Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of October 21st, 2021. 20:00 GMT
                        Source: finviz.com
In case you missed it….
GBP/JPY Boom! The British pound rose to its highest in 5-years versus the Japanese yen.
NZD/USD: Kiwi dollar breaks out to its highest since June. Is this the end of its correction since February?
TRY Whoops: A shock 200 basis point rate cut has sent the Turkish lira to a fresh record low.
Bitcoin Record: After a difficult 6-months, BTC is back up at a record high – reaching over $67,000.
Core blimey! Euro area ‘core’ inflation that strips out food and energy prices is rising at its fastest pace since 2008.
2020 Treasuries. The drop in the bond market has seen 3-year and 5-year Treasury yields return to levels last seen in Q1 2020.
Growing pains: China GDP rose 4.9% y/y in the third quarter, well down from 7.9% in Q2 and missing expectations of a 5.2%.
MSFT: Microsoft shares reached a fresh record high over $300 before earnings this week.
Tesla is electric! TSLA shares are back up near record highs at $900 following well-received Q3 earnings.
WeWork goes public: Under the ticker ‘WE’ – shares of WeWork created under a SPAC jumped on their first day of trading.
More Boosters: The FDA approved ‘booster shots’ of the Moderna and J&J covid-19 vaccines.
                                     Source: Bloomberg
With the Dow Jones and S&P 500 indices back at record highs, it seems an appropriate time to bring back out this stark correlation. The huge 400%+ gains in the S&P 500 over the past 12 years have come alongside a huge expansion of central bank balance sheets. This extra ‘liquidity’ produced by global central banks has found its way into the financial system, causing asset price inflation.
Is the end of the boring BOJ meetings upon us? There is a lot going on in the backdrop for this meeting – Japan’s new Prime Minister is talking about moving away from ‘Abenomics’ the failed economic policy of his predecessor that included the massive monetary stimulus from the BOJ and of course the yen has plummeted in the last fortnight. Change appears to ne coming to the BOJ, but perhaps not as soon as October 2021.
The European Central Bank releases its next set of projections in December so that is when it can give a clear signal on what happens next to its QE and the projection for interest rates. The ECB likely won’t want to pre-empt the Fed so we can probably expect a ‘nothing-burger’ from this meeting.
The Bank of Canada is upfront among the developed central banks ending stimulus and is expected to continue this week by further tapering its asset purchases to CAD $1 billion per week at this meeting. The Cad has been doing well thanks to rising oil prices and tapering from the BOC should underscore those gains.
The kneejerk reaction to US GDP will be on the miss or beat of expectations but the bigger picture needs some context. Of course, growth of the US economy is slowing from the break-neck speed of its recovery. The open questions are how high it will be relative to recent years, the speed of the growth slowdown and how it contrasts to inflation.Â
Looking at tech as a broad group, it remains very important to the major indices like the S&P 500 but its interesting to note that they were underperforming when the indices hit a record high last week. With Big Tech Q3 earnings coming this week, some of these companies (AAPL, FB, AMZN, GGOG, MSFT) can play some catchup for moves over the past week BUT they remain heavily overvalued and possibly ‘priced to perfection’.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD stalled at 1.167. The price moved back over the 20 DMA in a bullish sign but the overall trend remains down.
GBP/USD has accelerated over 1.38, supported by a rising trendline through recent lows. 1.365 is major support, while 1.39 is resistance.
USD/JPY dropped to its old highs at 113.6 with next support at 113.2. The overall trend is up.
AUD/USD broke through resistance at 0.745 and then pulled back to that level. The uptrend is supported by a rising trendline.
USD/CAD snapped above a downtrend line after finding a base at 1.23. The trend remains lower with resistance at 1.24 then 1.243.
XAU/USD remains directionless with a slight bullish bias. 1800 is major resistance that must be overcome before the trend turns higher.
BRENT doubled topped above 85.0 and has since dropped under 83, which is a significant level of support to the uptrend.
US500 is back near its September record high. The short-term correction has been erased with the small remaining risk of a double top at 4550.
Thank you very much for reading – and have a great week trading!
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