Welcome to the Key to Markets preview of the Week Ahead.
5-day performance as of September 29th, 2022. 11:00 GMT.
In case you missed it…
GBP/USD fell to an all-time low. The pound tumbled to 1.0350 against the USD as investors fretted over the Chancellor’s combination of big spending with the most significant tax giveaway in 50 years.
The Nord Stream pipeline is sabotaged. The perpetrator is still unknown, with suspicions directed towards Russia or the US. European gas prices jumped over 12%.
BoE steps back into the bond market. The UK central bank said it would buy as many longer-dated gilts as necessary to stabilise the market. 30-year gilts jumped by a record amount.
Bitcoin -GBP trading volumes spike. The Trading volumes between GBP and bitcoin spiked to a record high on Monday as GBP dropped, suggesting investors dumped sterling for the cryptocurrency.
DAX falls to a 2-year low. Rising energy crisis fears, consumer confidence dropping to a two-year low, and rising recession fears pulled the German index lower.
Porsche floats. The luxury car maker went ahead with its IPO with the price set at the top end of its range at €82.50, valuing the company at €75 billion.
Goldman Sachs slashes its oil price forecast for 2023. The investment bank cited the stronger USD and the deteriorating demand outlook for slashing the price forecast to $108 from $125 in 2023.
USD hits a new 20-year high. Hawkish Fed bets and safe haven flows lifted the US dollar index to 114.78, a 2-decade high. Gold tumbled to a 2.5-year low on the stronger USD.
Concerns rise over iPhone 14 demand. Apple reportedly won’t be ramping up production for its iPhone 14 as strong anticipated demand failed to materialise.
US 10-year treasury yield hits a 12-year high. The 10-year yield rose to 4%, its highest rate since October 2008 in the financial crisis. Treasuries are on track for the biggest annual loss since 1973.
Source: The Daily Shot
The BoE rescued global markets and the pound for a day.
The UK central bank stepped in with bond purchases to stem the selloff in gilts, triggered by the government’s fiscal stimulus plan.
However, the relief rally has been short-lived, as seen in GBP/USD, which is again on the back as the BoE intervention fails to address the underlying cause of the problem. That said, the knowledge that the BoE is prepared to step in, no matter how incoherent the moves, has helped to slow the GBP selloff.
1. OPEC+ meeting
OPEC+ agreed to a 100k barrel per day production cut in the September meeting, a token move, reversing the 100k bpd increase in the previous meeting. Oil prices have fallen around 35% since the June high as recession fears hurt the oil demand outlook. OPEC+ members appear keen to keep the price supported and have started talking about a further cut at the October 5th meeting, potentially around 1 million barrels per day. Such a move could lift the price of oil.
2. RBA rate announcement
After raising interest rates by 50 basis points in the past five meetings, the RBA is expected to hike by either 50 or possibly slow the pace to 25 basis points. The minutes of the September meeting saw policymakers acknowledge that hikes could slow given the lag between monetary policy decisions being taken and the time it takes for the impact to be reflected in inflation data. Furthermore, the minutes said, “the case for a slower pace of increase in interest rates becomes stronger as the cash rate rises”. AUD/USD trades at around a 28-month low.
3. Non-farm payrolls
The US jobs market has remained resilient despite the deteriorating economic outlook. Expectations are for 215k jobs to be created in October, slightly down from September’s stronger than forecast 315k. The unemployment rate hiked higher in September to 3.7% as more people returned to the workforce, which could help lower wage growth. Unemployment is expected to hold steady at 3.7%. Attention will also be on the participation rate to see if the trend of people returning to the workforce continues.
4. GBP selloff
The pound fell sharply against its major peers last week, hitting an all-time low against the USD. The pound selloff and volatility in the bond market prompted an intervention by the BoE. However, the root cause of the problem, the Chancellor’s tax cuts, hasn’t been addressed, and the pound resumed its decline. Could a policy change be the only real saviour for the sterling? Eyes will remain firmly on Westminster and the BoE for how this continues to play out.
5. Eurozone retail sales
Eurozone retail sales ticked higher in July, as increased food and fuel sales masked a drop in sales for all other items. Consumer confidence fell to a record low in Germany, the eurozone’s largest economy. With energy costs soaring and inflation elevated, there seems little hope of a surprise jump in sales. Expectations are for a further 0.3% MoM rise, most likely due to food and fuel purchases increasing. The data comes as EUR/USD struggles below 0.97.
Economic Calendar Highlights
TA of the major asset classes (Forex – Commodities – Indices…).
EUR/USD (H4 Candlestick Chart)
The rebound stalled and left a false breakout near strong resistance around 0.970. A bearish engulfing pattern near this zone signals that sellers took back control of the market and might push it down toward the 0.955 level. A move above 0.970 would negate our bearish view.
GBP/USD (H4 Candlestick Chart)
The British Pound posted a double top formation near 1.090, which halted the upwards movement. The bears now control the market, as demonstrated by a bearish engulfing pattern near the strong resistance. Further movement to the downside could be seen toward the 1.037 level. However, if the price breaks above 1.090, we could see a retest of 1.121.
USD/JPY (H4 Candlestick Chart)
USD/JPY is testing resistance formed at the top of the range at 144.8. Since the dollar-yen is still in an upward movement on the daily time frame, the channel is more likely be broken to the upside. USD/JPY could reach the 147 mark if it completes the ABCD pattern. A close below 143.9 could cause a move back towards 141.6, the bottom of the range.
AUD/USD (H4 Candlestick Chart)
The Aussie found sellers near a bearish trend line. This led to high selling pressure and a move lower. Further movement to the downside could see the YTD low tested at 0.637. However, if the price moves back above 0.653, it could prompt a move higher toward 0.659.
USD/CAD (H4 Candlestick Chart)
Loonie posted a double top formation which led to a reversal and a breakdown from the bullish trend line. The market found new buyers near 1.363, which led to a move higher in the same direction of the main trend with a high chance of reaching 1.381. If buyers stay in control, USD/CAD could reach the 1.400 level. A move and close below the 1.363 mark would negate our bullish view.
Gold (H4 Candlestick Chart)
Although Gold has a significant bullish correction, the price is still in a downtrend. The market failed to break the bearish trend line and the strong resistance near the 1,660 mark. The market is moving lower, which could test the previous low of around 1,615. However, a close above 1,660 could cause a move higher toward 1,680.
Brent Oil (H4 Candlestick Chart)
UKBRENTOIL found sellers near the 61.8% Fibonacci retracement level after a big corrective move higher. Another move to the downside in the same direction of the main trend on the daily time frame could see price retest the 82 mark. However, if the price breaks and closes above 88, this could lead to a move higher toward 91.
US500 (H4 Candlestick Chart)
US500 found sellers near the 61.8% Fibonacci retracement level and bearish trendline, leading to a lower move. The market is heading down towards the previous low near the 3,600 mark. Closing above 3,716 would imply a move back up to 3,820.
Thank you very much for reading – and have a great week trading!