Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of December 2, 2021. 16:00 GMT
Source: finviz.com
In case you missed it….
Omicron – Financial markets were rattled by the emergence of a new ‘variant of concern’ first discovered in South Africa.
More severe? – Experts in South Africa have said most cases are mild but vaccine-makers have warned shots might be less effective.
‘Transitory’ retired – Fed Chair Jerome Powell said it is “time to retire the word transitory regarding inflation” in an acknowledgement inflation will be longer lasting.
Faster tapering – In the same breath Powell also said the Fed will consider ending QE quicker than under existing plans.
EUR/USD relief – The euro finally managed to bounce after falling from 1.16 to under 1.12 in two weeks.
Bitcoin bond – El Salvador made history again by issuing the first government bond in Bitcoin and not a fiat currency.
Flying the nest – Twitter stock rose after CEO Jack Dorsey quit the social media giant this week. Parag Agrawal steps in.
#Sad meme – UK regulators have blocked Facebook’s (Meta) takeover of Giphy.
Yields sink – The US 30 year yield fell below 1.75% to its lowest since January.
Curve flattens – The US 2yr yield is rising in preparation of rate hikes – causing a ‘flattening of the yield curve’ that tends to predict recessions.
Mandate rant – CNBC’s Jim Cramer used his ‘Mad Money’ program about stocks to advocate forced vaccination of Americans by the US military.
Source: Twitter @mark_ungewitter
The MSCI World index representing global stocks is testing the all-time highs reached in 2008. But shockingly – since 2008 global stocks have underperformed US stocks (the S&P 500) by 70%. This has been the kind of ‘generational bear market’ that you don’t want to ride!
Source: FXStreet
More data and opinions will be available this week about how infectious the new variant of concern is – and whether it is more deadly. Scientific opinions about the severity of the virus will have a direct knock-on effect for public policy and the likelihood of economically-damaging lockdowns.
Will US inflation rise even further from the 31-year high of 6.2% printed last month? The U-turn from Fed Chair Powell this week would imply the Fed’s own analysis expects inflation to keep going up. A number above 6.2% should be USED-positive.
Commodity currencies AUD & CAD will be in focus this week as commodity-producing nations Australia and Canada decide interest rates. The RBA looks a little way off a rate hike but might start hinting in that direction and another rate increase from the BoC is a very real possibility.
The US yield curve is a line representing the difference between short and long term bond yields. Normally long term yields are higher to compensate for greater uncertainty. When the yield curve ‘flattens’ it means long term and short term rates are about the same. If it ‘inverts’ and shorter term yields are higher than long term rates, it is a reliable signal for a recession in the next 12 months.
Stock markets have placed a greater emphasis on liquidity than geopolitics over the last year but with more countries in Europe adopting vaccine mandates, protests are likely to flare up again and could offer further support to haven assets like the Swiss franc.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD rebounded to
GBP/USD has bounced off 1.32, which we noted last week as a significant level. A break above the downtrend line would confirm a pause to the downtrend.
USD/JPY tumbled sharply from 115.5 and is now consolidating above support at 112.7, which appears likely to break with next support at 112.
AUD/USD has fallen below the neckline of a head and shoulders pattern on the weekly chart, while holding below a downtrend line. A bounce could target 0.728.
USD/CAD continues to trend higher supported by an uptrend line. Major resistance from the August and September peaks lies at 1.29.
XAU/USD fell away from 1810, the resistance we noted last week with declines limited at 1770. A major breakdown could target 1720.
BRENT collapsed through support ay 78 and fell all the way to just above 65. The trend is down but some consolidation might come next.
US500 is now in a short term downtrend with support at 4500 holding after a drop through 4600. 4400 is the next major support.
Thank you very much for reading – and have a great week trading!
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