Is Stock Market Decline Done for Now?

A decline of -10% or more from the most recent peak is considered a “correction”.

Some Wall Street bulls are noting a decline in bond yields yesterday that they believe indicates the recent selloff may have played itself out. Bears, however, suspect the yield dip is just a blip on the radar with many still predicting 10-year yields will top +2% by the end of the first quarter and perhaps ultimately push towards 2.3% to 2.55 before topping out.

“Bubbles” driven by the Fed’s easy-money policies

The pullback in stock prices has created a more “risk off” mentality that has also bled into other alternative assets like cryptocurrencies that bears believe are massive “bubbles” driven by the Fed’s easy-money policies.

New and ongoing issues that threaten to contribute or extend existing inflationary pressures in 2022 have led to some dramatic recalculations of the Federal Reserve’s upcoming tightening cycle, in turn increasing the downward pressure on more rate-sensitive stocks.

As recently as early-December, most Wall Street insiders were anticipating the Fed would increase rates four times, in increments of 25-basis points. Now, expectations are growing for two hikes of 50-basis points, along with perhaps two hikes of 25-basis points. There has also been some speculation that the initial rate hike, which is expected in March, could be one of the larger 50-basis point moves, an outcome that some worry could send shockwaves through global financial markets.

Another dramatic shift is the expectation that the Fed will begin reducing its nearly $9 trillion balance sheet this year, which Wall Street at one point expected to begin no sooner than 2024.

The Fed meets next week on January 25-26. Ahead of that, investors are anxious to see policy updates from other global central banks, starting today with Bank of Canada, then the European Central Bank on Friday. Bank of Canada is widely expected to hike its benchmark interest rate amid unrelenting inflation similar to what we’ve witnessed in the U.S.

The ECB, on the other hand, is expected to maintain its current policy, with most officials still betting inflation will recede with the pandemic. Unfortunately, current signs point to even higher global energy prices ahead, which will ultimately translate to higher gasoline prices for consumers, as well as higher operating costs for businesses that will also likely get passed along.

Oil prices rose again yesterday after a pipeline explosion that will temporarily halt some exports added to existing disruptions and global supply concerns.

The latest data shows that global oil inventories have continued to shrink into 2022 as several OPEC+ members struggle to meet their production increases.

Data to watch

Today, economic data includes the Philadelphia Fed Index and Existing Home Sales for December. It’s worth noting that December Housing Starts and Permits data released yesterday both came in far above trade expectations.

November numbers were also revised upward. Earnings releases include American Airlines, Baker Hughes, CSX, Netflix, PPG, The Travelers Company, and Union Pacific. Next week we’ll start getting into the big tech giants and other corporate bellwethers like Apple, Boeing, Caterpillar, IBM, McDonalds, Microsoft, Tesla, and Verizon.

Some bullish insiders suspect good results from just a few of America’s leading companies could lure investors back in, possibly setting the stage for a massive rebound, especially if the Fed delivers a less hawkish than expected policy update next week.

On the flip side, many are worried that if Apple, Microsoft, or Tesla were to roll over it could trigger a sizable selloff. I think we are clearly at an inflection point with the Fed changing direction and over 40% of our fund and money managers being too young to ever trade or invest in both a rising rate and rising inflation environment. It will be interesting to see how some chose to navigate these waters.

EUR/USD Tests Resistance At 1.1365

Euro Moves Higher Against U.S. Dollar

EUR/USD is currently trying to settle above the resistance at the 50 EMA at 1.1365 while U.S. dollar is under pressure against a broad basket of currencies.

The U.S. Dollar Index has recently managed to get below the 50 EMA at 95.55 and is moving towards the support level at 95.40. In case the U.S. Dollar Index declines below this level, EUR/USD will get more support.

Today, foreign exchange market traders will focus on the final reading of inflation reports from EU. Analysts expect that Euro Area Inflation Rate increased by 0.4% month-over-month in December. On a year-over-year basis, Inflation Rate is projected to grow by 5%. Core Inflation Rate is expected to increase by 2.6%.

Typically, final readings show the same data as preliminary readings, but traders should keep in mind that any surprise would have a significant impact on EUR/USD dynamics.

I’d also note that the yield of the 10-year German government bonds continues its attempts to settle above the 0.00% level. Yields have been negative since early 2019, and a move back into the positive territory may provide additional support to the European currency.

Technical Analysis

eur usd january 20 2022

EUR/USD is testing the resistance at the 50 EMA at 1.1365. In case this test is successful, EUR/USD will move towards the next resistance level which is located at 1.1400.

A move above 1.1400 will push EUR/USD towards the resistance at 1.1425. If EUR/USD gets above this level, it will head towards the next resistance level at 1.1450.

On the support side, the nearest support level for EUR/USD is located at 1.1330. If EUR/USD manages to settle back below this level, it will head towards the next support at 1.1300. A successful test of this support level will open the way to the test of the next support which is located at January lows at 1.1270.

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

GBP/USD Tests Resistance At 1.3635

British Pound Gains Ground Against U.S. Dollar

GBP/USD is currently trying to settle back above the resistance at 1.3635 while U.S. dollar is losing some ground against a broad basket of currencies.

The U.S. Dollar Index failed to get to the test of the support at 95.40 and rebounded towards the 50 EMA at 95.55. A move above this level will push the U.S. Dollar Index towards the 20 EMA at 95.70 which will be bearish for GBP/USD.

Today, foreign exchange market traders will focus on the economic data from U.S. Analysts expect that Initial Jobless Claims report will indicate that 220,000 Americans filed for unemployment benefits in a week. Continuing Jobless Claims are expected to increase from 1.56 million to 1.58 million. Existing Home Sales are projected to decline by 2% month-over-month in December.

Traders will also keep an eye on the developments in U.S. government bond markets. Treasury yields have settled near recent highs, and a continuation of the upside move may provide additional support to the American currency.

Technical Analysis

gbp usd january 20 2022

GBP/USD is testing the resistance level at 1.3635. RSI is in the moderate territory, and there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

If GBP/USD manages to settle above 1.3635, it will head towards the next resistance level at 1.3665. A successful test of this level will push GBP/USD towards the resistance at 1.3700. If GBP/USD gets above 1.3700, it will head towards the next resistance at 1.3735.

On the support side, the previous resistance at 1.3600 will serve as the first support level for GBP/USD. In case GBP/USD moves below 1.3600, it will head towards the support at the 20 EMA at 1.3580.

A successful test of the support at the 20 EMA will open the way to the test of the next support level at 1.3535. If GBP/USD manages to settle below this level, it will head towards the next support level which is located at the 50 EMA at 1.3505.

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

Economic Data Puts the EUR and the Greenback in Focus

Earlier in the Day:

It is a busy start to the day on the economic calendar this morning. The Japanese Yen and the Aussie Dollar were in focus in the early hours. Later this morning, the PBoC will also be in action.

For the Japanese Yen

In December, Japan’s trade deficit narrowed from ¥955.6bn to ¥582.4bn. Economists had forecast a narrowing to 784.1bn.

According to figures released by the  Ministry of Finance,

  • Year-on-year, exports rose by 17.5%, while imports were up by 41.1%.
  • Exports to China increased by 10.8%, with exports to the U.S up by 22.1%.
  • From China, imports rose by 20.5%, with imports from the U.S increasing by 39.6%.
  • Imports from Australia surged by 95.7% when compared with December 2020.

The Japanese Yen moved from ¥114.350 to ¥114.359 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.02% to ¥114.310 against the U.S Dollar.

For the Aussie Dollar

Employment figures were in focus this morning.

According to the ABS,

  • Employment increased by 64.8k in December, following a 366.1k jump in November.
  • Full employment rose by 41.5k after having risen by 128.3k in the previous month.
  • As a result, Australia’s unemployment rate fell from 4.6% to 4.2%. This was the lowest unemployment rate since August 2008.
  • The participation rate held steady at 66.1% in the month.

The Aussie Dollar moved from $0.72207 to $0.72267 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.24% to $0.7228.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.13% to $0.6775.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. Finalized December inflation figures for the Eurozone and German wholesale inflation figures are due out later today. Expect both sets of numbers to draw interest as market jitters over inflation continue to drive the markets

On the monetary policy front, the ECB monetary policy meeting minutes are also due out and will be key. The markets will be looking for any chatter on inflation and interest rates.

At the time of writing, the EUR was up by 0.07% to $1.1351.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no major stats due out of the UK to provide the Pound with direction.

At the time of writing, the Pound was up by 0.05% to $1.3619.

Across the Pond

It’s a busier day ahead. Key stats include the weekly jobless claims and Philly FED Manufacturing Index numbers for January. Another rise in jobless claims could test support for riskier assets.

At the time of writing, the U.S Dollar Spot Index was up by 0.05% to 95.562.

For the Loonie

It’s a quiet day ahead, with no major stats due out of Canada to provide the Loonie with direction. The lack of stats will leave the Loonie in the hands of crude oil prices on the day.

At the time of writing, the Loonie was up by 0.09% to C$1.2504 against the U.S Dollar.

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

USD/CAD Remains Stuck Near 1.2500

U.S. Dollar Is Mostly Flat Against Canadian Dollar

USD/CAD is currently trying to settle back above 1.2500 while U.S. dollar is under pressure against a broad basket of currencies.

The U.S. Dollar Index continues its attempts to settle below the support level at the 50 EMA near 95.55. If the U.S. Dollar Index manages to settle below this level, it will head towards the next support at 95.40 which will be bearish for USD/CAD.

Today, foreign exchange market traders focused on inflation reports from Canada. Inflation Rate declined by 0.1% month-over-month in December. On a year-over-year basis, Inflation Rate increased by 4.8%. Both reports were in line with analyst estimates. Interestingly, Core Inflation Rate grew by 4% year-over-year compared to analyst consensus which called for growth of 3.5%.

In the U.S., Building Permits increased by 9.1% month-over-month in December while analysts expected that they would grow by just 0.4%. Housing Starts grew by 1.4% compared to analyst consensus which called for a decline of 2%.

Traders also monitored the developments in commodity markets. WTI oil managed to settle above the $87 level and moved to multi-year highs, which was bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 19 2022

USD to CAD is trading near the resistance level at 1.2500. In case USD to CAD manages to settle back above this level, it will move towards the next resistance at 1.2525.

A successful test of the resistance at 1.2525 will push USD to CAD towards the next resistance at 1.2550. If USD to CAD gets above this level, it will continue its rebound and head towards the resistance level at 1.2590.

On the support side, USD to CAD needs to settle below 1.2500 to have a chance to gain downside momentum in the near term. The next support level for USD to CAD is located at 1.2475.

A move below 1.2475 will open the way to the test of the support which is located near today’s lows at 1.2450. In case USD to CAD declines below this level, it will head towards the next support level at 1.2425.

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

Silver Rallies While Gold Moves Above $1830

Silver ETF Gains Ground As Gold/Silver Ratio Moves To New Lows

Silver is trying to settle above the $24 level while U.S. dollar is losing ground against a broad basket of currencies. Meanwhile, iShares Silver Trust is trying to get above $22.20.

The U.S. Dollar Index is currently testing the support level at the 50 EMA near 95.55. In case this test is successful, the U.S. Dollar Index will move towards the next support at 95.40 which will be bullish for silver and gold price today. Weaker dollar is bullish for precious metals as it makes them cheaper for buyers who have other currencies.

Gold is currently testing the resistance level at $1830 while SPDR Gold Trust is trying to settle above $171.50. In case gold manages to settle above $1830, it will move towards the next resistance at $1845 which will be bullish for silver.

Gold/silver ratio continues to move lower at a fast pace. It has recently managed to settle below the 77 level and is testing the support at 76.50. In case this test is successful, gold/silver ratio will move towards the 76 level which will be bullish for silver.

Technical Analysis

silver january 19 2022

Silver is currently testing the resistance level at $24.00. In case silver manages to settle above this level, it will move towards the next resistance at $24.25. RSI remains in the moderate territory, so there is enough room to gain upside momentum in case the right catalysts emerge.

A successful test of the resistance at $24.25 will push silver towards the resistance at $24.50. If silver gets above $24.50, it will head towards the next resistance level at $24.80.

On the support side, the previous resistance level at $23.70 will serve as the first support level for silver. If silver declines below this level, it will move towards the next support at $23.50. A successful test of the support at $23.50 will push silver towards the support level which is located at $23.20.

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

Key Milestones of the Financial Market in 2021

The year 2021 was packed with exciting developments and meaningful circumstances in world affairs—its economy, politics, and policies—impacting the financial sector as a whole. With the help of its analytics team, the international Forex broker OctaFX compiled a basic rundown to deliver some of the more critical, vital events which it deemed especially important.

The U.S. dollar’s tumultuous journey through quantitative easing (QE)

During the COVID-19 crisis, the U.S. Federal Reserve (Fed) and the European Central Bank (ECB)—the central banks that issue the world’s reserve currencies—flooded the financial markets with new money. The official reason stated was helping the suffering economy because of the pandemic.

Therefore, U.S. president Joe Biden’s proposal of a 1.9 trillion USD stimulus package to Congress arrived on 21 January. The Republican Party was highly sceptical about this approach—some congressmen even recalled the already worrying, continual growth of the national debt (a mass total of 21.6 trillion USD at the time). It is a long-term development whose lack of resolution as of yet does not shake the market’s firm belief in the reliability of the U.S. dollar.

Biden follows suit by signing stimulus plan

Fast forward two months, the U.S. Senate (6 March) and the U.S. House of Representatives (10 March) both approved the stimulus plan before Biden signed it on 11 March as a 1.9 trillion USD economic rescue package. Far from being a bipartisan undertaking, no Republican approved the new order. Although, the document was amended, for example, the clause on raising the minimum wage was removed. New money flooding the market like this filled most market participants with a bullish sentiment.

Another 1.2 trillion USD for ‘infrastructure spending plan’

Towards the end of June 2021, expectations for a tight monetary policy were running high but then the U.S. Senate agreed on and approved a new ‘infrastructure spending plan’, totalling another 1.2 trillion USD. The reason was a sharp increase in inflation in the months prior to June.

Both institutions—the Fed and the ECB—have kept rates at zero or negative and implemented quantitative easing (QE) throughout 2021, increasing their balance sheets and buying bonds with that money. Because of this, their yields fell, which encouraged investors to put capital into companies’ stocks and look for other projects.

Fed announces the end of bailout measures

In September, the U.S. Federal Reserve officially declared that it is ready to end its quantitative easing programme and may raise the base rate already from 2022 rather than 2023, as previously assumed. The Fed further added it would continue to buy 120 billion USD worth of assets each month for the time being: 80 billion USD in treasuries and 40 billion USD in mortgage-backed bonds.

The regulator’s rhetoric initially spooked investors, but overseas markets moved higher on 23 September. The American S&P 500 was recovering from a marginal fall and rose by 1%. Finally, the U.S. monetary regulator started winding down asset purchases from the market to 105 billion USD in November (from 120 billion USD previously) and to 90 billion USD in December—strong signals for the market that the economy starts to revitalise itself.

Bitcoin reaches historic ATH in April before falling again by 53%

The whole of April, the crypto industry radiated with enthusiasm over an ongoing bull market before bitcoin—surprisingly to most—started a steep correction from a historical all-time high of 63,500 USD (13 April 2021) to 34,600 USD (29 May 2021). In those first initial waves downward, due to triggered margin calls, around 8 billion USD in position liquidations took place. This process had put most of the trading community on a new kind of alertness.

This downtrend continued up to 20 July 2021, reaching a price of 29,600 USD per bitcoin (that’s over 53% from the previous all-time high). Only after that point did an uptrend start with a late-summer high of 52,600 USD (6 September 2021). Most were sure the bottom for bitcoin back then had been hit and more frequent but careful trading resumed during that time.

Ethereum stays strong but stable while bitcoin tops twice more

Six weeks later, the mother of all cryptocurrencies topped off its previous all-time high twice in close succession—65,990 USD (20 October 2021) and 67,500 USD (8 November 2021), vindicating a suspected bull market across market observers, retail investors, and legacy institutions once again. All the while, the altcoin market soldiered on with a fluctuating performance, seeing Ethereum’s persistence and some success stories such as the Solana smart-contract platform.

The latter rose from 1.84 USD on 1 January to its all-time high of 258.93 USD on 6 November, gaining 13,972%. Many opportunities for lucrative trades and initial long-term investments were realised. At the same time, some solid altcoin projects stagnated during this period, only showing that their turn for growth has yet to come.

U.S. and E.U. prioritise the basic materials sector

In autumn, the E.U. and the U.S. have agreed to suspend duties on steel and aluminium products. During a speech, the President of the European Commission, Ursula von der Leyen, stressed that her institution planned to develop proposals to suspend duties imposed on goods from the U.S. She elaborated that this would bring trade in steel and aluminium products back to their levels before these tariffs were imposed in 2018.

U.S. President Joe Biden reiterated the intentions of the European Union and the United States jointly committing to a carbon-based agreement on steel and aluminium trade. After President Trump’s era of ‘economic isolationism’, many investors in the relevant industries understood this development as a bullish long-term sign.

European Union at a crossroads

In 2021’s fourth quarter, the euro fell to its lowest value since the start of July 2020. The reason for the plunge was the worsening business climate in the E.U.

In Germany, supply problems within most industries have worsened. Berlin, as the fourth-biggest economy in the world, also inaugurated its new government in December. One important aim of the new coalition is to introduce a wide variety of new taxes on secondary homeownership and carbon emissions on all levels, be it corporate or private. Germany is a major player in the European Union’s power dynamics structure. Its new government in Berlin will have much to say about the way onwards in terms of the continent’s financial and political development.

What the future holds

As Powell hinted throughout the year, in January 2022 there will be a monthly quantitative easing cap of 60 billion USD, halving the 2021 rate and initiating a probable and gradual farewell to the emergency policy. A process that market participants of all shapes and sizes (private and corporate) will have to pay close attention to.

All of the dynamics above will have exciting new developments in 2022 and the years after—many of which will hit most by surprise. So, financial education and constant research and training towards economic and financial literacy are paramount to navigating through these fast-paced markets. This plain truth applies just as much to Foreign Exchange as it does to the stock market or the cryptocurrency domain.

About OctaFX

OctaFX is a global broker that provides online trading services worldwide since 2011. It offers a state-of-the-art trading experience to over 7.5 million traders worldwide. The company is well-known for its financial expertise, analytics, and educational programme. It maintains a high emphasis on financial literacy in its trading community. OctaFX has also won more than 45 awards since its foundation, including the 2021 ‘Best Forex Broker Asia’ award and the 2020 ‘Most Transparent Broker’ award from Global Banking & Finance Review and Forex Awards, respectively.

 

EUR/USD Found Support Near 1.1330

Euro Tries To Rebound Against U.S. Dollar

EUR/USD is currently trying to settle back above 1.1330 while U.S. dollar is losing some ground against a broad basket of currencies.

The U.S. Dollar Index is currently stuck in the range between the support at the 50 EMA at 95.60 and the resistance at the 20 EMA at 95.70. In case the U.S. Dollar Index manages to settle above the 20 EMA, it will move towards the resistance at the 96 level which will be bearish for EUR/USD.

Yesterday, EU reported that ZEW Economic Sentiment Index improved from 26.8 in December to 49.4 in January compared to analyst forecast of 29.5.

Today, foreign exchange market traders will have a chance to take a look at Building Permits and Housing Starts reports from U.S. Analysts expect that Building Permits increased by 0.4% month-over-month in December. Housing Starts are projected to decline by 2% month-over-month.

Traders will also monitor the developments in U.S. government bond markets. Treasury yields continue to move higher, which may provide more support to the U.S. dollar. It should be noted that the current move is very strong. Just several trading sessions ago, the yield of 2-year Treasuries was 0.90%, and it is currently trying to settle above 1.07%.

Technical Analysis

eur usd january 19 2022

EUR/USD received support near 1.1330 and is trying to rebound. The next resistance level for EUR/USD is located at 1.1350.

If EUR/USD manages to settle above this level, it will get to the test of the resistance at the 50 EMA at 1.1365. A move above the 50 EMA will open the way to the test of the resistance at 1.1400.

On the support side, EUR/USD needs to settle below 1.1330 to continue its pullback. The next support level for EUR/USD is located at 1.1300.

If EUR/USD declines below 1.1300, it will head towards the support which is located at 1.1270. A move below this level will push EUR/USD towards the support at 1.1230.

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

GBP/USD Tries To Rebound After Yesterday’s Sell-Off

British Pound Moves Higher Against U.S. Dollar

GBP/USD is currently trying to settle back above 1.3600 while U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index faced resistance near the 20 EMA at 95.70 and pulled back. The nearest support level for the U.S. Dollar Index is located at the 50 EMA at 95.60. In case the U.S. Dollar Index manages to settle below this level, it will move towards the next support at 95.40 which will be bullish for GBP/USD.

Today, foreign exchange market traders will focus on economic data from UK. Analysts expect that UK Inflation Rate increased by 0.3% month-over-month in December. On a year-over-year basis, UK Inflation Rate is expected to increase by 5.2%. UK Core Inflation Rate is projected to grow by 3.9% year-over-year. The currency market will be sensitive to inflation data as yields have already started to move higher.

Traders will also take a look at UK Retail Price Index data for December. Retail Price Index is projected to grow by 0.7% month-over-month. On a year-over-year basis, Retail Price Index is expected to increase by 7.1%.

Technical Analysis

gbp usd january 19 2022

GBP/USD failed to settle below the support level at the 20 EMA at 1.3575 and is currently trying to settle back above 1.3600. In case this attempt is successful, GBP/USD will move towards the next resistance level at 1.3635.

A successful test of the resistance at 1.3635 will push GBP/USD towards the next resistance at 1.3665. If GBP/USD manages to settle above this level, it will head towards the resistance at 1.3700.

On the support side, a move below 1.3600 will push GBP/USD back towards the support at the 20 EMA at 1.3575. If GBP/USD manages to settle below this level, it will head towards the next support level at 1.3535. A successful test of the support at 1.3535 will open the way to the test of the support which is located at the 50 EMA at 1.3500.

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

UK Inflation and Central Bank Chatter Puts the Pound back in the Spotlight

Earlier in the Day:

It is a relatively busy start to the day on the economic calendar this morning. The Kiwi Dollar and the Aussie Dollar were in action in the early hours.

For the Kiwi Dollar

Electronic card retail sales increased by a modest 0.4% in December, following a 9.6% jump in November.

According to NZ Stats,

  • Easing COVID-19 restrictions and the Christmas holidays supported another increase in card spending.
  • While total retail card spending rose by just 0.4%, spending on services jumped by 16.6%.
  • Within the retail industries, spending on fuel led the way, rising by 4.2%.
  • Spending on durables and consumables bucked the trend, however, falling by 7.2% and by 0.1% respectively.
  • The sharp fall in durable spending was attributed to higher spending in November that had coincided with Black Friday sales.

The Kiwi Dollar moved from $0.67695 to $0.67668 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.06% to $0.6766.

For the Aussie Dollar

The Westpac Consumer Sentiment Index fell by 2% to 102.2 in January. In December, the Index had fallen by 1.0% to 104.3. Economists had forecast a 0.3% decline.

According to the latest Westpac Report,

  • The 2% decline, attributed to the Omicron strain, was modest when compared with the Delta strain driven 5.2% slide.

Looking at the sub-components:

  • Family finances vs a year ago increased by 7.5% to 95.6, while family finances next 12-months fell by 2.8% to 108.1. In spite of the decline the sub-index held above a long run average of 107.5.
  • Economic conditions next 12-months fell by 9.6% to 94.8, with economic conditions next 5-years falling 6.1% to 103.6. Both continued to sit above their long run averages of 91.1 and 91.9 respectively.
  • In spite of the negative sentiment, the time to buy a major household item rose by 2.8% to 108.9. (Long run average: 126.5).
  • The time to buy a dwelling sub-index rose by 6.3% to 87.0, while the Unemployment Expectations Index increased 8.2% to 112.7.

The Aussie Dollar moved from $0.71871 to $0.71850 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.10% to $0.7178.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥114.700 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a quieter day ahead on the economic calendar. Finalized December inflation figures for Germany are due out later today. Expect any revisions to prelim figures to influence. On the monetary policy front, ECB McCaul is scheduled to speak.

At the time of writing, the EUR was up by 0.01% to $1.1326.

For the Pound

It’s another particularly busy day ahead on the economic calendar. December inflation figures are due out today. Persistent inflationary pressures could force the BoE to signal a 2nd rate hike in the coming months. The stats precede scheduled speeches from BoE Governor Bailey and MPC member Cunliffe who are due to speak late in the day.

At the time of writing, the Pound was down by 0.05% to $1.3589.

Across the Pond

Housing sector figures for December are due out. We don’t expect the numbers to influence, however.

On Tuesday, the U.S Dollar Spot Index rose by 0.50% to end the day at 95.732.

For the Loonie

Inflation figures for December are due out later today. Expect plenty of interest in the numbers.

The IEA’s monthly report and crude oil inventories will also draw interest, however.

At the time of writing, the Loonie was up by 0.06% to C$1.2507 against the U.S Dollar.

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

Investors Focus on the Next FOMC Meeting, 10-year Treasuries and Dollar Strength

This month’s FOMC meeting is scheduled to begin one week from today, on January 25, and conclude on the following day.

U.S. equities vis-à-vis the Dow Jones industrial average had its strongest decline this year. The Dow lost 542.42 points, a decline of 1.51%, and is currently fixed at 35,369.39 points. Yields on the U.S. 10-year Treasury Note gained 10.5 basis points taking the current yield to 1.877%, the highest level since January 2020. The 30-year Treasury bond gained 7.7 basis points taking the yield to 2.192%. The short-term two-year Treasury Note yield broke above 1%, the first occurrence of short-term treasury yields at this level in two years. Lastly, the U.S. dollar rose sharply in trading today, gaining 0.66% or 0.629 points taking the dollar index to 95.78.

U.S. equities, Treasury yields, and the dollar all reacted to the assumption that market participants are anticipating that the Federal Reserve will begin an aggressive series of rate hikes tightening their current accommodative monetary policy to curtail the spiraling level of inflation, which is currently fixed at 7% based upon government data released last week vis-à-vis the CPI (consumer price index).

On Tuesday, January 11, Chairman Jerome Powell speaking before the Senate banking, housing and urban affairs committee in regards to his re-nomination, said, “As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year. At some point perhaps later this year, we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.”

The Fed Chairman acknowledged that the Federal Reserve had greatly underestimated the speed at which inflationary pressures have risen and indicated that the monetary policy of the Federal Reserve needed to pivot in regards to their dual mandate, which had been focusing on maximum employment in lieu of their acceptable inflationary target of 2%.

The chairman said that it is appropriate to focus upon inflationary pressures at this point. As such, the expectations of rate hikes this year have dramatically changed, with market participants now factoring in three or four interest rate hikes this year.

Although multiple asset classes had strong reactions to the possible actions of the Federal Reserve next week, it was dollar strength that most affected gold prices today. As of 4:25 PM EST, gold futures basis, the most active February 2022 Comex contract, had a modest to fractional decline resulting in a loss of $3.10 or 0.17% and is currently fixed at $1813.30.

Gold daily chart

However, the three other precious metals which trade on the futures exchange all had moderate to strong price gains. Silver led the way with the most active March contract gaining 2.63%, fixing current pricing to $23.52. Platinum gained 1.58%, a net gain of $15.20 with the most active March 2022 futures contract fixed at $979.80, and lastly, palladium gained 1.11%, taking the most active March contract to $1899.

Kitco Gold Index

Gold pricing actually had fractional gains before factoring in dollar strength. This can be clearly illustrated by the KGX (Kitco gold index). As of 4:28 PM, EST spot gold is currently fixed at $1813.60, based upon normal trading adding $4.00 worth of value and dollar strength taking away $9.60.

Our technical studies indicate that the low achieved today in February gold futures which occurred at $1804.70, is just above a key and critical support level, which is based upon the 61.8% Fibonacci retracement level fixed at $1804.60. Our studies also indicate that current resistance is at $1833.30, ,mkbased on a 38.2% Fibonacci retracement level. The data set used for our retracements begins at $1758, the low of November 3, and concludes at $1879.50, the highs achieved on November 16.

Wishing you as always good trading and good health,

For those who would like more information simply use this link.

Gary S. Wagner

USD/CAD Gains Ground As Treasury Yields Rise

U.S. Dollar Moves Higher Against Canadian Dollar

USD/CAD is currently trying to settle back above the resistance at 1.2550 while U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index has recently managed to settle above the 50 EMA near 95.55 and is currently testing the next resistance level which is located at the 20 EMA near 95.70. In case this test is successful, the U.S. Dollar Index will head towards the 96 level which will be bullish for USD/CAD.

Today, foreign exchange market traders focused on the dynamics of U.S. government debt markets. The yield of 2-year Treasuries made an attempt to settle above the 1.05% level while the yield of 10-year Treasuries tested the 1.85% level.

At the start of this year, currency traders ignored rising yields. However, it looks that the recent move has finally provided enough support to the American currency. Most likely, traders will remain focused on the dynamics of U.S. government bond markets in the upcoming trading sessions. In case yields continue to increase, the safe-haven U.S. dollar may get more support.

It should be noted that Canadian dollar’s losses were limited as WTI oil managed to get above the psychologically important $85 level, which was bullish for commodity-related currencies.

Technical Analysis

usd cad january 18 2022

USD to CAD is currently testing the resistance level at 1.2550. In case this test is successful, USD to CAD will move towards the next resistance level at 1.2590.

A move above 1.2590 will push USD to CAD towards the resistance which is located near the 20 EMA at 1.2625. If USD to CAD gets above this level, it will head towards the resistance at 1.2650.

On the support side, the previous resistance at 1.2525 will serve as the first support level for USD to CAD. In case USD to CAD moves back below this level, it will head towards the next support at 1.2500. A successful test of this support level will open the way to the test of the support at 1.2475.

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

Neither Inflation nor the Fed Moves Gold

“Inflation is too high,” admitted Lael Brainard during her nomination hearing in the Senate for the Vice Chair of the Fed. You don’t say, Governor Obvious! Indeed, the latest BLS report on inflation shows that consumer inflation rose 0.5% in December on a monthly basis, after rising 0.8% in the preceding month. The core CPI rate increased 0.6%, following a 0.6-percent increase in November.

The situation is actually worse: inflation is not merely high – it’s high and still rising. As the chart below shows, the annual, seasonally adjusted CPI inflation rate spiked 7.1%, the highest move since February 1982.

However, 40 years ago, inflation was coming down, and now, it is still accelerating. Inflation has been in a clear upward trend since May 2020, and getting worse month after month since August 2021 (practically, since November 2020, when we skip a short moderation in summer 2021), as the chart below shows.

What is really disturbing is that core inflation, which excludes food and energy prices, spiked 5.5%, the highest since February 1991. It shows that inflation has moved deeply into the economy. It’s not a phenomenon caused merely by soaring energy prices – we are witnessing widespread, general inflation that covers practically all prices. For example, the shelter subindex, which is the biggest component of the CPI and is much less volatile than energy or food, rose 4.2% in December, the highest since February 2007, as the chart below shows.

Although inflation could calm down somewhat in the first quarter of 2022 or even peak amid the spread of Omicron and the recent peak in the Producer Price Index, it’s not likely to disappear quickly. Its negative impact on the economy is beginning to be felt more and more. For instance, retail sales plunged 1.9% in December, much worse than the forecasted decline of 0.1%. The drop was caused partially by surging prices that took a big bite out of spending.

Implications for Gold

What does rising inflation imply for the gold market? Well, theoretically, the yellow metal loves high and accelerating inflation, so it should shine under the current conditions. Last year, gold didn’t perform spectacularly, but it has recently managed to rise above $1,820, as the chart below shows. I wouldn’t draw too far-reaching conclusions on this basis, but at least that’s something.

Inflation has been accompanied by an expanding economy last year and, more recently, also by the Fed’s more hawkish rhetoric. For a shamefully long time, the Fed kept refusing to deal with inflation. However, Powell and his colleagues have finally awoken. They’ve already accelerated the pace of tapering asset purchases and signaled successfully to the markets that they’ll likely start raising interest rates as early as March. According to the CME FedWatch Tool, the odds of a hike in the federal funds rate have risen from 46.8% last month to above 90% now. Hence, the lift-off is almost certain.

The prospects of more hawkish monetary policy and the sooner start of a tightening cycle should be negative for the yellow metal, but gold didn’t care too much about a more aggressive Fed. This is encouraging, but the risk of normalization of real interest rates remains. It might also be the case that neither high inflation nor a hawkish Fed is able to shake gold out of the sideways trend right now. Let’s be patient – it might be just the silence before the storm.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

Silver Tests Resistance At $23.50

Silver ETF Rallies As Gold/Silver Ratio Declines

Silver is currently trying to settle above the resistance at $23.50 while U.S. dollar is gaining ground against a broad basket of currencies. Meanwhile, iShares Silver Trust is trying to settle above $21.60.

The U.S. Dollar Index is testing the resistance at the 50 EMA at 95.55. In case the U.S. Dollar Index manages to settle above this level, it will move towards the next resistance at the 20 EMA at 95.70 which may be bearish for silver and gold price today.

Gold is currently trying to settle below the support at $1815 while SPDR Gold Trust is trying to get below $169.50. If gold settles below $1815, it will head towards the next support at $1800 which will be bearish for silver.

Gold/silver ratio gained strong downside momentum after it managed to settle below the 50 EMA at 78.35. Currently, gold/silver ratio is trying to settle below 77.50. In case this attempt is successful, gold/silver ratio will move towards the 77 level which will be bullish for silver.

Technical Analysis

silver january 18 2022

Silver managed to settle above the resistance at $23.20 and is testing the next resistance level at $23.50. In case this test is successful, silver will move towards the resistance at $23.70. RSI remains in the moderate territory, and there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

A move above the resistance at $23.70 will open the way to the test of the resistance at $24.00. If silver gets above this level, it will head towards the next resistance at $24.20.

On the support side, the previous resistance at $23.20 will serve as the first support level for silver. If silver settles below this level, it will move towards the next support which is located near the 50 EMA at $23.00.

A successful test of the support at $23.00 will lead to a test of the next support level near the 20 EMA at $22.90. If silver declines below this level, it will head towards the next support level at $22.75.

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

Bitcoin and Ethereum Elliott Wave Cycles Eye Down

We see stocks in risk-off mode at the same time which makes US currency very attractive, so those who are selling stocks will also look to go out of risky and volatile assets like cryptocurrencies. That been said, we think that under these circumstances, there is room for more potential weakness on major BTC and ETH coins as described lower

Bitcoin, BTCUSD is coming even lower in the 4-hour chart, breaking even below December 2021 lows, ideally within wave (C) or (3) and there can be room for more weakness, at least towards 39k-37k area for wave ©. So, we remain bearish and we should be aware of more downside pressure while the price is below strong trendline connected from the highs and below 52200 invalidation level.

BTCUSD 4h Elliott Wave Analysis

Chart

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Ethereum, ETHUSD is also coming down, below December 2021 lows as expected into wave C with room down to 2800 area or slightly lower; a leg that should be completed by a five-wave cycle. Just have in mind that we will need to see strong bounce and recovery back above 3600 level to confirm a completed wave C of an A-B-C correction, but for now we see current recovery as a sub wave (4).

ETHUSD 4h Elliott Wave Analysis

Chart

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US Dollar Index Short-Covering Rally Targets 95.755 – 96.020

The U.S. Dollar is edging higher against a basket of major currencies early Tuesday as U.S. Treasury yields hit a new two-year high on their return from a long weekend break. The strength in the greenback was fueled as the short-end of the yield curve hit new pandemic highs, which is supportive for the U.S. currency.

At 08:27 GMT, March U.S. Dollar Index futures are trading 95.295, up 0.134 or +0.14%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $25.49, up $0.06 or +0.24%.

Two-year yields rose above 1% for the first time since February 2020 at the open in Asia, as trading returned after a U.S. holiday, and five-year yields rose 3.6 bps to 1.5960%, the highest since January 2020.

Yields have been rising this year, with traders expecting the Federal Reserve to begin hiking interest rates as soon as March, but the dollar index, which measures the greenback against six peers has lost 0.52% year to date.

This suggests investors have fully-priced in the Fed’s expected rate hikes. Given this outlook and the current downtrend, the index is likely going through a correction, which means we can expect to see new short-sellers once it reaches resistance.

Daily March U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom on Friday.

A trade through 94.610 will negate the closing price reversal bottom and signal a resumption of the downtrend. A move through 96.475 will change the main trend to up.

The main range is 93.200 to 96.895. Its retracement zone at 95.050 to 94.610 is support. It stopped the selling at 94.610 on January 14.

The next two minor resistance levels is a pair of 50% levels at 95.360 and 95.545.

The short-term range is 96.895 to 94.610. Its retracement zone at 95.755 to 96.020 is the primary upside target. Since the main trend is down, we’re looking for sellers to come in on a test of this area.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Tuesday is likely to be determined by trader reaction to 95.360.

Bullish Scenario

A sustained move over 95.360 will indicate the presence of buyers. This could fuel a labored rally into a series of retracement levels at 95.545, 95.755 and 96.020.

Since the main trend is down, look for sellers to return on a test of 95.755 to 96.020. They will be trying to produce a potentially bearish secondary lower top.

Bearish Scenario

A sustained move under 95.355 will signal the presence of sellers. This could trigger a retest of 95.050 to 94.610.

If 94.610 fails to hold as support then look for an acceleration to the downside with 93.810 the first downside target, followed by 93.200.

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

EUR/USD Tests Support At 1.1400

Euro Is Losing Ground Against U.S. Dollar

EUR/USD is currently trying to settle below 1.1400 while U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index is trying to settle above the resistance level at 95.40. In case the U.S. Dollar Index manages to get above this level, it will move towards the next resistance at the 50 EMA at 95.55 which will be bearish for EUR/USD.

Today, foreign exchange market traders will focus on Euro Area ZEW Economic Sentiment Index for January. Analysts expect that Euro Area Economic Sentiment improved from 26.8 in December to 29.5 in January despite the spread of Omicron.

Traders will also stay focused on the trajectory of U.S. Treasury yields. Yields continue to move higher as traders bet that Fed will be forced to raise rates aggressively in order to put pressure on inflation.

The yield of 2-year Treasuries has settled above the 1.00% mark while the yield of 30-year Treasuries has moved above the 2.15% level. In case Treasury yields continue to move higher, the American currency may get more support.

Technical Analysis

eur usd january 18 2022

EUR/USD is testing the support level at 1.1400. In case this test is successful, EUR/USD will move towards the next support level which is located at the 50 EMA at 1.1370.

A move below the 50 EMA at 1.1370 will open the way to the test of the support at 1.1350. If EUR/USD declines below this level, it will head towards the next support at 1.1330.

On the upside, the nearest resistance level for EUR/USD is located at 1.1420. This resistance level has been tested several times in recent trading sessions and proved its strength.

In case EUR/USD manages to settle back above the resistance at 1.1420, it will head towards the next resistance at 1.1460. A successful test of the resistance at 1.1460 will open the way to the test of the next resistance level at 1.1490.

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

GBP/USD Tests Support At 1.3635

U.S. Dollar Gains Ground Against British Pound

GBP/USD is currently trying to settle below the support level at 1.3635 while U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index is testing the resistance level at 95.40. In case this test is successful, the U.S. Dollar Index will gain additional upside momentum and move towards the 50 EMA at 95.55 which will be bearish for GBP/USD.

Today, foreign exchange market traders will focus on the economic data from UK. Analysts expect that Claimant Count Change report will show that the number of people claiming unemployment benefits declined by 36,000 in December. UK Unemployment Rate is projected to remain unchanged at 4.2% in November.

Traders will also continue to monitor the developments in U.S. government bond markets. The yield of 2-year Treasuries managed to get above 1.00% and moved towards 1.05%. This move provided additional support to the American currency.

It should be noted that the currency market has mostly ignored the recent increase in Treasury yields, but a move above the psychologically important 1.00% level for shorter-term bonds may provide a material boost to the U.S. dollar.

Technical Analysis

gbp usd january 18 2022

GBP/USD is testing the support level at 1.3635. In case this test is successful, GBP/USD will move towards the next support which is located at 1.3600.

A successful test of the support at 1.3600 will open the way to the test of the next support at the 20 EMA at 1.3575. If GBP/USD declines below this level, it will head towards the support at 1.3535.

On the upside, the nearest resistance level for GBP/USD is located at 1.3665. In case GBP/USD manages to settle back above this level, it will gain additional upside momentum and move towards the next resistance at 1.3700. A move above the resistance level at 1.3700 will open the way to the test of the resistance which is located near the recent highs at 1.3735.

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

A Busier Economic Calendar Puts the Pound in the Spotlight

Earlier in the Day:

It is a quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in focus in the early hours. Later this morning, the Bank of Japan will be in action, with finalized industrial production figures from Japan also due out.

For the Kiwi Dollar

In the 4th quarter, the NZIER Business Confidence Index slumped by 28%. The Index had tumbled by 11% in the 3rd quarter.

According to the NZIER Survey,

  • COVID-19 lockdown measures and international border restrictions weighed on business confidence and demand.
  • A net 34% of firms expect deterioration in general economic conditions in the months ahead, up from 11%.
  • There was also a net 1% of firms reporting weaker demand in their own businesses.
  • The manufacturing sector was most affected, with a net 34% of manufacturers expecting a worsening in the economy. Things were not much better for the services sector, however.
  • On the labor front, labor shortages and a sharp pickup in inflationary pressures were also negatives.
  • A net 61% reported increased costs, the highest since June 2008.
  • Significantly, a net 65% of businesses plan to increase prices in the next quarter.

The Kiwi Dollar moved from $0.67942 to $0.67933 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.09% to $0.6795.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.11% to $0.7209, while the Japanese Yen was up by 0.02% to ¥114.610 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a busier day ahead on the economic calendar. German and Eurozone ZEW Economic Sentiment figures for January will be in focus. Since the start of the pandemic, EUR sensitivity to the ZEW numbers has seen a marked increase. Expect any weak numbers to test support for the EUR.

At the time of writing, the EUR was down by 0.02% to $1.1406.

For the Pound

It’s particularly busy day ahead on the economic calendar. December claimant count figures and November’s unemployment rate will be the key stats of the day. With the markets expecting a more hawkish BoE in the coming months, upbeat stats would support another near-term rate hike.

At the time of writing, the Pound was down by 0.02% to $1.3644.

Across the Pond

NY Empire State Manufacturing numbers are due out of the U.S. Baring particularly dire numbers, however, the stats should have a muted impact on the Dollar.

On Monday, the U.S Dollar Spot Index rose by 0.10% to end the day at 95.258.

For the Loonie

Housing start figures for December are due out later today. We don’t expect the numbers to have a material impact on the Loonie.

We will expect market reaction to the OPEC’s monthly report and the impact on crude oil prices, however.

At the time of writing, the Loonie was down by 0.02% to C$1.2518 against the U.S Dollar.

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

USD/CAD Tests Support At 1.2525

Canadian Dollar Is Gaining Some Ground Against U.S. Dollar

USD/CAD  is currently trying to settle below 1.2525 while U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index managed to get above the resistance at 95.20 and is moving towards the next resistance at 95.40. A move above 95.40 will open the way to the test of the 50 EMA at 95.55 which will be bullish for USD/CAD.

Today, Canada reported that Manufacturing Sales increased by 2.6% month-over-month in November compared to analyst cosnensus which called for growth of 3.1%.

Foreign exchange market traders also focused on the dynamics of commodity markets. WTI oil made an attempt to get to the test of the psychologically important $85 level but lost momentum and pulled back below the $84 level.

In case WTI oil manages to settle back above $84, it will have a good chance to test the $85 level which will be bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 17 2022

USD to CAD is currently trying to settle below the support level at 1.2525. In case this attempt is successful, USD to CAD will get to another test of the next support level which is located at 1.2500. This support level has been recently tested and proved its strength.

A move below the support at 1.2500 will push USD to CAD towards the support level at 1.2475. If USD to CAD gets below this level, it will move towards the next support at 1.2460. A successful test of the support at 1.2460 will open the way to the test of the next support level which is located at 1.2425.

On the upside, USD to CAD needs to settle above 1.2525 to have a chance to gain upside momentum in the near term. The next resistance level for USD to CAD is located at 1.2550. If USD to CAD manages to settle above 1.2550, it will gain additional upside momentum and head towards the next resistance at 1.2590.

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