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Andreas Zanin
Analysis, Education | December 17, 2021

The Week Ahead 📈 20th – 24th DEC

Hello and welcome to the Key To Markets preview of the Week Ahead.

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Contents

  • Currency Pair Performance
  • 10 Big Stories Last Week
  • Chart of the Week
  • Economic Calendar Highlights
  • 5 Things to Watch this Week
  • Technical Analysis: EUR/USD | GBP/USD | USD/JPY | AUD/USD | USD/CAD | Gold | Oil | S&P 500

Currency Pair Performance

5-day performance as of December 16, 2021. 20:00 GMT


10 Big Stories Last Week

In case you missed it….

Turbo taper – The Federal Reserve pivoted its policy to focus on combating rising inflation by doubling the pace of its tapering.

Three hikes – As part of its hawkish pivot, the Fed dot plot showed policymakers forecasting three rate hikes in 2022.

BOE is back – After reneging in November the Bank of England got it done in December. UK interest rates rose to 0.25% in response to a 5% y/y rise in UK CPI.

ECB dials back – The ECB dialled back its stimulus and will end QE in March but Lagarde signalled not rate hikes in 2022.

Loonie loses – The Canadian dollar was the biggest FX faller on the week, pressured by falling oil prices and the Bank of Canada falling behind the Fed.

Metals rip – Short-covering allowed gold and silver prices to higher after reversing early losses following the FOMC decision.

TRY ouch – USD/TRY rallied though 15 to a new record high after the Turkish central bank cut rates in the face of rampant inflation.

Retail disappointment – US retail sales missed expectations, rising just 0.3% in November instead of the 0.8% expected in a payback for the big jump in October.

Apple sliced – Shares of Apple dropped sharply from just shy of a $3 trillion market cap in reaction to news the company will delay the return of its staff return to offices.

EU natgas record – The price of natural gas hit a new record high in Europe after Germany blocked the approval of the Nordstream 2 Russian oil pipeline.


Chart of the Week

It’s a long way to go to get to anything like normal but the Bank of England just lifted the benchmark UK interest rate from 0.1% to 0.25%. They weren’t the only ones this week or this year. Costa Rica lifted rates +50bps to 1.25% and rates in Norway just rose +25bps to 0.50% this week. According to Callum Thomas of Topdown Charts, the year-to-date count adds up to 115 global interest rate hikes. Did the era of low rates just come to an end in 2021?


Economic Calendar Highlights


5 Things to Watch This Week

1)     Thin calendar

After a massive week for central banks and economic data last week, things will slow down considerably over the last two weeks of December. Data-collecting government officials are off on their holidays and will return in January!

2)     Turbo taper reaction

The Federal Reserve’s new timetable for three rate hikes in 2022 and the tapering of QE ending in the first half of the year is still being digested by markets. There was a kneejerk buying of the dollar followed by profit-taking in the USD and short-covering in other assets like gold. Which way will it go this week?

3)     Policy mistake

The dominant theme in markets right now is the pivot from central banks led by the Federal Reserve to remove policy stimulus. Alongside that pivot from easy money to tighter money, there is the risk of a ‘policy mistake’. According to Bank of America’s survey of professional fund managers, it’s that risk of a mistake that poses the biggest downside risk to equity markets.

4)     US core PCE

If we can pick out one datapoint from the economic calendar to look out for its the core PCE inflation stats from the US. This is known as the Fed’s preferred measure of inflation – and was a key driver of the turbo taper decision. CPI reached fresh 30-year highs and chances are that core PCE will too, possibly providing some support to the USD.

5)     Covid passports

Several countries are reacting to the Omicron variant scare with much harsher restrictions over the holiday period. One such place is the UK, where Boris Johnson’s government faced a huge political rebellion but still narrowly passed a law to require a covid passport to enter large events.


Technical Analysis

Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.

EUR/USD (H4 Candlestick Chart)

EUR/USD continues to range-trade between 1.123 and 1.135. The move above the 20-DMA and a downtrend line increases the chance of a break higher, which could carry the pair to 1.145.

GBP/USD (H4 Candlestick Chart)

GBP/USD broke the downtrend line we mentioned last week as well as the 20 DMA. The pair is attempting a reversal higher but needs a decisive break of 1.335 to do it.

USD/JPY (H4 Candlestick Chart)

USD/JPY seems to have ended its retracement of the late November drop and could be about to resume the decline after the break of an uptrend line.

AUD/USD (H4 Candlestick Chart)

AUD/USD did drop under 0.71 and then back over 0.72 as we imagined last week, adding to the evidence that the downtrend has reversed with a move over the 20 DMA.

USD/CAD (H4 Candlestick Chart)

USD/CAD is pulling back from a move over 1.29. The retracement could carry it back to demand zones near 1.27 and 1.26.

Gold (H4 Candlestick Chart)

XAU/USD saw a false break below the December 3 low that ended just above 1750 ands rallied back over 1800 and the 20 DMA in a sign of a possible new uptrend.

Brent Oil (H4 Candlestick Chart)

BRENT is hovering underneath the 20 DMA and resistance at 75 but both look likely to eventually break with 72.5 as support.

US 500 (D1 Candlestick Chart)

US500 failed again to sustain a break above 7440 this week with another brief record high then drop under 4700. 4500 is major support to more declines.


Thank you very much for reading – and have a great week trading!

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