Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of December 9, 2021. 20:00 GMT
In case you missed it….
RBA Hawkish hold – The Aussie dollar was top FX performer this week after the Reserve Bank of Australia kept rates on hold but sounded bullish on the economy.
Commodity FX – Commodity currencies, including the Loonie were spurred on by a rebound in oil prices.
Zzzzzzzzzzz – Elsewhere among major currencies it was sleepy range-trading ahead of the big central bank meetings in the coming week.
ARK Bears – ARK Invest, the flagship fund run by Cathie Wood is now in a bear market, having dropped 20% from its peak.
RRR cut – The People’s Bank of China cut bank reserve requirements to inject extra liquidity and strengthen the slowing Chinese economy.
Pfizer vs Omicron – Pfizer said preliminary studies suggest that 3 doses of the Pfizer-BioNTech vaccine neutralise the Omicron variant.
NFP miss – The US economy added 210,000 jobs in November, much fewer than the 500,000+ expected.
Eurozone inflation – ECB President Lagarde suggested Eurozone inflation is transitory and most likely peaked after November’s reading of 4.9%.
Russia-Ukraine – Geopolitical tensions between the two nations are flaring up amid calls from both Presidents with US President Joe Biden.
@NancyTracker – Twitter banned an account that tracked the very successful portfolio of US House Speaker Nancy Pelosi.
Are we just thinking about wine ahead of Christmas or is this just fascinating? Wine has for over 30 years had much better returns than the stock market as shown by the Liv-ex Fine Wine Investables Index. But post-covid, the stellar gains in the S&P 500 in the last two years means stocks are outperforming over that period.
This Wednesday, the Fed decides monetary policy and updates its economic forecasts, likely to predict higher inflation with a cautionary note about new coronavirus variants. What happens to QE depends on whether the Fed focuses on inflation or Omicron. If it’s inflation, then the pace of tapering might increase to $25 billion per month from $15 billion, and be finished by April next year.
Expectations for UK rate hikes have been falling alongside the British pound since the Bank of England’s U-turn a month ago. UK inflation data justifies at least a small hike off zero to bring prices back in line but Goldman Sachs is predicting ‘Omicron fears’ will delay UK interest rates lifting-off zero until February 2022.
Shortly after the BOE on Thursday, the European Central Bank will offer an update on monetary policy too. In the last week, ECB President Lagarde stuck to using the word ‘transitory’ about inflation that was ‘retired’ by Fed Chair Powell. That direct contrast explains the downtrend in EUR/USD.
The Bank of Japan is expected to keep policy unchanged again in December after extending its yield-curve control (YCC) program in November. The yen has seen recent demand as a haven asset- causing the big plunge in USD/JPY but there is a floor under the pair because of the BOJ showing little inclination to tighten policy when other central banks are.
The holiday season is here and it’s almost time to start thinking about the implications for the stock market and other related risky currencies. The definition of the Santa rally varies from the whole of December to just the week between Christmas and New Year. The tendency is for stocks to rise as fund managers window-dress their portfolios before year-end.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD continues to range-trade between 1.123 and 1.135. A break higher could carry the pair to 1.145 whereas another drop would see 1.12 tested then possibly 1.11.
GBP/USD continues to flirt with 1.32 without being able to break below it. The price has been contained by the downtrend line, which appears likely to break soon.
USD/JPY is trading in a range between 112.5 and 114. The momentum of the drop from the November 24 peak suggests an eventual break lower.
AUD/USD has rallied off the 0.70 round number, breaking above a downtrend line before stalling ahead of 0.72. Another drop under 0.71 might be needed before the trend can reverse.
USD/CAD broke below its uptrend line and the 20-day moving average before finding support at 1.26. The trend is still higher but might be reversing.
XAU/USD is travelling in a down-sloping channel. We could see the price drop under 1750 if the channel holds or a bounce to 1840 if it breaks.
BRENT has seen a strong rebound from the low near 65 to the 20 day moving average. The trend remains lower but has lost momentum.
US500 snapped out its short-term downtrend with a break above a downtrend line. 4700 is acting as resistance before new record highs and a possible test of 4800.
Thank you very much for reading – and have a great week trading!
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