Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of November 11, 2021. 17:00 GMT
Source: finviz.com
In case you missed it….
Inflation soars – US consumer prices rose by 6.2% in October, the highest since 1990.
USD spikes – The US dollar hit fresh 2021 highs and EUR/USD tumbled to a 16-month low after the CPI data.
NFP ICYMI – The hot inflation followed a rebound in US jobs growth reported last Friday. The US economy added 531,000 jobs in October
Gold on form – Investors seeking a hedge against inflation turned to gold, which broke out to a 5-month high
VIX rallies – The ‘fear gauge’ has been rising and lies just south of the big 20 level that typically divides calm from fear.
Twitter poll – ElonMusk sold $5B worth of Tesla shares after asking his 63 million Twitter followers whether he should sell 10% of his stake
GE splits – General Electric, one of the original Dow stalwarts has split into three separate companies
Public works – House passed $1T public works bill. The $2T education, healthcare and climate package is still being negotiated
Big EV IPO – Electric vehicle maker and Tesla-rival Rivian had the biggest IPO this year, valuing the company as high as $100 billion
RobinHood breached – A data breach saw shares of broker Robinhood hit a fresh post-IPO low.
Source: Bloomberg
This chart goes a long way to explain the renewed interest in gold. The real Fed funds rate – that’s what the Fed have set as the benchmark interest rate adjusted for inflation, is at its lowest ever, sitting at nearly -6%. That means there is no yield to be earned from cash so there is no opportunity cost to hold gold instead, which is known as a store of value when currencies are devalued and as a hedge against inflation.
Source: FX Street
Is this gold’s moment to shine or yet another headfake? The economic outlook increasingly looks like a perfect storm for the yellow metal. Soaring inflation and a Federal Reserve that is withdrawing massive economic stimulus very slowly. Gold could gain as an inflation hedge or as a haven asset if markets get worried about a Fed policy mistake.
Comparable economic data from Japan and the Eurozone are released this week – Q3 GDP and October CPI. Europe is growing faster and prices are rising faster than in Japan but it should be the region where the change is greatest that will see the strongest reaction. The assumption that the BOJ will be on the sidelines longer than the ECB could get tested.
Besides its importance for the state of the US economy, retail sales will be interesting in the context of inflation at the highest in three decades. If consumers are paying higher prices, naturally they will have to buy less? A soft number here could lead to lower revisions to Q4 earnings expectations.
The Bank of England expect UK inflation to rise as much as 5% in the next few months, yet the MPC decided to kick the can down the road and leave rates on hold in November. That decision could come back to bite them if CPI jumps this week, or they will be vindicated if it doesn’t.
After all the antics of Twitter polls, the selling of stock and the successful public debut of rival EV-maker Rivian, it could be another interesting week for Tesla (TSLA). CEO Elon Musk will have more selling to do if he is to meet the 10% threshold agreed by the Twiteratti.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD did break 1.153 support as we suspected last week and then 1.15. The breakdown means the trend is back down again.
GBP/USD has dropped under the September lows and 1.34 to open up fresh multi-month lows and another leg of the longer term downtrend.
USD/JPY has bounced off the 61.8% Fibonacci of the last big leg higher ands is challenging resistance near 114 as part of what could be a long term bull flag pattern.
AUD/USD continued lower in the new downtrend we discussed last week, falling below 0.73. Next support lies down at 0.722.
USD/CAD did reverse its downtrend after several breakouts mentioned last week with a sharp move up to resistance just under 1.26. 1.255 is near term support.
XAU/USD made a decisive move higher after a breakout of the down-sloping channel we drew last week. 1850 then the previous resistance at 1835 are possible support.
BRENT is trapped in a range between 80.0 and 85.0 in a wide consolidation after big gains in October.
US500 has pulled back from 4700 in what remains a strong uptrend. 4600 then 4540 are next levels of possible support.
Thank you very much for reading – and have a great week trading!
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