Hello, welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of March 10, 2022. 17:30 GMT
In case you missed it….
Gold is close to a record high. XAU/USD took off to reach a high of 2069 per oz, narrowly missing its all-time high at 2072.
Oil reverses with flash crash. Brent crude oil hit a 14-year high of $130 per barrel before flash crashing under $105.
‘High level’ peace talks go nowhere. Russian foreign minister Lavrov met his Ukrainian counterpart in Turkey for the first ‘high level’ talks without any result and no ceasefire.
ECB helps EUR/USD rise. The ECB revised its inflation forecasts upwards, now sees 2022 at 5.1% vs 3.2% three months ago.
Commodity FX pairs reverse. After big gains the week prior, the downturn in the price of oil saw the Aussie and Kiwi underperform.
US inflation keeps rising. The US CPI rose by 7.9% y/y in February, another 40-year high. The last time inflation was this high, interest rates were 13%!
Best day for stocks in a year. The S&P 500 gained 2.6% on Wednesday – that was its best day since June 2020.
Amazon does 20-for-1 stock split. Each current share of Amazon will be worth 20 new shares. Its the first stock split since 1999, before the tech bubble popped.
China stocks tank. Well-known Chinese stocks are proving some of the most volatile, with Alibaba down 9% on Thursday alone.
Coke & McDonald’s exit Russia. More businesses announced plans to exit Russia to avoid US and European sanctions. Goldman Sachs is the first Wall St bank to announce its exit.
Source: Jeffrey Gundlach / DoubleLine
The ‘Bond King’ Jeff Gundlach, in a conference call this week, called this ‘one of my favourite charts’. It shows the 30-year returns for the S&P 500 (total returns that include dividends), the Bloomberg Commodity Index and the Bloomberg U.S. Aggregate Bond ETF (ticker: AGG) in the top panel. In the bottom panel, it is the Federal Reserve bank assets (that were accumulated through QE).
He is emphasising the influence that central bank asset purchases have had on stock prices compared to the other major asset classes. Now that QE is taking a pause, perhaps some of this gap gets filled.
Source: FX Street
‘High level’ peace talks in Turkey didn’t yield any positive results last week- and there’s a rising risk that Russia commits more forces for an attack on the capital Kyiv. Oil and other commodities are proving the most sensitive to developments on the ground.
The Federal Reserve is expected to follow through with a well-telegraphed rate hike on Wednesday. It follows inflation hitting another 40-year high of 7.9% y/y last week. Quarterly economic forecasts, as well as comments from Chair Powell, will probably drive the USD since the rate hike is priced in.
The pound has held off making new 2022 lows during the sell-off stemming from the war in Ukraine, in part over expectations the Bank of England might raise rates again this week – making it the third meeting in a row where policymakers vote for higher rates.
The Bank of Japan is expected to remain on the sidelines, possibly capping demand for the yen which has appreciated thanks to haven flows following Russia’s invasion of Ukraine.
Among the data released this week, which also includes UK and Australian unemployment – the highlight should be US retail sales. The consensus is for the data to come down from the massive 3.8% monthly gain seen in January to a respectable 0.6% in February.
Here you can find an analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD has seen a substantial rebound off the lows near 1.08, reaching over 1.11. The gains possibly mean a trend reversal higher. Former resistance at 1.095 or support at 1.085 could act as support. However, the trend remains lower with the under both the 50 and 200 SMAs.
GBP/USD was unable to complete its double bottom pattern and dropped to fresh 2022 lows at 1.31. A small rebound could not make it to 1.32, which implies further downside towards the 1.30 handle. A move over 1.32 would break the pattern of lower highs and could spur a bigger bounce.
USD/JPY recovered from another drop under 115 and took out range resistance at 115.7. The new upwards bias could gain traction on a break over 116.3 and target 117. A return into the trading range would imply another drop under 115.
AUD/USD saw a big drop from new highs over 0.74 to 0.725 but has since steadied and broken above short term resistance at 0.733, implying the pullback may be over and the uptrend will continue. Another decline under the 0.73 and the 50 SMA would indicate the decline has further to go.
USD/CAD remains directionless, with the newly expanded trading range sitting between 1.26 and 1.29. The push against the upper Bollinger band did imply strength but the drop back under the old range resistance suggests the strength is waning.
XAU/USD could be set for a move over 2100 for the first time if the current upwards momentum is sustained. A sharp pullback under 2000 is perhaps explained by profit-taking near all-time highs. The trend remains higher but a bigger retracement is possible with a move under 1970.
BRENT saw a big drop from a 14-year high of 130 down to 105, with the last leg lower a flash crash. After a prolonged uptrend, the price may be ready to retrace some of the gains. The 100 levels is major psychological support.
US500 took out support at 4270 but the subsequent decline held above the YTD low near 4100, stopping at 4150. Old support at 4270 is now resistance to any bigger recovery. The trend remains lower with scope for a drop under 4000.
Thank you very much for reading – and have a great week trading!
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