Daily Market Analysis and Forex News

Stock markets have fallen across Europe and Asia this morning after the Fed signalled that the US central bank would begin boosting interest rates from crisis-era record lows in March. Following the about-turn in US markets after Chair Powell began talking last night, US equity futures have edged into the green after looking very red earlier this morning.

Bond markets have reacted swiftly to the Fed’s imminent removal of emergency stimulus by pricing in close to five interest rate hikes over the next twelve months. Many Wall Street banks are also revising their FOMC forecasts as Powell declined to rule out faster and bigger rate hikes from March. He said there was “quite a bit of room” to tighten monetary policy without harming the labour market.

Higher rates ultimately mean growth stocks could carry on struggling in the near term, even as the S&P 500 nears correction territory.

The broad-based index has lost roughly 9% of its value in January with speculative stocks particularly hard hit. Higher interest rates not only threaten corporate profits by raising borrowing costs, but they also lower the present value of companies’ forecast earnings.

Dollar joy at higher rates

King dollar has finally reasserted its authority (over those pesky low yielding currencies especially) this morning. The widely followed Dollar Index is enjoying its fourth day of consecutive gains and has hit highs last seen in July 2020. With greenback positioning more balanced, bulls will target the June 2020 high at 97.80.

Meanwhile, EUR/USD has plunged to new cycle lows below the previous bottom from November at 1.1162. The ECB is firmly sticking to the script that any bump in inflation will not hurry then into the start of a hiking cycle. Until this changes, then the world’s most popular currency pair should stay under pressure. The focus is likely to shift to the 1.10 area now that support has been broken and prices close the week below support/resistance. Traders will be watching today’s Q4 US GDP and the Fed’s favourite gauge of inflation, the core PCE deflator, which is released tomorrow.

Apple to report after the US closing bell

We have had some notable earnings releases over the past few days with Microsoft and Tesla reporting, and investors preparing for Apple’s latest quarterly figures later today.  The tech titan is expected to report all-time record revenue and a 13% rise in earnings. That said, the company which was the first to hit a $3 trillion market cap, has struggled to meet demand for sales of its iPhone 13 due to supply chain problems.

Apple watchers will also focus on its higher-margin services division which is set to grow at a much faster pace than the tepid pace of iPhone sales.

Technically, the stock has fallen sharply from all-time highs at $182.87 which it touched at the start of the year. But prices have found support more recently around the 100-day simple moving average and previous September highs at $157/$158. Bulls will want to get above the 50-day moving average around $168 to slow the current bearish momentum.

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.

Gold bulls went into hiding on Wednesday as investors awaited the outcome of the Federal Reserve meeting this evening.

It has been a choppy week for the commodity so far with price down almost 0.2% since Monday. When looking at gold, it remains the same old story with bulls and bears engaged in a tough tug of war. As highlighted yesterday, there is no doubt that the next few days will be eventful with its near-term outlook impacted by the looming Fed meeting.

Markets widely expect the Fed to leave interest rates unchanged in January. However, investors will closely scrutinise the meeting for fresh insight into the Fed’s aggressive monetary policy path for 2022. Should Fed hawks dominate the scene, this could hit buying sentiment towards gold with prices sinking back towards $1810 and $1800 in the short term. A strong daily close below the psychological $1800 level could open the doors towards$1786.

If the Fed shows any hesitancy in future rate hikes, this could rekindle appetite for zero-yielding gold, pushing prices back towards $1845 and $1870.

Looking beyond today, the road ahead for gold remains rocky and filled with many obstacles. 2022 is already shaping up to be a rough and uncertain year for the metal thanks to Fed hike expectations and a stronger dollar. If Treasury yields continue to rise, this may compound to gold’s woes, paving the way for steeper declines. It may be wise to keep a close eye on the weekly timeframe. Prices still remain in a very wide range while the MACD is flat. Bulls look slightly exhuasted with a bearish pin bar in the making. Should prices end the week below $1831, this could signal a decline back towards the $1786 level and $1750, respectively.

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.

Asian stocks flashed red on Tuesday morning, alongside U.S futures after an explosively volatile session on Wall Street.

Global equity markets were flung on a chaotic rollercoaster ride as investors grappled with Fed hike fears and mounting geopolitical tensions over Ukraine. In the currency space, king dollar edged higher despite the slight retreat in Treasury yields while gold glittered amid the risk aversion.

European markets are catching up on the strong US close this morning, but the caution in Asia has cast a cloud over sentiment as investors would prefer to shrug off the intense volatility that rattled global markets on Monday.

Although Wall Street swung back toward positive territory yesterday as investors exploited the selloff to snatch discounted shares, US equity bulls are certainly not out of the woods. Should inflation concerns, Fed hike fears, and geopolitical tensions fuel risk aversion in the days ahead, this could spell trouble for risk assets across the globe.

Overnight, Australia’s inflation jumped to 3.5% in the fourth quarter of 2021 amid rising petrol and housing costs.  The Australian dollar pushed higher during early trading as expectations rose over the RBA adopting a more hawkish tone at its next monetary policy meeting on February 1. Traders are currently pricing in a 58% chance of a rate hike by May 2022, with June fully discounted.

Spotlight swings on Fed meeting

Although monetary policy is widely expected to remain unchanged, the FOMC meeting could provide some key insight into how aggressive the Fed intends to tighten policy throughout 2022. Markets expect the central bank to signal on Wednesday that it plans to hike interest rates in March, with a total of four 25 basis point interest rates increases expected by the end of this year. While the Fed may stick to the script, any hesitancy on future rate increases or a more dovish tone could breathe life back into riskier assets. Alternatively, a hawkish Fed may deal another blow to stock markets, injecting equities bears with fresh confidence.

Commodity spotlight - Gold

Gold kicked off the week on a firm note as geopolitical tensions accelerated the flight to safety.

The slight retreat in Treasury yields also helped zero-yielding gold, as prices ventured towards the $1845 resistance level. There is no doubt that this will be a big week for gold with its near-term outlook likely to be influenced by the Fed meeting.

A hawkish Fed that signals multiple rate hikes could dampen the appetite for gold, resulting in prices sinking back towards $1831 and $1810. If the Fed surprises markets by deviating from the script and shows hesitancy in future rate hikes, this may push the precious metal higher towards $1870.

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.

The Canadian dollar, a.k.a the loonie, has been one of the best-performing G10 currencies so far in 2022. Notice how the CAD has a year-to-date climb versus most of its G10 peers, except for safe haven currencies such as the Japanese Yen and the Swiss Franc.

Go further back to the end of 2020 and you’ll also find that the CAD is the sole G10 currency that has advanced against the greenback since.

Why has CAD been outperforming?

1. Oil's surge

   Canada is the world’s fourth-largest oil producer and has the world’s third-largest crude reserves. The oil and gas sector accounts for about 5% of the economy, with the commodity being Canada’s largest export.

   In short, Canada is reliant on oil. Hence, oil prices have a major impact on the loonie.

   Considering oil’s rip-roaring 13% surge so far in 2022 (adding to last year’s 50% climb) that has helped boost CAD’s allure

2. Higher yields

   Yields are the calculation of earnings from an investment. And Canadian bonds are now offering higher yields than their counterparts in the US, Europe, and Japan. These higher yields suggest that investors would be more inclined to park their money in Canadian assets over those in other developed markets.

   Such heightened demand also implies greater demand for the Canadian dollar, which in turn is offering support for the loonie.

3. Hawkish BoC outlook

   Markets are giving a 72% chance that the Bank of Canada will raise interest rates on January 27th, which would mark its first since the pandemic. Inflation in December hit 4.8% which was its highest reading since 1991. Raising interest rates is a primary way that a central bank can help subdue consumer prices.

   Note that markets are also forecasting six rate hikes by the BoC before 2022 is over. That is more than the Fed and the Bank of England, who are both expected to hike 4 times respectively this year.

   Overall, such ‘hawkish’ expectations have been fueling CAD’s strength in recent months, while also offering the rationale for those higher yields mentioned earlier.

However, not everyone agrees that a BoC hike this week is a foregone conclusion.

Two-thirds of economists surveyed by Bloomberg think that the Bank of Canada’s Overnight Lending Rate will remain at 0.25% this month. In fact, last Tuesday, markets had priced in an 82% chance of a January rate hike, only to pare back such bets down to 72% at the time of writing (hence the recent recovery in USDCAD).

In short, the BoC has to deliver on a hike this week to give USDCAD a chance of revisiting its 200-day simple moving average (SMA) as a key support level. That support region is also strengthened by the presence of the currency pair’s 50% Fibonacci retracement level from its June-December 2021 advance.

However, if the BoC disappoints some segments of the markets and keeps rates lower for a while more, that could see USDCAD testing its 50-day SMA for immediate resistance, with stronger resistance set to arrive around the 23.6% retracement line.

BoC vs. ECB to keep EURCAD’s downtrend intact

Compared against the likes of the European Central Bank, which remains far from raising its own interest rates, the BoC appears to be much further ahead in the path towards restoring policy settings to pre-pandemic levels

This diverging outlook has been a key driver of EURCAD’s downtrend over the course of 2021, aided further by the stellar gains in oil prices.

The unwinding of hawkish BoC bets has translated into a slight pullback for EURCAD in recent sessions, even as the pair recovers from oversold conditions after having broken below its lower Bollinger band and touching its lowest levels since April 2017.

Still, EURCAD is not expected to see significant gains in the weeks and months ahead, barring a dovish surprise out of the Bank of Canada this week.

As long as hawkish BoC expectations remain intact, depending on the mid-week meeting’s outcome, and with oil prices set to explore further upside, then the Canadian dollar could still see more gains against most of its G10 peers in the near future.

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.

We get a plethora of data this week, including activity PMIs across the globe and GDP figures from Europe and the US. Geopolitical risks are rising as Russia-Ukraine tensions mount.

The highlight will be the Federal Reserve meeting on 26 January, sandwiched between key economic data releases and tech earnings:

Monday, January 24

• EUR: Eurozone January PMI
• GBP: UK January PMI

Tuesday, January 25

• AUD: Australia 4Q inflation and December business confidence
• IMF updates World Economic Outlook
• Microsoft earnings

Wednesday, January 26

• US crude: EIA crude oil inventory report
• USD: Fed rate decision
• CAD: Bank of Canada rate decision
• Tesla earnings
• Intel earnings

Thursday, January 27

• CNH: China December industrial profits
• USD: US weekly initial jobless claims and 4Q GDP
• Apple earnings

Friday, January 28

• NZD: New Zealand January consumer confidence
• EUR: Eurozone January economic confidence, Germany 4Q GDP
• USD: US December PCE deflator, personal income and spending, and consumer sentiment

The FOMC is expected to signal a rate hike in March and the immediate end of its bond buying programme, brought forward from the current mid-March end point.  

Markets are now pricing in four Fed hikes of 25bp this year with a good chance that we will see more than two rate hikes in the first half of 2022, or alternatively a 50bp hike. Most notably, bond yields have moved higher with stable to lower inflation expectations, resulting in a sharp move higher in real rates. This has been the key driver of souring risk appetite and will determine market direction going forward, in what is becoming quite an aggressive path for Fed action.

Stock markets brace for tech sector results

Company earnings will be in focus with many investors hoping the releases stop the strong selloff we have seen in tech stocks and the broader US equity markets.

Anxiety over rising US interest rates has seen investors flee global stocks this year with the tech-heavy Nasdaq suffering its biggest slide since the pandemic rocked markets in March 2020.

The broader blue-chip S&P 500 index shed 5.7% last week with more than two-thirds of the companies within the index now in a technical correction – or down at least 10% from their record high – including 149 stocks that have fallen by 20% or more. Some of the world’s biggest companies report in the next fortnight, including Microsoft after the US market closes on Tuesday, Tesla and Intel mid-week and Apple after US markets close Thursday, while Amazon and Facebook release their latest earnings next week.

The pressure is on many of last-year’s high-flying tech companies to refuel investor confidence and stop the contagion from the tech drawdown.

That said, the S&P500 is still higher now than it was in September, even though equities remain richly valued. An alignment of financial markets and conditions with the Fed’s more hawkish rhetoric and outlook has been on the cards for some time.

Bank of Canada set to pull the rate hike trigger

Hours before the Fed meeting on Wednesday, policy makers at the BoC are likely to raise interest rates 25bps, with at least three more rate hikes predicted by markets this year. Inflation is at 30-year highs and the economy is at record employment, while Covid restrictions are set to ease at the end of the month.

With some analysts predicting as many as five rate rises in 2022, the Canadian dollar should continue to outperform, especially against those currencies whose central banks are in no rush to tighten monetary policy, like the ECB and BoJ.

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.