Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of November 4, 2021. 19:00 GMT
In case you missed it….
Fed tapers – The Federal Reserve finally announced it would taper QE by $15 billion per month starting in November.
USD stutters – The dollar dropped on Wednesday when the Fed signalled no plans to raise rates soon but rebounded Thursday.
Bailey bailed – The Bank of England headed by Governor Andrew Bailey chickened out of an expected UK rate hike.
Sterling tanks – GBP/USD crashed back under 1.35 to its lowest since September after the BOE decision.
Lagarde says no – ECB President Christine Lagarde said it is ‘very unlikely’ there will be a 2022 rate hike in the Eurozone.
Forex reverse – Commodity currencies turned from biggest winners to losers, while havens rebounded.
Oh là là !– France’s CAC index hit a 21-year high on ECB stimulus as European earnings impressed.
OPEC ignores Biden – The oil cartel agreed to continue the current pace of output increases, despite US pressure to speed up.
Oil top? – The price of oil violently reversed big daily gains after the OPEC decision on waning bullish sentiment.
Ether record high – The second biggest digital coin by market cap hit a fresh record high.
The reaction in Gilt markets (measured in basis points) to the Bank of England decision to keep rates steady was comparable to the price moves following the COVID-19 outbreak and the EU referendum. Clearly the BOE caught markets by surprise, but the size of the reaction suggests illiquidity in bond markets. Central bank intervention and tighter regulation of bank trading has seemingly resulted in a lack of buyers and sellers. Illiquidity creates financial instability.
The Federal Reserve got away without a ‘taper tantrum’ – i.e. a nervous reaction in financial markets – by coaxing the hawkish taper talk in dovishness about no rate hikes coming soon. This is only possible while policymakers can still make the argument that inflation is temporary. Each passing month that inflation remains high, the further behind the curve the Fed will become- possibly creating the need for a bigger (more disruptive) reaction later.
China producer prices growing at over 10% annually is part and parcel of the global reflation taking place. China forms a big part of the global supply chain and higher prices out of the factory gate in China likely mean higher prices for goods and services in the RoW. This kind of ‘global inflation’ is harder for central banks to combat with tools that effect national credit markets.
The U-turn on a rate hike from the Bank of England coupled with a deficit-expanding, heavy-spending budget from UK Chancellor Rishi Sunak has put pressure on the British pound. However, should UK economic growth hold up, and inflation remain high – the BOE will have to act sooner or later, possibly putting a floor under Sterling.
European stock indices broke out in the last week. The DAX 40 hit a record high, while the CAC 40 reached its highest in 21 years. The moves higher in Europe were accompanied by breakouts in value & cyclical sectors of stock markets in the United States – including the Russell 2000 – suggesting a new rotation as we enter the last two months of 2021.
The United Nations’ COP 26 Climate conference has not made any waves in financial markets – nor is it likely to before it finishes on November 12. However, polices on climate are increasingly important for investment decisions. Whole industries will be won and lost when rules on smart electronics, carbon offsets, green infrastructure spending etc are agreed at meetings like this.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD quickly reversed its breakout above the October 19-25 peals and reversed all the way to 1.153 support, which looks about to give way.
GBP/USD has seen a major trend reversal, taking the pair back under 1.35. The September lows are major support before the onset of a longer downtrend.
USD/JPY has so far held support at 113.2, but it looks less like a head and shoulders pattern and more likely a trend continuation pattern.
AUD/USD double topped at 0.755 and is now making lower lows in what looks like a new downtrend. 0.738 is support before 0.731.
USD/CAD has broken above 1.245 resistance as well as the 20 DMA and a downtrend line. The overall trend is still down but might have just reversed.
XAU/USD is correcting lower in a down-sloping channel after a move up in October. Overall the price is choppy with no obvious trend.
BRENT has now at least temporarily reversed its uptrend with a drop under 82 support followed by the 20 DMA acting as resistance and a drop under 80.
US500 has continued to push higher with 4700 now on the agenda. The old record high at 4550 is support.
Thank you very much for reading – and have a great week trading!
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