Happy Sunday everyone,
Here’s my view on the week ahead and the trades/areas I’ll be watching. I’ll also be looking at seasonality and researching how institutions hedge especially in what has been a year where trading with the USD trend has worked very well resulting in a lot of people net long USD. End-of-year hedging (for bonuses and performance) could see large funds selling dollars to get flat going into year-end to book some profits. This could cause dollar weakness – but I haven’t done much research into this it seems to have a little bit of logic behind it [at least my logic which may be fatally flawed]
China is struggling with COVID – reporting record case numbers – insistence on zero covid policy has a lot of cities on lockdown. It is causing relatively widespread civil unrest which is unusual in China. This will put a reduced demand on goods due to decreased uptake and activity – this could impact NZD as a food exporter to China and a beneficiary of an open Chinese tourism economy/policy.
China has also said that they are making loans available to support the real estate sector – this could potentially be bullish for raw materials if the loans are to be used in construction – AUD bullish?
Fed announced a preference to slow rate hikes- however, said that inflation is still well above target and risks still remain to the upside. Dec 14th is the next rate announcement where 50bps is seen as the early consensus. If employment remains strong (NFPs this week) and Core PCE prints high – I don’t see the reason to reduce given that the Fed has said previously that they are prepared to act to bring inflation down to its target.
Eurozone – War in Ukraine has potentially quietened – Winter may slow the on-the-ground action and battles – Gas storage in the eurozone also seems less of an issue – currently 90% full which is in line with previous years. There is also a reduced demand due to inflationary pressures on manufacturing. It would appear the risks are reduced for Eurozone in the short term (with regards to Russia and energy).
Seems to be a mixed outlook estimate on the EUR whether another 75bps increase will happen or a smaller hike on recessions fears. CPI for the 4 major EUR countries out this week.
JPY is a mixed bag, Recent announcement of intent to build their own semi-conductor industry and supporting supply chains could be interesting from an industrial demand point of view. Yield curve control is still the biggest factor for the JPY. Carry trades between low-yielding YEN and something with a relatively stable higher yield like the USD could cause another leg up, but any unwinding of a carry trade could drop the USDJPY lower. If that is coupled with any intervention or the abandoning of YCC then the JPY could have long-term bullish momentum from these levels
DXY: Sitting at support level in the form of price S&R level and sitting on the Daily 200EMA. Next area of resistance would be 110.00 – this would be a previous resistance level and signify a gap clearance on the weekly chart.
S&P: Coming up to 3 of levels of resistance – previous S&R level at ~4150, descending trendline, weekly 55ema and daily 200ema.
Oil: sitting at a clear previous support level.
Copper: Broken a descending trendline, currently retesting – my bias is bullish in the medium term, but the 3.500 area could be a nice place for a long.
SZSE1000 is a bit choppy – no clear direction and will likely depend much much more on geo-pol’s rather than technicals.
VIX is decreasing and is currently at a strong level where it has reacted 3 times in the past year – Risk on sentiment seems unlikely but could line up with a Fed easing or perceived pivot.
USD potential strength – but any weakness in data release could result in bearish action
AUD potential Strength
NZD potential weakness
Trades to watch
AUDCAD Long @ 0.8840. A second potential area is 0.8700
AUDUSD Short @ 0.6829 (but macro view doesn’t really support this)
EURCAD Long @ 1.3625
EURUSD Long @ 1.0050. Second area is 0.9800
GBPUSD Long @ 1.1600 (macro view doesn’t line up but GBP is a mixed bag)
USDCAD Long @ 1.3100
Have a good week!
As always, remember correlation!
We are NOT a “tipping service” our aim is to teach you how to trade for yourself.