The great and fearsome overlord of the Fed’s key interest rate, Jerome Powell, transformed himself from “dovish” to “hawkish” this week. Inflation, in his words, can no longer be considered a temporary phenomenon, which means it will have to be dealt with. If so, it seems that QE will soon be coming to an end. What’s going on in the markets? That’s what we’ll look at in today’s review.
- AUD/USD -0.91%. Trading down with $100 and a X500 multiplier, you could have easily made $455.
- ETH/USD +12.9%. Trading up with $100 and a X10 multiplier, you could have easily made $129.
- Alibaba -10.14%. Trading down with $100 and a X20 multiplier, you could have easily made $202.80.
Last week the Australian dollar was the hardest hit currency. AUD/USD fell by 1.29%, and cross currencies AUD/JPY and AUD/NZD fell by 3.45% and 0.49% respectively. GBP/AUD gained 1.32% and EUR/AUD added 2.53%. Here, we want to bring your attention to the fact that Australian macroeconomic statistics that were released this week were quite good. On Wednesday 01.12 GDP data was released.
Despite the fact that Australia’s GDP growth for the third quarter came out negative, it still exceeded analysts’ expectations (-1.9% against expectations of -2.7%). In annual terms, GDP grew by 3.9%. Retail Sales data published on Thursday also turned out to be neutral. As many economists had expected, consumption in Australia rose by 4.9% for the month.
Therefore, we attribute the reasons for the decline of the Australian national currency to the general market situation.
Fed Chairman Jerome Powell made a sensational statement this week, saying that “the risk of more persistent inflation has risen” and that “it is appropriate to consider the start of tapering a few months early.” Thus, as many analysts point out, the traditional “dovish” Powell has turned into a “hawk”, which means growth for the American currency and, accordingly, the depreciation of other currencies against the U.S. dollar.
Most importantly, the new strain of the coronavirus, Omicron, has caused Australia to announce that it will delay opening its borders for two weeks. Economists have already estimated that the delay will cost the economy about $1.4 trillion.
From a technical point of view, it is now becoming clear that the break that the bulls got in October on the AUD/USD pair was temporary. The decline for the pair has continued and even more so. AUD/USD broke below this year’s August low in the vicinity of 0.71000. Now there is a direct path to 0.700, where the bears will find support. Having broken it, sellers will be able to go even deeper to 0.68500 (50% retracement).
Global markets are definitely feeling risk-off right now. Investors have bolted from U.S. stocks. Over the week, the DJIA is down by 3.4%, the Nasdaq 100 is down 2.4%, and the S&P 500 is down about 3%.
That’s quite a drop for the financial sector. Shares of JP Morgan Chase fell by 5.4%, Visa lost about 6.5% in capitalization and Goldman Sachs shed 2.4%.
In light of recent events, especially against the background of Fed Chairman Powell’s statements about the need for a faster transition towards tapering, the question arises if Santa Claus will visit the market. Are we going to have a New Year’s rally?
Some investors are confident that rally or no rally, U.S. indices will continue to grow next year. Goldman Sachs is the most optimistic and they predict the growth of the S&P 500 to 5100 points, which would be up 13% from the current level.
In the meantime, we remain on the skeptical side. The probability of a deeper drawdown is there and it is quite likely. As for the shares of Goldman Sachs, on the weekly chart, we can see the formation of a range with support and resistance boundaries around $372.50 and $420. Additionally, it is possible that if the stock breaks the $350 level downward, we could say that the bearish double-top pattern has completed. In this case, the target will be around $320, which is quite low for optimism.
Brent crude continued its impulsive tumble all of last week. Local support is at $68.20 per barrel, but it will probably not be able to keep the price from further decline. If the level of $65 is broken, the mid-term trend in the market will change and the sell-off will continue.
The RSI indicator is already in the oversold area, so we can expect a short-term upward correction. Whether it will be enough to stop the avalanche of sales, we’ll find out this week.
The sell-off began after a new strain of COVID called “Omicron” was reported in South Africa. Traders fear that it may be more contagious and dangerous than the delta variant. Thereby provoking new lockdowns around the world, which will in turn, reduce oil consumption. The governments of several countries including Great Britain, the Netherlands, Japan, and Israel have responded by closing borders or restricting entry to residents from Southern Africa.
Later, South African scientists clarified that Omicron infection runs in a fairly mild form. However, the market still continues to panic.
The mood in the oil market should be determined by the OPEC+ meeting, which began last week. It is very likely that the cartel will decide to postpone the planned production increase in December by 400 thousand barrels per day. This should keep the market from falling further.
Even without the current market situation, this makes sense. Sales of state reserves in the U.S., China, Japan and India are capable of eliminating market deficits by the end of 2021. Thus, the increase in oil production by OPEC+ countries could be postponed until January.
Gold failed to break the downtrend line in mid-November and has been in a correction since then. Local support is at the level of $1775 per troy ounce. With high probability, the current trend will continue to $1740.
If this level is broken, the long consolidation, which has been observed in the market since March of this year, will end with a breakdown, and gold will face a serious sell-off.
Gold is falling against a stronger U.S. dollar, which gained support from the Fed’s hawkish rhetoric. Last Tuesday, Jerome Powell unexpectedly said that he admits the possibility of an accelerated rollback of the QE program in December.
The asset buyback program, which has been in place since 2020, may be completed a few months earlier than planned. Everything should become clear after the Fed meeting on 14-15 December. Therefore, there is less interest in gold as insurance against inflation getting out of the central banks control.
Bitcoin continues to correct after updating its all-time high in mid-November. For the past 2 weeks, trading has been in a range between $54,000-$59,000, but from a technical perspective, the main cryptocurrency continues its short-term downtrend.
The price is close to the uptrend line, which started at the end of September. A critical level for the bulls will be in the vicinity of $52,000-$54,000. If this level is breached, the trend will be broken and the correction will intensify.
The capitalization of the entire market is again at $2.6 trillion. Daily trading turnover has stabilized around $120 billion.
The Fear and Greed Index downgraded to “Fear” and stands at 32 points. Retail traders are predominantly trading BTC down. The BTC Domination Index has been declining all week and stands at 40.5%. This was due to the growth of Ethereum, reaching $4780 per coin, which is quite close to the historical maximum.
Weekly Crypto Trends:
- Meta (formerly Facebook) allowed advertising of cryptocurrency projects after several years of a total ban! The company increased the number of accepted crypto licenses from 3 to 27.
- Fidelity Investments received approval from the Canadian regulator to launch a spot Bitcoin ETF. Perhaps this will encourage the SEC to approve this type of application in the U.S. as well.
During the week, AUD was hit the hardest. One of the main reasons is Omicron, which forced authorities to keep the country’s borders closed. Omicron – Australia 1:0.
Despite the optimistic view of many investment houses regarding the situation with stock indices, the capitalization of the investment houses themselves continues to decline at an accelerated pace.
Gold is no longer a hedge against inflation risks after Powell’s latest comment. Oil plunged in price amid the emergence of a new coronavirus strain and panic over a new global lockdown.
Bitcoin continues to correct, but key levels have not yet been broken. Correlation with major markets, which are in the red zone, is decreasing. For the whole cryptocurrency sector this is a definite plus.