Daily Market Analysis and Forex News

Oil bulls were injected with renewed confidence on Wednesday as Brent and Crude climbed to their highest level since October 2014.

Buying sentiment towards the global commodity was boosted by supply disruptions coming from Turkey, while the International Energy Agency’s (IEA) bullish outlook on oil markets fuelled upside gains.  As fears fade over the demand impact from Omicron and supplies are tightened by a range of outages across the globe, this could propel prices higher. We are just three weeks into the New year but both benchmarks are up almost 15%! It will be interesting to see whether the current upside momentum and fundamentals inspire a move towards $100.

Speaking of prices levels, oil remains bullish on the daily, weekly, and monthly timeframe.

Brent journeys towards $100…

Brent is trading around $87.90 as of writing. This is roughly $12 away from the big $100 level. It is worth keeping in mind that the last time Brent saw $100 was back in 2014. 

Looking at the technical picture, there have been consistently higher highs and higher lows. The technical and screaming further upside but it may be worth keeping a close eye on the fundamentals. A solid breakout above $90 could open doors towards $92.40 and $97.00 before the big $100.

Should bulls lose steam before reaching $90, a decline back below $85.80 could be a possibility.

WTI Crude not far behind

We see a similar story on WTI Crude as bulls push prices closer to the $100 level.

Prices are trading above the 50, 100, and 200-day Simple Moving Average while the MACD trades to the upside. A strong move above $90 could signal an incline towards $94 and $98 before testing $100.

Alternatively, a drop back below $84.20 may inspire bears to target $78.00.

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 shares were a mixed bag on Tuesday due to the absence of cues from Wall Street following a national holiday in the United States. But European and U.S. equity futures are flashing red amid a jump in Treasury yields, as investors brace for the Federal Reserve to raise interest rates four times this year to tame inflation.

Brent crude ventured to its highest level since 2014 due to geopolitical tensions in the Middle East, while gold struggled for direction above $1810. In the currency arena, king dollar pushed higher while the yen weakened this morning after the Bank of Japan concluded a two-day policy meeting with no major changes.

This will certainly be a big week for financial markets as investors juggle the various themes influencing global sentiment. Equity markets will look to company results for some direction as the fourth-quarter earnings season gets into full swing.  Reports from the US banks who have so far reported paint a mixed picture with JP Morgan Chase, a financial bellwether, closing down more than six per cent on Friday after the bank said rising costs would curtail profits in 2022 even as it posted record full-year earnings. Heavyweights such as Goldman Sachs and Bank of America, as well as Netflix among many others will be under the spotlight this week.

The burning question on the minds of investors could be what impact rising inflation and the emergence of the Omicron variant will have on final quarter earnings. Should we witness another mixed or disappointing week of results, this could sap more confidence from stock market bulls, especially when considering that the broader S&P500 index is already down over 2% so far this year.

A wild week ahead for the Pound?

The British pound could be injected with volatility this week due to the series of key economic reports and potential political drama at Westminster.

Market expectations already remain elevated over the Bank of England raising interest rates next month, with traders pricing in around an 91% chance of a 25bp rate hike. The argument for higher rates may be reinforced this week if the pending data meets or exceeds forecasts.

On the political front, Prime Minister Boris Johnson remains under pressure to resign over ‘partygate’. Given how it has been reported that as many as 30 letters of no confidence in Boris Johnson have been submitted by Tory MPs, things are bound to get heated. A total of 54 letters of no confidence would have to be submitted to Sir Graham Brady, chairman of the 1922 Committee of backbench MPs, for a vote to be held.

Looking at the technical picture, GBPUSD remains bullish on the daily charts. However, there seems to be resistance around the 200-day Simple Moving Average at 1.3734. A decline towards 1.3600 could be on the cards after such a strong run since the December lows, before bulls snatch back momentum for a push towards 1.3700 and 1.3830.

Commodity spotlight – Oil

Brent crude marched into Tuesday’s session, with prices climbing to fresh seven-year highs as geopolitical tensions bubbled in the Middle East. Iran-backed Yemini fighters claimed to have launched drone strikes on the United Arab Emirates, the third-biggest OPEC producer. Brent is up almost 2% this week and has appreciated close to 13% since the start of 2022. Prices are above $87.70 this morning, with bulls eyeing $88 and $90 as upside targets.

Commodity spotlight - Gold

Gold could be flung into the firing line this week if the dollar regains its mojo and Treasury yields rally. The precious metal has displayed resilience in recent sessions and even took advantage of a softer dollar to push back above $1810.

However, given gold’s zero-yielding nature, the path ahead could be bumpy and perilous for the precious metal as interest rate rises become a reality. Although other factors such as inflation risks and Omicron uncertainty may support gold bugs, the pressure is piling up on gold.

Looking at the technical picture, prices remain within a choppy range. A breakdown below $1810 could open the doors towards $1800, 1786, and $1770. Should $1810 prove to be reliable support, bulls may eye $1831 and $1845.

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.

Keep an eye on this space because the GBPUSD could turn volatile over the next few days!

Market players will be served a cocktail of key economic reports from the UK and potentially more political drama at Westminster. On top of this, expectations continue to mount over the Bank of England raising interest rates in February to tackle rising inflationary pressures. The argument for higher interest rates may receive a boost if the pending labour market and CPI data meet or exceed expectations. Looking at the political front, Prime Minister Boris Johnson remains under pressure to resign over 'partygate' – a development that could weigh on sterling down the road.

All in all, there is plenty on the plate for sterling in the week ahead. It may be wise to fasten your seatbelts in preparation for volatility.

Before we sink our teeth into the key themes and economic reports that may inject life into the pound, it is worth keeping in mind that it has appreciated against most G10 currencies year-to-date.

Briefly looking at the technical picture, prices remain in a range on the monthly timeframe with strong support at 1.3300 and resistance at 1.3800. However, the technicals and fundamentals are swinging in favour of bulls with a break above 1.3800 signalling a move towards 1.4250.

UK CPI under the spotlight…

Over the past few weeks, the pound has displayed sensitivity to inflation and rate hike expectations. This sensitivity may be on show this week if the pending data influences rate hike bets.

On Tuesday, all eyes will be on the November labour market report which should provide a clearer picture of the labour market following the end of the furlough scheme. Investors will direct their attention to the December inflation figures on Wednesday which are forecast to rise 5.2% year-on-year – its highest level in 10 years. To end the week, the retail sales figures for December will be published with markets expecting sales to rise 3.4%, a drop from the 4.7% in November.

Should the pending inflation data and labour market report illustrate further signs of rising inflation and tightening labour market conditions, this may fortify expectations for tighter policy. Markets are currently pricing in an 89% probability of a 25bp rate hike at the 3 February meeting. 

Watch out for political developments

UK Prime Minister Boris Johnson remains in the headlines for all the wrong reasons.

The PM has been facing calls to resign amid the ongoing ‘partygate’ scandal. Things are bound to get spicy as a no confidence motion in Boris Johnson has already been tabled by the Liberal Democrats. While a majority of Tory MPs remain on the side-lines until the results of a formal investigation are released, it has been reported that as many as 30 letters of no confidence in Boris Johnson have been submitted. A total of 54 letters of no confidence would have to be submitted to Sir Graham Brady, chairman of the 1922 Committee of backbench MPs, for a vote to be held.

Pound points north but throwback pending?

Things are looking interesting for the GBPUSD on the weekly charts following the weekly close above 1.3600. The strong breakout above this point could encourage an incline towards 1.3900. If bulls are unable to keep above 1.3600, we could see a decline back towards 1.3200.

On the daily charts, prices remain bullish, however the 200-day Simple Moving Average is acting as a major barrier for bulls to conquer. Beyond this point, prices may jump towards 1.3830 and 1.3900. In the meantime, the GBPUSD could be experiencing a technical throwback with 1.3600 acting as a key level of interest. Should this level prove to be reliable support, a move back towards 1.3700 could be on the cards. Alternatively, a decline below 1.3600 may open the path 1.3450 and lower.

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.

Here are the key economic events and data releases to look out for this week:

Monday, January 17

• CNH: China 4Q GDP, December industrial production and retail sales
• US markets closed for Martin Luther King Jr. holiday

Tuesday, January 18

• JPY: Bank of Japan decision
• EUR: Germany ZEW survey expectations
• GBP: UK November jobless claims, December unemployment
• Goldman Sachs Q4 earnings

Wednesday, January 19

• EUR: Germany December inflation
• GBP: UK December inflation
• GBP: Bank of England Governor Andrew Bailey speech
• Bank of America Q4 earnings
• Morgan Stanley Q4 earnings

Thursday, January 20

• CNY: PBOC loan prime rate decision
• JPY: Japan December external trade
• AUD: Australia December unemployment
• EUR: European Central Bank publishes Dec meeting account
• USD: US weekly initial jobless claims
• US crude oil: EIA inventory report
• Netflix Q4 earnings

Friday, January 21

• JPY: Japan December inflation
• GBP: BOE policy maker Catherine Mann speech, UK December retail sales
• EUR: Eurozone January consumer confidence

The potential for the removal of the liquidity punchbowl (aka monetary policy tightening) is dominating the market’s thinking at present.

The strong US CPI report released last week added more pressure on the US Federal Reserve to stat lifting rates earlier than once thought, potentially as soon as March. We’ve had numerous FOMC members recently marking a more hawkish bias to the committee’s views, including notably, the fabled dove Brainard in her Fed chair nomination appearance before the Senate.

Another Fed official, Waller, also mentioned the chance of five rates hikes this year, although he doesn’t favour a 50bp hike in March. It’s worth remembering that it is a US holiday on Monday, so their markets are closed, and the blackout period has started before the next Fed meeting on 26 January so there won’t be any more Committee members to listen out for on the wires.

Company earnings also continue with more bulge bracket US banks releasing their fourth quarter results. US stocks notched their second straight weekly decline, pushed lower by disappointing earnings from financial industry bellwether JPMorgan Chase which has clouded an already mixed outlook for the US economy.

Asian policymakers in focus

We kick off the week with Chinese fourth quarter GDP (4% y/y vs. 3.3% est.), as well as December's industrial production (4.3% vs. 3.7% est.) and retail sales (1.7% vs. 3.8% est.). The full-year GDP came in at 8.1%, slightly above the median estimate by economists but well above the government's 2021 target of over 6%. Still, the data confirmed that the final quarter was losing momentum but the real test for the domestic economy will come in the first quarter of this year, due to current regional lockdowns on top of the ongoing woes in the property sector.

With this in mind, the PBoC lowered both the one-year medium-term lending facility rate abd the seven-day reverse repurchase rate by 10 basis points respectively, a move not seen in nearly two years, and also injected more liquidity into the financial system via US$110 billion in loans.

The Bank of Japan meeting on Tuesday is also getting some airtime after “sources” said it is thinking of a rate hike at some point beyond this year and debating how to manage the messaging. Inflation is picking up and possibly risks to prices may now be described as “balanced” but hitting the 2% inflation target is still a long way off.

UK data to add pressure to the BoE

We get the usual mid-month data dump in the UK with signals about labour market strength, the pace of consumer price inflation and retail sales. These are the last official updates before the BoE meeting on 3 February, with CPI expected to rise above the forecast 5% going forward and a labour marker remaining tight.

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.

It was an eventful week defined by inflation expectations, volatile equities, and action in the FX space. 

The mood across financial markets turned cautious on Monday as traders pondered the possibility of the Federal Reserve raising interest rates sooner than expected. Surging Covid-19 cases across the globe also weighed on sentiment, hitting appetite for riskier assets. 

Our trade of the week was gold. We questioned whether the precious metal would be in trouble as rising inflation boosted expectations around higher interest rates. On Tuesday, king dollar weakened, even after Federal Reserve Chairman Jerome Powell stated during his Senate confirming hearing that the central bank was likely to raise interest rates this year. 

Mid-week, the US December inflation report showed prices rising at their fastest rate in almost 40 years! The consumer prices index (CPI) jumped to 7% year-on-year, up from 6.8% in November while matching the median forecast from economists surveyed by Bloomberg. We saw the Dollar Index (DXY) slam into 95.00 following the inflation report. Although markets initially offered a calm reaction to the CPI, equity bulls felt the burn on Thursday as rate hike bets rose. 

Gold regained its mojo, deriving strength from a weaker dollar and slight pullback in Treasury yields. After experiencing sharp losses last week, the precious metal concluded this week roughly 1.2% higher.

All eyes were on the US retail sales on Friday which disappointed expectations. Sales fell by 1.9% in December, as worries over the Omicron variant and rising inflation hit spending. With this terrible combination hitting household consumption, this could have weighed on economic growth in the final quarter of 2021. Interestingly, the probability of a rate hike in March currrently stands at 91.5% as of writing. 

In the FX space, the dollar staged a rebound on Friday but still ended the week lower against all G10 currencies. Oil posted a fourth straight weekly gain amid signs that the market is tightening as global consumption remains resilient in the face of Omicron.

In other news, earnings season kicked off with major banks under the spotlight. JPMorgan Chase, the Number 1 U.S. bank by assets showed profit and revenue that topped estimates. Citigroup beat revenue estimates but showed a 26% plunge in profits while Wells Fargo reported better-than-expected fourth-quarter results. With earnings season set to kick into higher gear in the week ahead as more companies publish their fourth-quarter results, it may be wise to fasten your seatbelts for potentially more volatility!

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.