Markets are unusually excited about the upcoming Fed meeting. What can you expect from Jay Powell and will his tone become even more hawkish?
- EUR/AUD −2.45%. Trading down with $100 and a X500 multiplier, you could have easily made $1225.
- Facebook (Meta platforms) +7.49%. Trading down with $100 and a X20 multiplier, you could have easily made $149.8.
- Apple +7.86%. Trading up with $100 and a X20 multiplier, you could have easily made $157.2.
Last week, the market behaved quite differently and the balance of power did not change much. Amongst the strongest movements we should mention is GBP/USD, the “Cable” fell by 0.91%, USD/CAD shed more than 1%, while CAD/JPY gained 1.4%. Overall, the Canadian dollar felt quite optimistic. November Ivey PMI data had a positive effect on the national currency which rose to 61.2. Shortly before the release of the Purchasing Managers’ Index, Canada flaunted a surplus of more than 2B Canadian dollars in their Trade Balance report.
On Wednesday, the BoC made its decision on the key interest rate. There were no surprises here, and the bank left the rate at the level of 0.25%.
There was nothing new to say in the final statement. The BoC believes that inflation will return to the target in mid-2022 and that stimulus measures will continue until then. They issued the following statement:
“The Governing Council judges that in view of ongoing excess capacity, the economy continues to require considerable monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s October projection, this happens sometime in the middle quarters of 2022.”
Initially, the Canadian dollar reacted with a dip, but later growth in some cross currency pairs continued. It’s worth mentioning that the Bank of Canada, or any central bank for that matter, is unlikely to take any serious measures at the time because all eyes are on the U.S. Federal Reserve’s last meeting of the year which is going to take place this Wednesday. Some economists believe that the Fed may double the tapering measures, reducing the monthly bond buys by $30 billion.
Meanwhile in the world of vanilla options, USD/CAD looks the following way. The delta of the weekly call options with a strike price of 1.26400 is now around 0.6. This means that bulls have a slight advantage and the market is still more confident that the pair will stay above this level on the weekly outlook.
Additionally, the 38.2% Fibo correction level is in the vicinity of 1.26400, therefore when the pair drops to this level, we may see a renewed spurt of growth for the “Loonie”.
For stock indices, the week turned out to be quite successful. The Dow Jones gained 2.6%, the Nasdaq100 added 4%, and the S&P 500 rose by 3.4%.
The financial sector, as well as electronics and communication sectors, are performing well. It almost seems like risk factors have magically disappeared and experts point out 2 compelling reasons for this. One of the reasons is that the panic and risks surrounding the new coronavirus variant “Omicron” seems to be blown out of proportion, and secondly its buybacks.
On 07.12 Bloomberg published an article stating that “Corporate America” bought back $3.4 billion worth of its own stocks from the market since March. Excess liquidity creates an opportunity to transfer shares back to the “treasury” category, which means that there’s not much honey on the market for bears right now. Nevertheless, a question keeps spinning in our minds, could this be a trap of falling knives?
We want to remind you that recently Fed Chair Jerome Powell shifted his views to hawkish and the FOMC meeting on 15.12 may be a “hit under the belt” for markets. At the moment, markets are expecting the first rate hike as early as May 2022, and the markets also believe that there will be three rate hikes next year.
So far, the very nature of the movement on some securities looks more like a technical correction rather than a return to a strong bullish trend. Let’s take a look at Facebook shares. On the weekly TF the price formed a bearish flag, which was successfully completed on 29.11.
Currently, the price is rebounding, but this is a classic retest of the trend line, which is also happening in low volumes. If market bulls want to regain advantage, they need to organize an attack at the level of $350. In other words, it needs to break above the local high from 22.11. In our opinion, this is going to be hard to accomplish.
So what to do in this situation? Apparently, it is too early to “short” the stock, while “long” positions may be too risky. The best option for now seems to be “cash” with the possibility to open short positions in the near-term.
Brent oil recovered over the past week. The price reached $76.40 per barrel, this level serves as local resistance before further growth. The combination of Parabolic and MACD indicators point to a change in trend and a continuation of the upward movement.
The market is recovering from the panic surrounding news of the new coronavirus strain called Omicron. According to the latest data, it inflicts a lighter form of contagion.
Therefore, most countries did not impose severe restrictions on movement, which market participants feared so much. In general, we can say that the price has already factored in the unrealized drop in demand associated with Omicron.
At its last meeting, OPEC+ decided to increase production in January by 400,000 barrels per day, although the cartel had previously promised not to make any changes to the production schedule.
Because of the new coronavirus strain, the U.S. Department of Energy lowered their global oil demand forecast to 96.9 million bpd for this year and 100.5M bpd for 2022. The lowered demand expectations are likely to prevent strong price growth before the end of this year.
Analysts at JP Morgan believe that the price of oil could reach $125 per barrel in 2022. In their forecast for the next year they expect the world economy to strengthen with the support of high oil prices.
Gold failed to remain above the level of $1,800 per troy ounce. The price is gravitating to the uptrend line support and a breakout to the downside may be very problematic for the value of the precious metal.
Most indicators confirm the current downtrend. The movement is in a narrow range, which means that a strong breakout is possible. Although a breakdown is more likely at this time, it hasn’t happened yet.
Speculation surrounding the Omicron strain was not enough of a factor for gold to rise, but it did provide support. There were several attempts to break above the $1,800 level at that point, but they were unsuccessful. Fears quickly faded, as did the need for gold as a defensive asset against a new wave of lockdowns around the world.
The expectations of tighter monetary policy and tapering of the U.S. Federal Reserve’s stimulus program is already reflected in the price. Nevertheless, the key moment for precious metals and the gold market will be the next Fed meeting on December 14-15. If Jerome Powell’s hawkish intentions are officially announced, it will be damaging for gold.
On 04.12, Bitcoin broke below the uptrend line from mid-July and dropped with an impulse to $42,000. However, the price quickly stabilized and returned to the $49,000-51,000 area, where it remained all of last week.
BTC made a retest of the broken trend line and pointed to a clear downtrend. On the daily chart, the RSI indicator is near the oversold area. If there are no buybacks from the current levels, Bitcoin will be oversold for the first time since the collapse in May. This will certainly add to sellers’ enthusiasm. Whether this is the final opportunity to buy BTC at $50,000 or a new selloff wave is waiting for us will be clear as early as this week.
The capitalization of the entire market has fallen to $2.3T. Daily trading turnover is also dropping, to slightly less than $100B.
The Fear and Greed Index remains in the Fear section and stands at 29 points. Retail traders, just like the previous week, are trading BTC more to the downside than the upside. The BTC dominance index is also at a decline to 38.3%. The last time this ratio was seen was in May 2018. Ethereum continues to strengthen, pulling capitalization to itself.
Visa plans to increase its mass adoption of cryptocurrencies. The company will create a consulting department to help customers understand cryptocurrencies. Over the past year, $3.5B in cryptocurrency transactions passed through the payment network and the company plans to expand in this area. According to their internal research, 94% of people around the world are familiar with cryptocurrencies, and about a third have used them to make transactions.
2021 has truly increased the interest for cryptocurrencies and Bitcoin. According to BlockFi, 10% of Americans plan to give cryptocurrencies as gifts for Christmas. A survey by Grayscale Investments stated that 26% of U.S. investors already own Bitcoin, with 55% having purchased BTC during the past year.
Traders are cautious on the currency market. Most currency pairs are flat. The stock market has once again started to recover. Reasons for this are fading Omicron fears and record buyback volumes. Oil is recovering from the panic associated with the Omicron strain. Gold is trading in a sideways range while awaiting the U.S. Federal Reserve decision. The cryptocurrency sector is in a vulnerable position. Unlike the stock and commodity markets, it did not recover as much from the recent sell-off.