Welcome to the Key to Markets preview of the Week Ahead.
5-day performance as of December 1st 2022. 09:30 GMT.
In case you missed it…
Fed Powell signals a slowdown in rate hikes. Powell’s speech cemented expectations for a December 50 basis point rate hike. The NASDAQ closed 4% higher following the speech.
USD/JPY falls to a 3.5-month low. BoJ’s board member Noguchi hinted towards a less dovish stance from the BoJ, which, combined with Powell’s less hawkish stance, pulled USD/JPY towards 136.00.
BlockFi filed for Chapter 11 bankruptcy. The fallout from FTX collapsing continued last week, with BlockFi the latest victim. BTC/USD remains buoyant, rising above 17k thanks to the upbeat macro backdrop.
Eurozone inflation fell by more than forecast. Inflation in the bloc dropped to 10% YoY in November, down from 10.6%, raising expectations that the ECB will slow the pace of rate hikes.
Protests in China over Covid restrictions. Unrest in China over the strict zero-Covid policy fuels hope that Beijing could ease restrictive measures, boosting risk sentiment.
Oil fell to a 2022 low before rebounding. Oil prices fell to a 2022 low on oil demand fears as lockdown fears in China hit the demand outlook. As optimism surrounding China improved, oil recovered.
Credit Suisse falls to an all-time low. The embattled bank has struggled to win over investors’ support as the bank’s turnaround worries investors, and the Credit Suisse rights fall.
Apple falls on iPhone production concerns. The iPhone 14 and iPhone 14 pro could be scarce this holiday quarter as China factory protests mean Apple faces a shortfall of 6 million phones.
FTSE rises to a 6-month high. The UK index rose to 7600, despite a strong pound. Mining stocks have done the heavy lifting as they track metals higher on China re-opening hopes.
Gold posts its strongest monthly gain in over two years. The precious metal rose 8.5% in November, boosted by the most significant monthly drop in the USD in over a decade as dovish Fed bets rose.
As US stocks continue to rally higher, more and more sectors join the run-up. Meanwhile, the USD experienced its worst performing month since 2010 as the Fed adopts a less hawkish stance.
This chart, the overlay of the S&P500 with emerging market currencies, shows the importance of a weaker US dollar to the bullish trend.
Fresh lows in the US dollar could mean new highs for US stocks.
1. OPEC meeting
OPEC+ will meet on December 4th after significant volatility in the oil market. Rumours that OPEC would increase output were quickly squashed, and then oil rallied on China re-opening optimism. The OPEC meeting is now a virtual meeting which could mean that no changes to output are expected. With the G7 oil price cap and EU Russian oil ban also coming into play next week, OPEC are likely to want to wait and see the impact, if any, on oil prices before they make the next move. OPEC cut production by 2 million BPD in October’s meeting.
2. RBA meeting
Australian inflation cooled by more than expected in November to 6.9% YoY, down from 7.3%, raising hopes that inflation may have peaked. The data supports the RBA’s move to smaller rate hikes of 25 basis points. Another 25-basis point hike is expected in the December meeting. Investors will be listening closely to see if a pause in rate hikes could be on the cards in Q1 2023.
3. BoC meeting
The BoC raised interest rates by 50 basis points in the October meeting, taking the policy rate to 3.75%, the highest since January 2008 when it was 4%. While the labour market remained strong in October, inflation has cooled in recent months. BoC Governor Tiff Macklem said, “we are yet to see a generalised decline in price pressures,” so more rate hikes are needed. The market favours a 25-basis point hike and sees a 20% chance of a 50 basis point hike.
4. US PPI
US PPI cooled by more than expected in October to 8% YoY, as the index extended declines from the 11.7% peak in March. The trend will likely continue as inflationary pressures ease amid improving supply chains. Given that PPI is a lead indicator for CPI, a decline in the index can fuel bets that the Federal Reserve will slow the pace of rate hikes.
5. Eurozone GDP
According to the preliminary reading, the eurozone GDP grew by 0.2% QoQ in Q3, down from 0.6% in the second quarter, but the economy still managed to avoid a recession. The European Commission warned that it expects the eurozone economy to contract in Q4 2022 and tip into recession in Q1 2023 before recovering in Q2.
Economic Calendar Highlights
TA of the major asset classes (Forex – Commodities – Indices…).
EUR/USD (H4 Candlestick Chart)
EUR/USD moved above the twin peaks at 1.048, negating a possible double-top reversal pattern. The trend is higher, suggesting a possible move up toward the next resistance near 1.061. A deeper pullback could test supports near 1.0223 and 1.009.
GBP/USD (H4 Candlestick Chart)
GBP/USD has formed a new higher-high and, in doing so, has confirmed an extension of the uptrend that began in early November. Pullbacks could find support at 1.215, then 1.19, while any leg higher could find resistance at 1.238, then 1.264.
USD/JPY (H4 Candlestick Chart)
USD/JPY has broken below support-turned resistance at 137.6 and further downside in line with the downtrend could find support near 133.8 then 131.6. A rebound could test the 137.6 level or even 139.8.
AUD/USD (H4 Candlestick Chart)
AUD/USD has broken the twin peaks formed at 1.679 but there is nearby resistance at 0.682 created by the major low in May 2022. A break above there could see the uptrend extend towards 0.691. A deeper pullback could test the former range floor near 0.664.
USD/CAD (H4 Candlestick Chart)
USD/CAD has made a substantial pullback within its uptrend and is now below support at 1.340, suggesting a possible trend reversal. If the reversal occurs, 1.331 is the next support, but if the pullback is over, resistance can be found at 1.349 and 1.365.
Gold (H4 Candlestick Chart)
XAU/USD has broken resistance turned support at 1786, in line with the uptrend in place since early November. A drop back under this level could see the gold price test 1735 support, while another rally could extend towards 1807, then 1835.
Brent Oil (H4 Candlestick Chart)
XBRENT has broken resistance at 86.83, suggesting a potential reversal of the downtrend in place since early November. This level is now the nearest level of support, with 84.85 just below. If the reversal higher lasts, a test of the recent peak at 89.25, then 91 looks feasible.
US500 (H4 Candlestick Chart)
XUS500 has broken above its recent trading range, indicating an extension of the uptrend that was in place through November. The range high at 4042 then the range low at 3934 are support, while 4145 then 4207 are possible resistance if the breakout holds.
Thank you very much for reading – and have a great week trading!