed pressing on with its planned March rate hike but retail sales could be the final piece of the puzzle. If higher prices sufficiently dampen consumption, the Fed might have to think twice.
Eurozone Q4 GDP data will be one to watch given the sharp gains in the euro after the last ECB meeting. Economists expect Omicron to have hurt activity in December but it seems unlikely to be enough to end the pressure on the ECB to bring forward rate hike plans.
A third Bank of England rate hike in a row could rest on the UK January inflation data. UK Q4 GDP held steady at 1.1% q/q – leaving plenty of space for another 25 bp move.
If Japanese inflation moves over 1%, this would be a big step-up for the nation that typically suffers from lowflation/deflation and could increase volatility in the Japanese yen if a BOJ rate hike comes into view.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD dipped to 1.138 support before railing to a new 2022 high intraday. The bullish engulfing candlestick on the daily and 4hr chart is bullish.
GBP/USD remains well-supported after rebounding from a dip off 1.35 to jump towards 1.365 resistance.
USD/JPY successfully tested the multi-years highs at 116.3 and dropped back to where 115.6 will need to hold for the chance of a near term breakout.
AUD/USD reversed sharply just under 0.725 and needs to sustain above 0.72 to maintain the short term bullish trend.
USD/CAD remains caught in a sideways trend but a false breakdown under range support at 1.265 is reason to think the breakout could eventually be to the upside, beyond 1.28.
XAU/USD has rallied strongly back to range resistance having successfully held the support near 1780. A clear breakout of 1850 is needed for an uptrend to take hold.
BRENT has closed over 90, breaking out of its tight short term range, possibly setting up a move to 93 then 95.
US500 cannot get past 4600, dropping away from the level for a second time since the late January sell-off. Support is at 4500 and the 20 DMA then 4440.
Thank you very much for reading – and have a great week trading!
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