3 Major Market Themes (and Potential Winners) for 2022

Last year, risk assets didn’t seem to have a care in the world.

Roaring inflation? No worries.

Central banks pulling back stimulus? So what?

Delta and Omicron variants? Life goes on.

Despite all of those seemingly worrying events, risk appetite demonstrated a remarkable resilience to overcome anything that was thrown in its path. Just look at how the S&P 500 posted 70 new record highs on the way to claiming a 27% advance for 2021.

Still, markets could yet face a year of reckoning in 2022.

Here are three main themes that investors and traders would have to contend with and also the potential winners to look out for:

  1. Stubborn Inflation

In recent months, the prices of goods and services in major economies have skyrocketed (as of Nov 2021):

  • US: fastest inflation since 1982
  • UK: fastest inflation since 2011
  • Europe: record high inflation!

Surging consumer prices are also a major consideration for investors who must choose which asset class could best protect their wealth and purchasing power against the erosive effects of inflation.

Potential winner: Gold

This precious metal is traditionally seen as a way to preserve one’s wealth (hedge) against inflation. However, gold also has an inverse relationship with the US dollar and US Treasury yields (i.e. when the dollar goes down, gold goes up, and vice versa).

In short, gold could have a stellar 2022 if inflation continues surging and the dollar/Treasury yields are kept in check.

Gold daily chart

2) Fed rate hikes

The US Federal Reserve is the most important central bank in the world. And one of their main jobs is making sure that consumer prices don’t rise too much too fast.

The main way they can keep inflation in check is by raising interest rates.

As things stand, the Fed has indicated that they could hike rates 3 times in 2022.

Potential winner: US dollar

Historically, higher US interest rates typically means a stronger greenback. This is because higher interest rates also usually mean higher yields for US Treasuries, prompting global investors to send more of their money towards US assets.

This relationship is set to play out once more in 2022, unless the Fed has to hold back on rate hikes for fear of triggering a recession.

US Dollar Index, daily chart

3) New Covid variant?

We’re entering the third year in this battle against Covid-19. So far, the global economy seems resilient enough to weather the Delta and Omicron variants.

But what if we see a new variant of concern that winds back the pandemic clock?

Pi is the next letter in the Greek Alphabet after omicron. Unless the WHO decides to skip a couple of letters again (like they did before deciding on Omicron), the world will be hoping that the ‘life of pi’ won’t bring us back to lockdowns that shutters the world economy once more.

However, if this tragic turn of events does become reality in 2022 …

Potential winner: Swiss Franc

The Swiss Franc (CHF) is considered a safe haven currency, meaning to say that investors flock to it during times of heightened fear. Recall how CHF was one of the best-performing G10 currencies against the US dollar in 2020, and the Swiss franc also had an annual gain versus all other emerging-market currencies that year.

In a major risk-off event, or a new variant of concern that upends the global economic recovery, expect safe haven currencies including the CHF to be well sought after.

USD/CHF Weekly Chart

Of course, the outlook for financial markets is too vast to be limited to just three themes. So here are five other events to keep an eye on that could rock various asset classes:

  • Brexit risks: GBP, FTSE 100
  • Contagion risks from China’s troubled property sector: CNH, Hang Seng index
  • US President Biden’s spending plans: US dollar, US stocks
  • 2022 US midterm elections (November): US dollar, US stocks
  • Geopolitical tensions between major economies: Safe havens – gold, CHF, USD

Whatever 2022 may spring on the world, it also promises plenty of opportunities for traders and investors.

Hence, it remains vital that market participants stay sharp and keep tabs on major themes that could sway asset prices over this calendar year.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Omicron Fears to Dent S&P 500’s Hopes for New Record High?

Can this benchmark index for US stocks climb to a fresh peak before the year is over, taking advantage of the lack of major economic data and events?

Monday, December 27

  • Australian, UK markets closed
  • CNH: China November industrial profits
  • USD: US December manufacturing activity

Tuesday, December 28

  • Crude: weekly API report on US crude oil inventories, supply and demand
  • JPY: Japan November unemployment, industrial production

Wednesday, December 29

  • USD: US November wholesale inventories
  • US crude: EIA weekly US crude oil inventory report

Thursday, December 30

  • EUR: ECB economic bulletin
  • USD: US initial weekly jobless claims

Friday, December 31

  • CNH: China December manufacturing and non-manufacturing PMIs

Considering the light economic calendar in this final week of 2021, Omicron-related headlines are set to hold sway over market sentiment before we bring the curtains down on the year.

Even so, S&P 500 futures are edging higher at the time of writing.

Although the number of Covid cases have recently spiked in major economies, from the United States to China, the market’s risk appetite has so far appeared willing to look past such concerns. After all, this isn’t the world’s first rodeo against a new variant, and are hoping that the global economy has enough resilience and know-how to overcome it. Such a notion is buffered by the higher vaccination rates globally, which suggest that Omiron’s impact might not be as severe as in the past.

Still, an unexpected turn for the worse in this ongoing battle against Covid-19, which is entering its third year, could see a sharp decline in risk assets. If so, market jitters could be amplified by the thinner liquidity and lower volumes that typically accompany the year-end period.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk-on Sentiment Creeps Back Up

Market participants are given some respite from Omicron fears, hoping that the global economy could still take in stride Omicron’s eventual impact. Asian and European equities are a sea of green, while US stock futures point to gains at the New York open.

The S&P 500 will be attempting to end a 3-day losing streak, with buy-the-dip agents triggered into action once more as the blue-chip index neared its 100-day simple moving average (SMA). This key technical indicator had earlier this month already provided support for the benchmark index for US stocks before sending it onto a fresh record high. Bulls will be hoping for a recurrence before the curtains are brought down on 2021.

Still, it’s worth noting that the thinner liquidity amid this year-end period could be exaggerating price moves.

Hence, I won’t be reading too much into the market action until there’s more clarity from a fundamental perspective, be it on Omicron’s impact on the global economy, or the effectiveness of the Fed’s response to sticky inflation.

Gold prices hemmed in by uncertainties over precious metal’s trajectory

Despite taking advantage of the moderating US dollar today, spot gold remains supressed below the psychologically-important $1800 level as well as its 200-day SMA, and is on course for its first annual decline in three years. Even after posting higher lows since August, gold bulls have been unable to capitalise on that rising support level to push prices onto higher highs.

This triangle that’s forming could force an eventual breakout, though its direction and the fundamental catalyst remains uncertain.

For bullion bulls, they’ll be hoping that real yields on US Treasuries would remain mired in negative territory, which would support gold’s appeal, considering its traditional role as an inflation hedge.

On the other hand, market participants are aware that nominal yields on US Treasuries could yet climb higher if bond markets share the conviction that the Fed’s pencilled-in rate hikes in 2022 would actually produce the desired result of dampening inflationary pressures. More importantly, Treasury yields could spike higher if the bond markets think the risks of a major policy mistake by the Fed are subsiding. Such a climb in Treasury yields could then erode the appeal of gold, as risk-on sentiment takes over, leaving safe haven assets like gold in the dust.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Can NZDUSD Punch Higher on RBNZ Rate Hike?

Monday, November 22

  • CNY: China loan prime rate
  • EUR: Eurozone November consumer confidence
  • USD: President Biden to announce Fed Chair this week?
  • Zoom Q3 earnings (after US markets close)

Tuesday, November 23

  • GBP: BOE’s Jonathan Haskel speech, UK November PMIs
  • EUR: Eurozone November PMIs, Germany Q3 GDP (final)
  • USD: US November PMIs
  • Dollar Tree Q3 earnings (before US markets open)
  • Best Buy Q3 earnings (before US markets open)
  • XPeng Q3 earnings (before US markets open)
  • Analog Devices Q3 earnings (before US markets open)
  • HP Q3 earnings (after US markets close)
  • Dell Q3 earnings (after US markets close)

Wednesday, November 24

  • NZD: RBNZ rate decision
  • USD: US weekly initial jobless claims, 3Q GDP (second estimate), October personal income and spending, October PCE deflator, November consumer sentiment (final print)
  • US crude: EIA weekly US crude oil inventory report
  • USD: FOMC minutes release

Thursday, November 25

  • NZD: New Zealand October trade
  • EUR: Germany December consumer confidence
  • EUR: ECB President Christine Lagarde speech
  • GBP: BOE Governor Andrew Bailey speech
  • Thanksgiving Day: US markets closed

Friday, November 26

  • AUD: Australia October retail sales
  • GBP: BOE Chief Economist Huw Pill speech
  • EUR: ECB President Christine Lagarde speech

The New Zealand dollar is the best performing G10 currency versus the US dollar so far this quarter, and is the only one that can lay claim to an advance against the greenback since end-June.

The kiwi has been bolstered by last month’s rate hike by the Reserve Bank of New Zealand, with another hike likely to happen this week. Policymakers are trying to get ahead of rising consumer prices, with two-year inflation expectations coming in at 2.96% this quarter – the highest since Q2 2011.

Assuming such a hawkish outlook for the RBNZ, the kiwi should remain well-supported going into 2022.

With NZDUSD testing the 0.70 level for support at the start of this week, kiwi bulls will be hoping that this psychologically-important level can provide the base to launch this currency pair onto another cycle high above 0.720.

However, key resistance levels stand in the way, including the 50-day and 200-day simple moving averages.

Alternatively, should the central bank signal a more aggressive policy tightening cycle over the coming months, that could further encourage kiwi bulls.

US dollar still dominates FX space

Of course, the USD side of the equation is set to have a major say on how this currency pair fares over the near-term, with several key announcements due to arrive before Thanksgiving Day.

US President Joe Biden is expected to announce his pick for Fed Chair sometime before Thursday, choosing from either incumbent Jerome Powell or Fed Governor Lael Brainard. The latter is seen to be even more dovish than Powell, hence her nomination could trigger some short-lived declines in the greenback.

Overall, there isn’t likely to be any wild swings in FX markets should Brainard be unveiled as Biden’s pick. This is because both Brainard and Powell are seen to have similar dovish biases when it comes to the Fed’s policy outlook.

The US dollar is also set to react to the slew of economic data due to be released on Thanksgiving Eve, including the Fed’s preferred gauge for inflation. The PCE deflator for October is expected to post higher readings on the month-on-month, year-on-year, and even core prints than in September.

Should those figures exceed market expectations, that might further stoke concerns that inflationary pressures in the world’s largest economy would force the Fed’s hand, no matter who’s Chair in 2022, into hiking US interest rates sooner than expected.

Such a narrative could see the US dollar climbing higher and exerting more downward pressure on the rest of the FX universe, including on the kiwi.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Trade of the Week: Could Biden Spark Crude Breakout?

With OPEC+ sticking to its patient approach in gradually restoring some 400k barrels each month, prices at the pump have remained stubbornly elevated which have raised concerns from Beijing to Washington DC. At the end of October, China already announced that it would release its reserves of diesel and gasoline to alleviate the energy crunch. As basic economics would have it, more supply should see the equilibrium price move lower, all else equal (ceteris paribus).

Will Biden also tap reserves?

Across the Pacific, with American motorists contending with higher prices at the pump, US President Joe Biden has labelled this battle to “reverse” inflation as a “top priority”. Recall how last week, we learned that US inflation in October rose at its fastest pace since 1990 (6.2% year-on-year, compared with the 5.9% market estimate).

With such inflationary concerns translating into a political headache, Biden is rumoured to consider unleashing some of the Strategic Petroleum Reserve (SPR) to help lower how much Americans are spending to fill up their gas tanks.

Should the US President succumb to such political pressures, not just from voters but also from his own colleagues within the Democratic Party, and unleash more crude supplies from the SPR, such a shock move should trigger US crude prices into unwinding more of its 60% in year-to-date gains.

Markets becoming less bullish on oil prices

Notice how US crude reached a 7-year high in late October before easing away from overbought conditions. The threat of more unplanned supplies are capping oil’s upside for the time being.

Similarly, Brent also got agonizingly close to emulating its October 2018 high before pulling away.

Granted, there were technical forces at play, as both Brent and US crude recovered from overbought conditions on the weekly charts as they eased lower from their respective upper Bollinger bands and the relative strength index dipped back into sub-70 domain.

Oil bulls losing momentum

To be clear, markets remain bullish on the near-term prospects of oil prices.

Looking at the market structure, oil contracts remain in backwardation – meaning that markets are willing to pay higher prices to get their hands on oil now rather than later. However, that bullishness (a.k.a. backwardation) has been narrowing in recent sessions. Such waning bullishness can also be seen via the MACD indicator in the US crude chart below.

Still, oil bulls will note that crude is headed once again for its lower Bollinger band which provided sturdy-enough support earlier this month to launch a rebound, albeit a short-lived one. Could US crude stage another rebound this week?

Alternatively, a break below its lower Bollinger band and the psychologically-important $78 mark couldd see US crude testing its 50-day simple moving average (SMA) for support.

From a fundamental perspective, even without the SPR release, global oil markets are expected to return to oversupplied conditions by next year. The US Energy Information Administration (EIA) warned as much just last week, in line with OPEC’s own projections. After all, OPEC+ members are set to continue restoring their output, even as higher prices encourage more production by US suppliers.

And as ever, the Wednesday announcement of weekly US crude inventory levels could still trigger immediate bouts of volatility in oil prices.

US stockpiles have climbed for three consecutive weeks, which in turn has also further dampened sentiment surrounding oil prices. For this week’s print, the markets’ whisper number is a drawdown of 800k barrels; another surprise increase could heap more downward pressure on oil prices.

With all that said, as we get closer to the new year, oil’s upward momentum may be on its last legs and may not need much of an excuse to unwind more of its gains, be it a shock Biden announcement about the SPR or another surprise buildup in US crude stockpiles.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Gold Could Climb Higher on Us Inflation Fears

Sunday, November 7

Daylight savings time ends in the US

Monday, November 8

  • EUR: ECB Chief Economist Philip Lane speeches
  • USD: Fed speak – Fed Vice Chair Richard Clarida
  • Tencent Music Entertainment Q3 earnings

Tuesday, November 9

  • USD: Fed speak – Fed Chair Jerome Powell, San Francisco Fed President Mary
  • Daly, St. Louis Fed President James Bullard
  • GBP: BOE Governor Andrew Bailey speaks
  • CNH: PBOC Governor Yi Gang speaks
  • EUR: Germany September trade, November ZEW survey expectations
  • USD: US October PPI
  • DoorDash Q3 earnings
  • Coinbase Q3 earnings

Wednesday, November 10

  • CNH: China October CPI, PPI, FDI
  • USD: US October CPI
  • USD: US weekly initial jobless claims
  • US crude: EIA weekly US crude oil inventory report
  • Disney Q3 earnings
  • Tencent Q3 earnings

Thursday, November 11

  • China’s Singles Day sales bonanza – watch Alibaba, JD.com
  • JPY: Japan October PPI
  • EUR: European Commission publishes updated economic forecasts
  • GBP: UK 3Q GDP and external trade, September industrial production
  • US bond markets closed for Veterans Day

Friday, November 12

  • NZD: New Zealand October manufacturing PMI
  • EUR: Eurozone September industrial production
  • USD: US November consumer sentiment

Before we take a look at the week ahead, let’s recap how gold prices reacted to last Friday’s US jobs report

Interestingly, Treasury yields tumbled in the wake of that 531k NFP print which exceeded market estimates for 450k. The drop in yields encouraged zero-yielding bullion to soar past the psychologically-important $1800 mark and post its highest closing price since early-September on Friday. At the time of writing, spot gold is trying to hold on to most of its post-NFP gains.

The movements in bond markets suggest that, because of the solid jobs report, that could bring forward the first Fed rate hike since the pandemic. However, markets also think that the rates liftoff in the US might actually trigger the next recession. Hence the flight to safety towards Treasuries, which saw their yields fall, allowing gold bulls to capitalize.

With all that in mind, markets are set to focus on the incoming US inflation data.

The reason that markets expect the Fed rate hike to happen sooner is because, now that the labour market is showing enough resilience, the US central bank could feel bolder about raising interest rates to rein in stubbornly persistent inflationary pressures. Note that markets are forecasting a 5.9% year-on-year growth for the October US consumer price index – that would be its highest reading since 1990!

Typically, when US interest rates rise, Treasury prices fall and their yields rise, all of which combine to exert downward pressure on gold prices. This time however, as explained earlier, markets think that the Fed would be making a mistake in raising interest rates and potentially trigger a recession instead.

In short, if the US CPI figure continues to climb higher, that could in turn fuel more demand for the safe-haven gold for fear of a Fed-induced recession. Still, from a technical perspective, gold bulls have to conquer a major resistance level around $1830, which had thrice repelled prices back in Q3.

Still on the theme of inflation, China is also set to make a mid-week announcement of its own consumer price index. Add to that the producer prices out of the world’s three largest economies – the US, China, and Japan, all due this week – and investors worldwide could get more clues about how the global inflation outlook is shaping up. Of course, very importantly, how various major central banks react to the threat of stubbornly higher inflation is very crucial to how markets react.

Hence, pay attention to the central bankers’ commentary and the data on consumer and producer prices, all of which could influence greatly the performances of major currencies, bond markets, and ultimately gold as well.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: GBPUSD Caught Between Two Major Central Banks

Monday, November 1

  • Manufacturing PMIs for China, Australia, Eurozone, UK, US
  • USD: US October ISM manufacturing

Tuesday, November 2

  • AUD: RBA policy decision, weekly consumer confidence

Wednesday, November 3

  • CNH: China October composite and services PMIs
  • EUR: Eurozone September unemployment, October composite and services PMIs
  • USD: Fed rate decision
  • US crude: EIA weekly US crude oil inventory report

Thursday, November 4

  • Brent: OPEC+ meeting
  • EUR: ECB President Christine Lagarde speech
  • EUR: Germany September factory orders, Eurozone September PPI
  • NOK: Norges Bank rate decision
  • GBP: BOE rate decision
  • USD: US weekly initial jobless claims

Friday, November 5

  • AUD: RBA monetary policy statement
  • EUR: Eurozone September retail sales, Germany September industrial production
  • USD: US October nonfarm payrolls
  • CAD: Canada October unemployment

Entering this week, GBPUSD had broken below its 50-day simple moving average support level and is testing the March/April support region around 1.3670. The US dollar surged before the weekend as markets ramped up their expectations for a Fed rate hike happening by June 2022, while expectations for a Bank of England hike happening this month were unwound.

As such, here are the broad expectations for the Fed and BOE meetings this week:

The Fed is expected to formally announce its tapering decision, beginning the process of unwinding its US$120 billion in monthly asset purchases that had supported the US economy since the pandemic. This tapering should then pave the way for US interest rates to be moved higher.

Markets are now less sure about a UK rate hike being announced on 4th November, assigning just a 43% chance at the time of writing, compared to the 60% chance given about a week prior (as of 22 Oct). However, a December hike by the BOE remains fully priced in.

Overall, a hawkish Fed coupled with a BOE that delays its expected rate hikes would be a bearish outcome for GBPUSD.

Conversely, a BOE that presses ahead with a November hike, alongside a Fed that delays its tapering announcement, could see GBPUSD racing back towards its 200-day SMA resistance level.

US jobs report is another key catalyst for the USD

As if these highly-anticipated central bank decisions aren’t enough, then there’s also the headline-grabbing, market jolting, US nonfarm payrolls report due Friday. Markets are forecasting 450,000 jobs were added in the world’s largest economy last month. Recall that for the past two monthly US jobs reports, the official figures had far disappointed markets.

Should this be a case of “third time’s the charm” and the NFP surprises to the upside instead, that should translate into higher Treasury yields and a stronger dollar, much to the dismay of the rest of the FX world.

OPEC+ to stay patient

Another crucial decision in the coming week pertains to oil supplies out of OPEC+. Overall, markets are expecting the cartel to stick to its intended output hike of 400k barrels, even though there’s increasing pressure from the US government and other major oil-consuming nations for OPEC+ to pump out even more oil to satiate the surging global demand, especially in these colder months.

An unlikely surprise out of the OPEC+ meeting could shock global oil benchmarks.

With oil bulls clearly lacking that extra bit of confidence to push Brent past its October 2018 peak, traders clearly need fresh reasons to push prices higher.

Overall, it’s set to be a busy week that could rock the pound, US dollar, and even oil prices, depending on how big of a surprise is dealt to the markets.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Can Big Tech Earnings Push Nasdaq 100 to New Record High?

Monday, October 25

  • EUR: Germany October IFO business climate
  • Facebook Q3 earnings

Tuesday, October 26

  • CAD: PM Trudeau to announce new cabinet?
  • USD: US September new home sales, October consumer confidence
  • Twitter Q3 earnings
  • Alphabet Q3 earnings
  • Microsoft Q3 (fiscal Q1) earnings

Wednesday, October 27

  • CNH: China September industrial profits
  • EUR: Germany November consumer confidence
  • GBP: UK government’s autumn budget released
  • CAD: Bank of Canada rate decision
  • US crude: EIA crude oil inventory report

Thursday, October 28

  • JPY: Bank of Japan decision
  • EUR: Germany October CPI
  • EUR: European Central Bank decision, October economic confidence
  • USD: US Q3 GDP, weekly initial jobless claims
  • Amazon Q3 earnings
  • Apple Q3 (fiscal Q4) earnings

Friday, October 29

  • AUD: Australia September retail sales
  • EUR: Eurozone October CPI, Q3 GP
  • USD: US September personal income and spending, PCE price index, October consumer sentiment

The ongoing US earnings season has already helped the likes of the S&P 500 and the Dow Jones indexes to close at fresh record highs this past week. Over the coming days, with the likes of Facebook, Twitter, Alphabet (Google’s parent company), Microsoft, Amazon, and Apple all due to release their respective earnings, could Big Tech’s earnings help push the Nasdaq 100 index to a fresh record high as well?

Note that the tech behemoths listed above have a combined value of over US$ 9 trillion, which is about 52% of the Nasdaq 100’s total market cap. In other words, given the sheer size of these stocks (except for Twitter which is not a member of the Nasdaq 100 index), they should have a major say on how the broader index performs.

Given that the Nasdaq 100 is just some 2% from its highest-ever closing price, which was registered on 7th September, one would think that a fresh peak is within reach. However, those who have been following global markets would know of the major headwinds facing tech stocks.

From the looming prospects of Fed rate hikes (overall, tech stocks do not perform well as US interest rates rise), to global supply chain issues, to heightened regulatory scrutiny, there are enough reasons on the table currently to warrant caution surrounding tech stocks. Recall how the share prices of social media platforms such as Facebook and Twitter were dragged lower by Snap’s dismal outlook after reporting its own earnings last week.

In short, it might be a bigger ask for the Nasdaq 100 to climb to a new summit relative to the S&P 500 and the Dow, given the challenges for tech companies.

As for the economic calendar, the Bank of Canada, European Central Bank, and the Bank of Japan are all not expected to adjust their respective benchmark rates this week nor make any policy adjustments. However, it’s their commentary surrounding their next policy move which could move their respective currencies. Should any of these central bankers harp on concerns over potentially out-of-control inflation, that might suggest that they’d have to raise rates earlier than expected. Such an outlook could push their currency higher; so watch the CAD, EUR, and JPY pairs.

The GDP prints out of the US and the Eurozone, as well as China’s latest industrial profits, will all be closely monitored amidst fears that the global economy risks entering a period of stagflation (higher consumer prices amid sluggish economic growth). If the US, Europe, and China combined can show that these major economies have enough growth momentum, despite concerns over the Delta variant and supply chain bottlenecks during the third quarter, that could be conducive for risk appetite.

The UK government’s autumn budget release is also set to be a key event for the Pound. If markets take positively to a budget that solidifies the UK’s post-pandemic recovery, that might cheer Sterling bulls into helping cable launch another attempt to breach its 200-day simple moving average.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Economic Data to Push Brent Past 2018 Peak?

Such is the upward momentum in commodity prices that oil was able to shrug off China’s lower-than-expected Q3 GDP and September industrial production data this morning. Despite signs of slowing growth momentum in the world’s second largest economy, that could point to slowing demand for the commodity, oil benchmarks climbed another one percent at the start of the Asian session on Monday.

From a fundamental perspective, global investors will be parsing the economic data releases this week for more signs about the tightening conditions in oil markets:

Monday, October 18

  • USD: Fed speak – Kansas City Fed President Esther George and Minneapolis Fed
  • President Neel Kashkari
  • Apple to unveil redesigned MacBook Pro laptop

Tuesday, October 19

  • AUD: RBA October minutes
  • GBP: BOE Governor Andrew Bailey speech
  • Google to launch Pixel 6 phones
  • Netflix Q3 earnings

Wednesday, October 20

  • CNH: China loan prime rate, September new home prices
  • JPY: Japan September trade
  • EUR: Eurozone September CPI (final print)
  • GBP: UK September CPI
  • US crude: EIA crude oil inventory report
  • Tesla Q3 earnings

Thursday, October 21

  • EUR: Eurozone October consumer confidence
  • USD: US weekly initial jobless claims
  • Intel Q3 earnings

Friday, October 22

  • EUR: Eurozone October PMIs
  • GBP: UK September retail sales, October Markit PMIs
  • CAD: Canada August retail sales
  • USD: US October PMIs

This surge in commodity prices has been due to rising demand as economies reopen from the pandemic, while supplies have been scarce. Global inventories of oil are below their 5-year averages, while last week, we learnt of the large drawdown in US stockpiles in the key hub of Cushing, Oklahoma.

This leaves major economies scrambling for oil to meet the rising demand, especially ahead of the winter months where consumers need heating fuel, with the likes of Europe and the UK now facing an energy crisis.

Fundamentally, oil benchmarks should have more reasons to climb higher, although one would suspect that most of its steepest gains are now in the past. Global market conditions are expected to tighten through the end of 2021, before tipping back into oversupply next year.

Hence, it would be of particular interest to see how Brent prices behave around the $86 region, assuming they get there.

Three years ago, that $86.29 summit was then followed by a drop of over 40% through the end of 2018 before rebounding through the first quarter of 2019.

To be clear, I do not expect a similar scenario of a sharp drop going into 2022. I do expect more gains before year-end, with prices then likely to moderate as oil markets become oversupplied once more in 2022. After all, OPEC+ has pledged to gradually restore its output over the coming months, which should help tilt the balance.

However, if stagflation fears rise, that could hasten the declines for oil prices.

Stagflation is an environment whereby surging consumer prices comes at a time when global growth is stagnant. Such conditions typically erode demand for the commodity. As basic economics dictate, when demand falls, so too do prices. Hence, a stagflation scenario is a crucial concern for markets and it warrants close attention.

With all that in mind, global investors will be keenly eyeing this week’s data out of major economies. The PMI readings out of the Eurozone, the UK, and the US would also speak to the health of these major economies.

If the global economic recovery is showing more signs of stagnating, that could imply that demand for oil in the near future may moderate relative to supply. Such an outlook could also weaken support for oil prices.

In short, watch how oil prices react to these major economic data, and of course, the weekly EIA inventories report for the US as well.

A strong breach of $86 should pave the way for $90 Brent, but Brent has to first overcome that psychologically-important resistance level at that 2018 summit.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Stubbornly Elevated Us Inflation Could Lift Dollar, Drag Gold

Monday, October 11

  • US bond markets closed
  • IMF/World Bank annual meetings
  • USD: Fed speak – Chicago Fed President Charles Evans

Tuesday, October 12

  • AUD: Australia September business conditions and confidence
  • GBP: UK August unemployment, September jobless claims
  • EUR: Germany October ZEW survey expectations
  • USD: Fed speak – Atlanta Fed President Raphael Bostic

Wednesday, October 13

  • AUD: Australia October consumer confidence
  • CNH: China September external trade
  • EUR: Germany September CPI
  • GBP: UK August industrial and manufacturing production
  • EUR: Eurozone August industrial production
  • Brent: OPEC monthly market report and IEA World Energy outlook
  • USD: September FOMC minutes and CPI
  • S&P 500: US earnings season kicks off

Thursday, October 14

AUD: Australia September unemployment, October consumer inflation expectations

  • CNH: China September PPI and CPI
  • JPY: Japan August industrial production
  • USD: US weekly initial jobless claims
  • US crude: EIA crude oil inventory report and IEA monthly market report

Friday, October 15

USD: US September retail sales, October empire manufacturing and consumer sentiment

The obsession over the US inflation picture continues this week, with markets expecting a month-on-month print of 0.3% while the year-on-year print is forecasted to be 5.3%. If so, both those figures would match the readings from August, which would suggest stubbornly high inflationary pressures in the world’s largest economy.

Such an inflation outlook could force the hand of the Federal Reserve into raising interest rates sooner than expected in order to prevent consumer prices from getting out of control.

Recall that at last month’s FOMC meeting, half of the committee have already penciled in a rate hike in 2022, with policymakers also signaling their intent to begin easing up on their asset purchases before 2021 is over.

Given such hawkish inclinations out of the Fed, it creates a supportive environment for the US dollar, while keeping gold prices suppressed. That’s why gold prices were unable to punch higher in the wake of last Friday’s disappointing US nonfarm payrolls figures. Despite the slower-than-expected hiring in the US, market participants are already preparing for the eventually of the Fed’s tapering. And the Fed’s tapering should extend the rebound in Treasury yields which should lift the greenback alongside, while heaping downward pressure on the zero-yielding bullion.

With all that in mind, if this week’s CPI exceeds markets’ forecasts, the same market scenario is expected to play out: yields and dollar rise, gold falls.

However, a lower-than-expected growth for the September CPI could see gold prices recover slightly, while the dollar could unwind from of its recent gains.

Oil to climb higher on bullish OPEC, IEA cues?

Surging oil prices have been a major contributor to the concerns over potentially out-of-control inflation in major economies. Oil bulls could be emboldened to push benchmark crude prices higher if the monthly market reports out of OPEC and the IEA this week point to market conditions tightening even further (not enough supply to meet global demand that’s rapidly recovering from the pandemic).

Oil prices climbing even higher would likely further stoke inflation fears, which could mean more support for the dollar, more downside for gold, and having a dampening effect on stocks.

Speaking of stocks, the US earnings season kicks off this week, with Wall Street titans such as JPMorgan, Bank of America, and Goldman Sachs due to release their respective 3Q results. While these financial reports could sway the individual stocks and others in the same industry, ultimately broader trends such as the Fed’s next policy move and the global inflation outlook should have a bigger say on how benchmark US stock indexes such as the Dow and the S&P 500 would fare this week.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events this Week: OPEC+ Decision and US Nonfarm Payrolls

Will traders find enough reason to push both oil and the buck higher this week?

Markets will be closely monitoring the OPEC+ meeting and the upcoming US nonfarm payrolls report, along with these other scheduled economic events:

Monday, October 4

  • China markets closed through Thursday
  • Brent: OPEC+ decision
  • USD: Fed speak – St. Louis Fed President James Bullard

Tuesday, October 5

  • AUD: Reserve Bank of Australia policy decision
  • JPY: BOJ Governor Haruhiko Kuroda speech
  • EUR: Eurozone August PPI
  • USD: US September ISM services index

Wednesday, October 6

  • NZD: RBNZ rate decision
  • EUR: August Eurozone retail sales, Germany factory orders
  • USD: September ADP employment change
  • US crude: EIA crude oil inventory report
  • USD: Fed speak – Kansas City Fed President Esther George

Thursday, October 7

  • EUR: Germany August industrial production
  • HK stocks: PBOC Governor Yi Gang speaks on “China’s experience with regulating big tech”.
  • USD: US initial jobless claims
  • USD: Fed speak – New York Fed President John Williams
  • EUR: ECB Chief Economist Philip Lane speech
  • Tesla annual shareholder meeting

Friday, October 8

  • CNH: China September Caixin services and composite PMIs
  • EUR: Germany August trade
  • CAD: Canada September employment change
  • USD: US September nonfarm payrolls

Will OPEC+ give the green light for $80 Brent?

Brent futures have climbed for a sixth consecutive week to trade around its highest levels since 2018. However, as economic principles would have it, higher prices also tend to encourage more supply.

Such will be the dilemma when OPEC+ gathers today (Monday, 4 October) to decide on its collective production levels for November.

As things stand, the alliance has agreed to gradual monthly supply hikes of 400k barrels per day (bpd). However, that is not enough for a world that’s growing increasingly desperate for more oil, especially as the colder winter months approach.

Hence, the alliance of 23 major oil-producing nations may be tempted to take advantage of the higher prices and generate more income by selling more of its supplies to a world that’s craving for it.

Such a surprise move by OPEC+ may, as a knee-jerk reaction, unwind some of the recent gains in oil benchmarks as markets price in the prospects of higher-than-expected supplies.

However, oil bulls are likely to wait for the crucial OPEC+ decision. If the alliance sticks with their current output plan, that should be the green light to push Brent past $80/bbl.

Will the dollar post fresh 2021 highs?

Last week, the benchmark dollar index (DXY) posted a new year-to-date high above the psychologically-important 94 mark. The recent surge in US Treasury yields has lifted the greenback, as markets price in the growing prospects of a US rate hike happening sooner rather than later.

On September 1st, markets had priced in a 77% chance of a Fed rate hike happening by December 2022. Those odds have now gone past 95% – meaning that a hike by end-2022 is now almost fully priced in.

Enter the highly-anticipated US nonfarm payrolls report due this Friday.

As Fed Chair Jerome Powell has made clear recently, further progress in the US jobs markets would essentially give policymakers the green light to start tapering its bond purchases before the year is over (widely expected to commence in November). And with US inflationary pressures already showing signs that it could stay around for longer than expected, more employed Americans could raise demand-side inflationary forces.

Such economic conditions could mean that the policymakers may have to bring forward their rate hike, and such prospects only suggests more upside for the US dollar.

Note that the DXY has eased away from overbought conditions, falling back below its upper Bollinger band and its 14-day relative strength index moderating back below the 70 line. With some of the froth cleared in the dollar index, that should clear the path for more near-term gains, if indeed the US economic data warrants it so.

Of course, we note the typically inverse relationship between oil and the dollar. Hence, all of the factors above should make for an interesting week for oil prices and the US dollar, and whether both can sustain their respective surges of late.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events this Week: Markets to Rock to Central Bankers’ Talk?

Central bankers continue to hog the limelight this week, as markets await for more potential monetary policy clues from policymakers’ scheduled speeches, alongside some scheduled economic events:

Monday, September 27

  • EUR: ECB President Christine Lagarde speech
  • USD: Fed Speak – Fed Governor Lael Brainard, Chicago Fed President Charles E
  • vans, New York Fed President John Williams

Tuesday, September 28

  • CNH: China August industrial profits
  • AUD: Australia August retail sales
  • EUR: ECB President Christine Lagarde speech
  • USD: US consumer confidence
  • USD: Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testify before the Senate
  • GBP: BOE Governor Andrew Bailey speech

Wednesday, September 29

  • JPY: Japan’s Liberal Democratic Party elects a new leader (next PM)
  • EUR: Eurozone September economic confidence
  • US crude: EIA crude oil inventory report
  • Central bank chiefs speak: BOE’s Bailey, BOJ’s Kuroda, ECB’s Lagarde, Fed’s Powell

Thursday, September 30

  • CNH: China September PMIs
  • EUR: Eurozone August unemployment
  • USD: US weekly initial jobless claims
  • USD: Powell and Yellen testimonies before House Financial Services Committee
  • USD: Fed speak – New York Fed President John Williams, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans, St. Louis Fed President James Bullard
  • USD: Deadline for Congress to avert government shutdown

Friday, October 1

  • EUR: Eurozone September CPI and Markit manufacturing PMI
  • GBP: UK September Markit manufacturing PMI
  • USD: US August PCE inflation, personal income and spending
  • USD: US September Markit manufacturing PMI, consumer sentiment, ISM manufacturing,
  • USD: Fed speak – Philadelphia Fed President Patrick Harker, Cleveland Fed President Loretta Mester

Central bank policy moves have been a central theme for global financial markets so far this year, and will come into sharper focus in the final quarter of 2021.

In the final few days before Q4 official arrives, investors and traders worldwide would have to contend with a slew of speeches from central bank officials, fresh from their latest policy meetings.

Keep in mind that the Fed has recently reminded us of the possibility for its tapering of asset purchases to begin “soon”, likely starting November. The Bank of England just last week said it was open to the possibility of raising interest rates this year to get ahead of inflationary pressures.

Meanwhile, the European Central Bank appears to be sticking to its patient stance, potentially leaving the ECB lagging behind its major G10 peers in the journey towards restoring policy settings to pre-pandemic levels.

Overall, markets tend to push higher the currency of the central bank that’s moving closer to normalizing their own policy.

With all that in mind, pay close attention to how the US dollar, British Pound, and the euro react to comments out of these central bank officials. More hawkish clues could send that particular currency higher, while dovish tones could pull the currency lower.

And with the euro and the pound being two of the 6 constituents on the equally-weighted USD index, these tugs and pulls between central banks’ policies could dictate its near-term performance.

Political uncertainties could lift safe haven currencies

Markets are also set to get a dose of political drama, be it finding out who will become the next German Chancellor or the next Japanese Prime Minister, and their respective policy inclinations, or even the attempts in Capitol Hill to avoid a US government shutdown.

Given the likes of the Swiss Franc, Japanese Yen, and the US dollar which are deemed safe haven currencies, risk-off tones due to political uncertainties could buffer these currencies in their respective FX pairings.

As for the US, the political drama is likely to be moderate, knowing that politicians have on multiple occasions in the past arrived at a deal at the 11th hour to avert the shutdown.

Overall, heightened political uncertainty could push USDJPY closer to its year-to-date high above 111.0.

Gold to react to inflation signals

Gold prices could be in for some volatility this week, as the August print for the Fed’s preferred inflation gauge is set to be unveiled. If that PCE data, or the consumers’ inflation expectations, or prices paid by US businesses, all point to surging inflationary pressures in the world’s largest economy, that could prompt markets into thinking that the Fed has to hike rates sooner than expected.

Note that half of the FOMC are already penciling in a rate hike by next year, with markets fully expecting it to happen by December 2022. Should those expectations be moved forward due to signs of faster inflation, that could translate into more gains for the greenback, while heaping downward pressure on the rest of the FX universe and on gold.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Trade of the Week: How might the Fed or BOE influence GBPUSD?

Markets are expected to push higher the currency of whichever central bank that’s perceived to be closer towards moving its policy settings back to pre-pandemic levels.

Markets are pricing in a 50% chance of a BOE rate hike in March, and 89% chance for a May hike.

The Fed funds futures are forecasting an 75% chance of a US rate hike only by December 2022.

How has GBPUSD been faring?

At the time of writing, the British Pound is barely hanging on to its year-to-date gain against the US dollar, no thanks to the buck’s climb at the onset of this trading week. Still, it remains the best-performing G10 currency versus the greenback so far in 2021.

The currency pair known as ‘cable’ is currently testing a key support region around 1.3670, which had held resolute in March and April this year. Failure to hold could see immediate support at August’s low of 1.36022, followed by 1.35719 which was the lowest point in cable’s summer declines.

Key days lie ahead

Whether or not GBPUSD will either recover from or falter to those above-mentioned levels could be determined during this timeline:

Wednesday, 22 September: FOMC policy decision

To be clear, the Fed is not expected to actually make any adjustments to its policy settings this week. However, they are expected to signal that ‘tapering’ is coming (‘tapering’ is the name given to the process of the Fed starting to wind down its $120 billion in monthly asset purchases that have supported the economy since the pandemic).

A strong signal out of the Fed that it’s getting ready to begin its tapering process, probably before year-end, could spell more gains for the US dollar which could then in turn exert downward pressure on the rest of the FX universe.

What to watch out of the FOMC meeting:

  • Fed Chair Jerome Powell’s commentary on his policy outlook.
  • Economic forecasts through 2024, specifically around inflation.
  • Dot plot (which conveys where each FOMC member thinks interest rates would be over the coming years. In June, 7 of 18 members already pencilled in a 2022 hike.)

Overall, elevated projections for consumer prices could mean the Fed has to hike rates sooner than later to get ahead of inflation.

Should such an outlook push more FOMC members into bringing forward their rate hike expectations, along with a Fed Chair that is leaning closer towards his hawkish colleagues, such a combination could bring gains for USD.

Thursday, 23 September: BOE policy decision

Like the Fed, the Bank of England isn’t likely to make any actual policy changes this week. However, the eight members on the BOE’s Monetary Policy Committee are now evenly split (4-4) on whether the UK economy has recovered sufficiently to meet the central bank’s inflation target.

Should the MPC make a hawkish tilt, that could help trigger a rebound in Sterling currency pairs.

On the other hand, should the MPC lean decidedly dovish, that could see GBPUSD testing key support levels mentioned earlier (around 1.36), depending on how the USD reacts to the FOMC’s decision which will arrive before the BOE has its say.

Friday, 24 September: Speeches by Powell and other Fed officials

Before the weekend arrives, the attention will be back on the Fed. With markets having had some time to digest the outcomes from the Fed’s mid-week meeting (economic projections, dot plot, Powell’s press conference), markets will be wanting to see what other Fed officials have to say about their respective policy outlooks.

More hawkish rhetoric could keep the US dollar elevated, while a dose of dovishness could unwind recent dollar gains.

How are markets positioned ahead of such important central bank meetings?

In the week ending 14 Sept, hedge funds have raised their net long positions in Sterling to the highest in a month, reversing a net short position from the week prior.

As of 14 Sept, asset managers have trimmed their net short positions on GBP for a third consecutive week.

However, looking at the 25-delta risk reversals, markets are bearish on the pound as well as all G10 currencies (except for the Japanese Yen) versus the US dollar over the next one week, a timeframe which encapsulates both the Fed and BOE meetings.

Markets are also pricing in more volatility, with one-week implied volatility for GBPUSD rising to its highest levels since May.

In summary, traders and investors will be closely watching what comes out of this week’s policy meetings on either side of the pond, while bracing for bigger moves in GBPUSD.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Hawkish ECB Meeting Could Spur More Euro Gains

Tapering remains a key theme for markets in the coming week filled with these potential market-moving events:

Monday, September 6

Tuesday, September 7

Wednesday, September 8

Thursday, September 9

Friday, September 10

Will the ECB inch towards tapering?

All eyes will be on ECB President Christine Lagarde, a notable dove, and whether she might warm up to the hawkish tones emanating from within the Governing Council. If so, then the euro could climb higher, noting that the shared currency still holds year-to-date declines against most of its G10 peers.

With the worst of the pandemic now behind the Eurozone economy, the ECB may have to start thinking about reining in its emergency asset purchases, or at least start talking about it as many major central banks have started doing, including the Fed. After all, Eurozone inflation hit 3% in August, its highest in a decade and above the ECB’s 2% target.

However, some ECB officials are still preaching caution, while European Union economy commissioner Paolo Gentiloni just this past weekend warned against a premature tightening of policy, which he labelled would be a “big mistake”. He reiterated the thought that inflationary surges of late would be a “temporary phenomenon”, a similar sentiment expressed across the Atlantic as well.

EURUSD to reflect ECB vs. Fed tapering expectations

Besides pitting the doves against the hawks within the ECB, traders and investors are also comparing the ECB against the Fed in their respective journeys towards tapering.

Recall that as recently as 27 August, Fed Chair Jerome Powell had stated that he was open to throwing his weight behind starting to rein in the US central bank’s own purchases before the end of this year. But those comments came before last Friday’s shockingly low nonfarm payrolls print (235k vs. expected 733k).

The hiring downshift in the US labour market could complicate the Fed’s tapering timeline.

Euro traders will similarly be monitoring the data out of Germany, the EU’s largest economy, over the coming days to see if the ECB might also be given reasons to hold up on the thought of tapering. Note that recent confidence readings for German businesses and consumers came in lower than expected due to disruptions from the Delta variant.

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Still, if the ECB is seen to be moving closer to normalizing its policy settings, at a time when the Fed is forced to pause, that could help EURUSD break sustainably above the psychological 1.19 mark, with bulls then potentially eyeing next the late-June high of around 1.1975 as the next resistance level of interest.

If the euro surges, that should also prompt the benchmark dollar index (DXY) to unwind more of its recent gains, given that the euro accounts for 57.6% of the DXY.

However, if the mid-week speeches from Fed officials sound defiantly hawkish even in the face of last month’s US hiring slump, that should buttress the greenback.

Hence, pay attention to euro this week, which is bound to reflect market expectations on the ECB’s policy outlook.

A surprise hawkish pivot could prompt this equally-weighted euro-index to break to the upside, having been trading sideways since mid-April.

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For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Cooling US Jobs Market May Give USD Bears Room to Breathe

Here are the events that could move global financial markets this week:

Monday, August 30

  • JPY: Japan July retail sales
  • EUR: Eurozone August economic/consumer confidence

Tuesday, August 31

  • JPY: Japan July industrial production and unemployment
  • CNH: China August manufacturing and composite PMIs
  • NZD: ANZ August business confidence
  • EUR: Eurozone August CPI
  • CAD: Canada GDP (June, 2Q)
  • USD: US August consumer confidence

Wednesday, September 1

  • CNH: China August Caixin manufacturing PMI
  • Japan, Eurozone, UK, US manufacturing August PMIs
  • EUR: Eurozone unemployment
  • Brent Oil: OPEC+ decision on production
  • US Crude: EIA crude oil inventory report

Thursday, September 2

  • EUR: Eurozone July PPI
  • USD: US weekly jobless claims

Friday, September 3

  • CNH: China Caixin August services and composite PMIs
  • JPY: Japan August services and composite PMIs
  • GBP: UK August services and composite PMIs
  • EUR: Eurozone July retail sales, August services and composite PMIs
  • USD: August US nonfarm payrolls, services and composite PMIs, ISM services index

Tapering now less-feared?

Despite saying he is open to pulling back on the central bank’s asset purchases this year, Powell sought to divorce the idea of tapering as an immediate precursor to a US interest rate hike.

In other words, although the Fed’s tapering may indeed start this year, the rate hike may not follow soon after the tapering ends.

This is because the Fed Chair once again said he wants to see sustained above-target inflation and a broad-based recovery in the jobs market. At Jackson Hole, he sent out a reminder about the 6 million jobs that are still lost since the pandemic, as well as reiterating his belief that the inflation surges may be “transitory”.

That message was heeded by the markets. After Powell’s speech, markets lowered their expectations for a November 2022 US rate hike from 53% to 40.5%. However, they still are forecasting a greater-than-even chance (76.5%) of a pre-Christmas rate hike in December 2022.

And this is where Friday’s jobs report comes in.

Markets are currently expected a figure of 750,000 jobs added last month, which is lower than the June and July figures that were above 900k.

USD bears could breathe a sigh of relief on signs of moderating jobs growth and a stagnant unemployment rate, as those should mean a longer runway before the US interest rate hike. And given the persistent threat of the Delta variant’s spread through the world’s largest economy, that could delay workers’ return to jobs. If this Friday’s jobs data indeed prove to be subdued, that might lower the chances of a sooner-than-later Fed rate hike, while preventing the greenback from surging higher in the interim.

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Oil markets await OPEC+ decision

Recall that back in July, OPEC+ agreed to raise output by 400k barrels per day (bpd) starting in August, accompanied by subsequent 400k bpd hikes each ensuing month.

However, since that July decision, the Delta variant’s resurgence in major economies has forced lockdowns once more in countries such as China, Australia, and New Zealand. Hence, it remains to be seen how OPEC+ takes into account these demand-side risks, while ensuring members can claim enough market share to keep them satisfied.

Although oil markets are still expected to tighten through year-end, one doesn’t need to be reminded about how swiftly the Delta variant can alter that outlook.

Should OPEC+ press ahead with its intended supply hikes, that could signal confidence that global demand is robust enough to absorb that incoming supply. Still, if traders and investors don’t share that same optimism, should OPEC+ leave its supply hike plans unchanged, that could prompt Brent oil to unwind recent gains and falter back into the sub-$70/bbl region once more.

Oil markets will also be closely monitoring the impact of Hurricane Ida on US oil supply infrastructure. Signs of tightening supplies, depending on the duration, could spur oil prices higher despite Brent being resisted at its 50-day simple moving average at the time of writing.

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For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Will Jackson Hole Deliver on The Hype?

Besides the comments by Fed officials at the symposium, here’s a list of notable market-related events for the week:

Monday, August 23

EUR: Eurozone August manufacturing, services and composite PMIs
GBP: UK August manufacturing, services and composite PMIs
USD: US August manufacturing, services and composite PMIs

Tuesday, August 24

EUR: Germany 2Q GDP (final)
USD: US July new home sales

Wednesday, August 25

EUR: Germany August IFO business climate
EIA crude oil inventory report

Thursday, August 26

USD: US weekly jobless claims and 2Q GDP (second estimate)

Friday, August 27

CNH: China July industrial profits
USD: US July personal income and spending
USD: US July PCE price index
USD: US August consumer sentiment (final)
USD: Fed Chair Jerome Powell delivers speech virtually at Jackson Hole Symposium

Market participants will be clinging on to every word uttered by Fed Chair Jerome Powell, and those of the other Fed officials who might be commenting as part of the yet-to-be-unveiled full agenda (to be released on 26 August).

US policymakers are seemingly on the cusp of easing up on their asset purchases that have shored up global financial markets since the pandemic. The FOMC July meeting minutes that was just released last week suggested that the tapering could even begin before 2021 is over.

Experienced market observers know that the symposium, where policymakers traditionally engage in open discussion, could produce the slightest hint about the Fed’s next policy move and such hints, if they happen, could jolt multiple asset classes.

Dollar poised to climb another leg up on more tapering talk

Some market participants think this will be a non-event, given how much various Fed officials have already telegraphed their tapering intentions over recent months. Others however are bracing for heightened volatility on potential cues out of Fed officials, judging by positioning in the options markets for various asset classes.

Should Fed officials on Friday point to an even more bullish case for tapering, that might push the US dollar even higher while prompting the likes of gold and US stocks to unwind more of their recent gains.

However, should Fed Chair Jerome Powell, in his virtual speech on Friday, pour cold water on the thought of announcing the Fed’s tapering plans anytime soon, that could prompt the greenback to unwind recent gains while potentially evoking a cheer out of gold and stock market bulls.

Friday data could overshadow Powell’s speech

Investors and traders worldwide will also be assessing whether the views espoused by Powell, a notable dove, would be in line with the latest US economic data. Before the Fed chair even utters a single word on Friday, investors will be poring over the trove of figures on US personal income and spending, as well as the Fed’s preferred inflation gauge, the PCE price index.

If the data suggests that the US economic recovery is roaring ahead and that the Fed has to taper sooner rather than later, market participants might pay less heed to Powell’s potentially dovish coos and instead race ahead of the world’s most influential central bank that markets think might be at risk of falling behind the inflation curve.

USD Index forms a golden cross

Note that the equally-weighted US dollar index is now pulling away from technically overbought territory, as it moderates back to within its Bollinger band and its 14-day relative strength index returns below the 70 line which typically denotes overbought conditions. Yet, it has the potential to set a new 9-month high if dollar bulls are emboldened by heightened prospects of a Fed’s tapering announcement that’s looming closer.

And having formed a golden cross (where its 50-day simple moving average crosses above its 200-day counterpart), such a technical event also typically paves the way for more upside.

usd_indexdaily_9

For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Market Calm Post-US CPI

The dollar is consolidating yesterday’s selloff while stock markets and bond markets have breathed a collective sigh of relief that inflation didn’t accelerate even further. Value-sensitive sectors like materials, industrials and financials outperformed on the day pushing the Dow and S&P500 to fresh record high closes. European bourses had hit multi-year highs yesterday but have opened up mixed so far.

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Oil rebounds

It was a volatile day in oil markets with prices moving down towards $69 and then up above $71 on various headlines. The US administration heaped pressure on OPEC and its allies to boost supply to tackle rising gasoline prices. The Biden Presidency wants to see Americans “have access to affordable and reliable energy…at the pump”. Of course interestingly, concerns over rising commodity prices are also being voiced by the Chinese authorities.

The current increase by OPEC+ agreed recently of 400k barrels per day is seemingly not enough. But given the uncertainty around the spread of the Delta variant, it seems unlikely that the Saudis and the oil-producing group will want to increase production just yet. The contradictory nature of Biden policies is also being questioned as it urges greener energy while asking foreign producers to open the taps to lower pump prices.

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UK Q2 GDP in line

Hot off the press, second-quarter UK GDP has just been released in line with the consensus at 4.8% q/q. Growth is expected to slow again this quarter due to the Delta variant putting the brakes on the economy. But economists hope that the UK should still return to pre-pandemic levels by the end of this year.

With the hawkish noises from the Bank of England last week contrasting heavily with the continued dovish stance of the ECB, EUR/GBP has pushed to new 18-month lows. Prices are now consolidating just below the 0.8471 level and bears expect to see more downside, especially as the ECB engineers a weaker currency. A soft weekly close may start to challenge the 2019 and 2020 lows at 0.8281 and below.

eurgbpdaily_120

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Trade of The Week: Can GBP/USD Breach 1.40 Again?

At the time of writing, the cable is now relying on its 50-day simple moving average (SMA) as a key support level, as traders await some major events later this week.

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To be clear, the Pound has fared remarkably well of late, erasing much of its losses against the greenback since the hawkish surprise at the June FOMC meeting which sent the US dollar soaring.

In fact, the Pound is the best performing G10 currency against the US Dollar so far this year.

Also of note, the pound has strengthened against all of its G10 peers on a year-to-date basis.

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The question facing GBPUSD traders is whether cable can stay on its perch for the immediate term?

More clues to that question could potentially be found in two major events this week:

  • Thursday, 5 August: BOE policy meeting
  • Friday, 6 August: US nonfarm payrolls (NFP)

Let’s start by casting our attentions to the other side of the pond.

How would the US nonfarm payrolls impact GBPUSD?

Markets are forecasting that 875,000 jobs were added in the US last month. While higher than June’s reading of 850,000, a mere 25k increase might not be the kind of “substantial further progress” that the Fed demands before it can start to taper (ease up on its bond purchases that have supported financial markets since the pandemic).

However, should the NFP surprise to the upside (think closer to the one million mark), that could reinvigorate dollar bulls and send the buck higher.

This is because a better-than-expected jobs report could mean that the Fed’s tapering may have to happen sooner rather than later, which then brings forward the eventual interest rate hike. Higher US rates relative to its G10 peers point to more USD gains.

A robust NFP print this Friday could buttress the “tapering sooner” narrative, which could then come at the expense of the pound with GBPUSD being dragged below its 50-day and 100-day SMAs. On the other hand, should the latest jobs data disappoint (think sub-800k), that should keep cable above its 50-SMA.

How might the BOE influence the pound this week?

The Bank of England is widely expected to leave its policy settings untouched this week, with policymakers having enough reasons to mute their hawkish tendencies for the time being.

This is because, despite signs of inflation building up (the UK’s headline CPI for June was at its highest since 2018 and well above the BOE’s 2% target), policymakers are set to remain cognizant of the downside risks to the UK economy, including:

about 1.9 million people who are still on furlough, with the scheme set to be withdrawn next month. This casts some dark clouds over the UK employment outlook in the coming months.

the delta variant still poses some uncertainties for the UK economic recovery, even though the IMF recently forecasted that the UK is set to post the fastest recovery among G7 economies this year (joint top with the US).

But we could still be in for a BOE shocker if it decides this week to adjust the threshold for winding down the quantitative easing measures.

For context, quantitative easing (QE) is, to quote the BOE, when the central bank “buys bonds to lower interest rates on savings and loans” and support the economy. Having built up a debt pile of 895 billion pounds and with inflation picking up, market participants are pondering what conditions might trigger the BOE’s unwinding of its stimulus.

As things stand, the BOE says that it won’t reduce its stock of government debt until the bank rate hits 1.5% (it’s currently at 0.1%).

“If that threshold is lowered this week, say to 1%, that could send gilt yields moving higher, bring Sterling along with it.”

Expect more pound volatility ahead

On the balance of these two major events that could impact GBPUSD this week (BOE decision and US NFP), the latter appears to harbour more potential to sway cable, especially considering that the whisper number for Friday’s job report currently stands at 920k, which is higher than the median estimate in Bloomberg’s survey (875k).

“Still, both events could surprise either way. And with such tentative outcomes looming large, markets have over the past month priced in higher implied volatility for G10 currencies versus the pound over a one-week period.”

As a potential scenario, if the BOE remains decidedly dovish while a stellar NFP print forces the Fed to become more hawkish, such a combo should prompt GBPUSD to unwind recent gains.

Alternatively, if the BOE lowers its threshold for paring down its debt pile, and the US jobs report disappoints, that could push GBPUSD back above the psychologically-important 1.40 mark.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: US Jobs Report Front and Centre

Monday, August 2

Tuesday, August 3

Wednesday, August 4

Thursday, August 5

Friday, August 6

For the US nonfarm payrolls print that’s due on 6 August, markets are forecasting that 900,000 jobs were added last month. Anything higher than 850,000 would be the highest NFP print since August 2020 and would score a third consecutive month of faster jobs growth.

A larger-than-expected July jobs increase (think closer to one million jobs added) could translate into more upside for the equally-weighted US dollar index, and put it on a path back towards its year-to-date high.

Otherwise, a lacklustre print this Friday could ensure that this dollar index remains below its 200-day simple moving average for a while longer and pare more of its gains since the hawkish surprise at the June FOMC meeting.

Markets still guided by Fed’s tapering predictions

Arguably, the biggest theme in play across global financial markets right now is the predictions over the Fed’s tapering.

Considering the robust US economic recovery, the US central bank is expected to ease up on its bond purchases that have supported financial markets since the pandemic. Exactly when the Fed will embark on such a process, at what pace (how quickly it will unwind its bond purchases), and under what economic conditions – all those remain vague at this point in time.

What we do know is that, following last week’s July FOMC meeting, the Fed reiterated that it wants to see “substantial further progress” in the ongoing US economic recovery before it will taper. However, it remains unknown exactly what constitutes “substantial” enough for the Fed.

Conflicting tapering cues within FOMC and markets

This past Friday (30 July), Fed Governor Lael Brainard reminded global investors that the US jobs market is still a long way off from pre-pandemic levels. She highlighted the “shortfall of 6.8 million jobs” that needs to be restored before the Fed tapers.

On the other hand, there was the famed hawk, Federal Reserve Bank of St. Louis President James Bullard, who also on Friday expressed his desire for the tapering to begin this fall and wrapped up by March 2022. Most economists expect the tapering to only commence next year.

Amidst all these conflicting views, it remains to be seen how the forthcoming economic data guides, not just the consensus within the FOMC, but also investors’ predictions for when the tapering will actually commence.

More gains for stocks likely until tapering draws closer

As long as the Fed’s ultra-accommodative stance remains intact, that should allow for more upside for US equities in the interim. The S&P 500 is striving to carve out a sustainable presence above the psychologically-important 4400 mark, a feat made more achievable considering that bond yields have been relatively subdued of late.

However, a stellar US jobs report this Friday would shorten the runway for equity bulls, as an NFP print that far exceeds the media forecast (900k) would ramp up markets expectations that the Fed would have to ditch its dovish stance sooner rather than later.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: OPEC+ Dispute Rolls Along

Monday, July 5

  • OPEC+ talks to resume?
  • Composite/services PMIs for China, Eurozone, UK
  • US markets closed

Tuesday, July 6

Wednesday, July 7

Thursday, July 8

Friday, July 9

Oil markets left in limbo

Recall that, on 1 July, OPEC+ had been due to announce its decision over output levels for August. The alliance of 23-nations is now embroiled in a spat over the duration of its existing production plans. This leaves global markets unsure over how much oil it will get next month and beyond.

According to media reports, Saudi Arabia and most of OPEC+ have an agreement until the end of 2022. The UAE however is reportedly holding out, only agreeing to a supply increase over the next few months but demanding better terms for next year.

To be clear, such delays and differences within OPEC+ are not new, and at least markets are cognizant that there are a few more weeks to settle this dispute. That’s why Brent prices appear unfazed by the heightened OPEC+ uncertainty during the Asian morning session.

If this impasse extends without a deal to gradually raise output (said to be anther 400k bpd next month), OPEC+ is bound to keep its output levels at current levels.

This means the world cannot get the oil it’s craving for, which could send oil prices skyrocketing even higher!

However, there is a bigger threat that could play out when the current deal ends in April 2022. If the OPEC+ alliance breaks down, that could threaten a repeat of the 2020 price war that saw every major oil-producing nation fending for itself and pumping at will.

Thanks to the global economic recovery, the world needs more oil now – that much is clear.

But consider this worst-case scenario: OPEC+ unravels at a time when more Iranian oil supplies come back to the market, pending a US-Iran nuclear deal, while the delta variant of the coronavirus reinforces lockdowns in major economies. If this trifecta of negative risks become reality, that could trigger another capitulation in oil prices, undoing much of the tremendous gains it has achieved (293.4%) since recovering from the depths of April 2020.

Need a recap on all things OPEC? Check out our ‘Markets Extra’ podcast:

(28 June 2021) OPEC Preview: Could a cautious cartel pave the way for $100 Brent?

(25 Feb 2021) What do OPEC+ and “Guardians of the Galaxy” have in common?

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.