Olivia

Gold price replicates Tuesday’s Asian trading move so far this Wednesday. Fed Chair Jerome Powell offers relief to markets, keeps US Dollar on the back foot. US Treasury bond yields ease as Gold price awaits the United States Consumer Price Index data. Gold price confirms Golden Cross, a test of the $1,900 mark remains on the cards. Gold price is trading listlessly, consolidating below the eight-month high of $1,881 amid quiet trading this Wednesday. Gold price replicates the move seen during Tuesday’s Asian session amid a pause in the United States Dollar (USD) downside momentum. Federal Reserve Chair Jerome Powell fails to lift US Dollar The United States Dollar is extending its downside consolidative mode into the second day on Wednesday. Risk flows remain in vogue and weigh negatively on the safe-haven US Dollar as investors breathe a sigh of relief after US Federal Reserve President Jerome Powell refrained from touching upon monetary policy outlook while participating in a panel discussion at a Riksbank event on Tuesday. Markets expected Federal Reserve Chair Powell to maintain its hawkish stance, pushing for higher rates for longer to battle inflation. Investors anticipated Powell to join the chorus of his colleagues, especially after San Fransisco… Read More »Gold Price Forecast: XAU/USD needs acceptance above $1,880 amid Golden Cross

While Asia stocks are trading higher on the path of least resistance thanks to the China reopening, US futures are mostly treading water today but maintaining overnight gains as we move through a valley between peaks of new information.  After ringing in the new year with the most peculiar data combination of a resilient labour market set against eroding business confidence, US futures are idling as we await the next round of macro and micro data inputs. With CPI dead square on the radar. European markets should catch an updraft from Asia stocks. At the same time, a tempering in US inflation expectations. should boost the Euro’s appeal attracting more inflows as international investors grow increasingly more confident in the Euro’s direction as the US dollar’s safe-haven appeal erodes. FX and the gold markets continue to price in the “writing on the wall” trade. With automotive fuel prices down by over 12% in December, headline inflation will drop; hence the Fed should be less aggressive, supporting a potential re-steepening in the US yield curve and a clear signal to sell the US Dollar. And then all ships should rise. The question is really by how much CPI falls below consensus. Although many economists’ lucky… Read More »European Open: FX trader are pricing “ the writing on the wall” trade

Stock investors are treading lightly ahead of several key events this week, including remarks from Federal Reserve Chair Jerome Powell today, critical inflation data due on Thursday, and the “unofficial” start of Q4 2022 earnings season on Friday. Powell Some Wall Street bulls are nervous that Powell today could surprise with another hawkish outlook for the Fed, although most expect him to steer clear of any meaningful policy talk. It's worth noting that the monthly survey from the New York Federal Reserve released yesterday shows that consumer expectations for inflation fell to the lowest level since July of 2021 while spending expectations fell a full percentage point to the lowest level since January 2022. Bulls believe the declines are yet more justification for the Fed to ease up on its current tightening campaign. Other recent data continues to paint a mixed picture of the US economy and fuel wide divisions on Wall Street about future Fed policy as well as the prospects for stock gains in 2023. Labor market On the positive side, inflation gauges continue to decline, consumer spending and job growth is holding up, and home prices have sustained sizable gains despite the softening market. The downside is… Read More »Key events to lead market this week: Powell, CPI

EUR/USD jumps to a fresh multi-month high amid sustained USD selling on Monday. Diminishing odds for more aggressive Fed rate hikes continue to weigh on the buck. The golden cross supports prospects for a further appreciating move. The EUR/USD pair gained strong follow-through traction for the second day on Monday and shot to a seven-month high amid sustained US dollar selling. The US monthly jobs report released last Friday pointed to the slowing in wage growth and that inflationary pressures could weaken. Furthermore, the US ISM Services PMI dropped into contraction territory in December and hit the worst level since 2009. The data suggested that the effects of the Fed’s aggressive policy tightening last year are already being felt in the economy and lifted bets for smaller rate hikes in coming months. This led to a further decline in the US Treasury bond yields and continued weighing on the buck. Apart from this, the latest optimism over China’s biggest pivot away from its strict zero-COVID policy undermined the safe-haven greenback and provided an additional lift to the EUR/USD pair. China opened its sea and land border crossings with Hong Kong over the weekend for the first time in three years. Investors,… Read More »EUR/USD Outlook: Bulls retain control near multi-month top, could aim to conquer 1.0800

The US Inflation number is fast approaching. This has been of the main drivers of the recent tremendous start of year rally in US and global stock markets. It is virtually a given and certainly expected by market participants that inflation will decline yet again and significantly. This is all very probabl.Though anything can happen with surveys? Which after all is all any economic data release represents. Nevertheless, it should be a number that is welcomed. The market is expecting 6.7%. Down from the previous 7.1%. Gasoline and energy prices have corrected and this should be about right. My forecast is nearer 6.9%. Stocks will rally, but should they? So far, the very large institutions have been avoiding the thin holiday markets, but will begin to return with more force next week. It is likely they have continued to receive redemptions, and some fresh selling pressure could be expected on this basis. The real problem will come with the again, and repetitively so, false hopes of some kind of Fed pivot during the year. When in fact, the very best that can be hoped for is a slowing and pause of rate hikes. We could even see a further 3-5… Read More »Inflation incoming

Equity markets have got off to a flier this year despite concerns over a slowing global economy, and central banks that look set to hike rates even further in the coming weeks. The IMF has come across as equally as gloomy about the outlook saying that they expect that a third of the global economy will fall into recession in 2023. Despite these concerns and a steady increase in interest rates since the October lows, equity markets saw a strong end to 2022 and this has continued into 2023, however it is notable that markets in Europe are outperforming those in the US. This disconnect is no better illustrated than in the chart below which has seen the Nasdaq 100 and S&P500 struggle to keep track of the FTSE100 and DAX. Equity market performance since October lows Source: CMC Markets The DAX has led the way, rebounding by 20% from its October trough, while the FTSE100 has also performed well, as US markets have struggled, even though yields across all the major markets have moved higher as future rate rises on both sides of the pond continue to get priced in. This continued expectation of higher rates appears to be… Read More »Is Europe a better bet than the US in 2023?

Data from the US on Friday supported risk appetite and provided a technically significant blow to the dollar against many of its peers. The monthly report showed that the US economy created 223k new jobs in December after 256k a month earlier. The unemployment rate declined to 3.5%. The data came out better than expected but did not help the dollar. On the contrary, the markets interpreted the report as a sign of weakness rather than strength in the labour market, and it is hard to argue with such an interpretation. Wage growth slowed to 4.6% y/y against 4.8% a month earlier and peaked at 5.6% in March. This data remains an anti-inflationary factor. We also point to the decline in the working week. So strong is this fact that the index of working hours in the economy has fallen for the second month in a row, despite the growth of jobs. Companies prefer to grow in terms of staff but not wages. Possible reasons are that low-skilled people are more actively returning to the labour market. However, they had previously avoided returning to work because of covid pay and fear of contagion. Aside from the NFP publication, the ISM… Read More »US statistics fuel hopes for more dovish Fed

Key highlights EUR/USD is eyeing an upside break above the 1.0700 resistance. A connecting bearish trend line is forming with resistance near 1.0710 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair traded as low as 1.0481 and climbed higher. There was a move above the 1.0550 and 1.0600 resistance levels. The bulls were able to push the pair above the 50% Fib retracement level of the downward move from the 1.0713 swing high to 1.0481 low. The pair is now trading above the 1.0620 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). On the upside, an initial resistance is near the 1.0700 level. There is also a connecting bearish trend line forming with resistance near 1.0710 on the on the same chart. The next major resistance may perhaps be near 1.0720. A clear move above the 1.0720 resistance might start a steady increase. In the stated case, EUR/USD might start a steady increase. In the stated case, the pair could rise towards the 1.0800 level. On the downside, there is a key support at 1.0620 and the 100 simple moving average (red, 4-hours). The main support… Read More »EUR/USD culd rally if it clears this hurdle

Markets The first week of 2023 came with the usual slew of major economic data points, which on net point to the curious post-pandemic era combination of a resilient labour market set against eroding business confidence across the US economy. And if this trend keeps up, it will likely make for a highly bumpy trading landscape in the months ahead, with investors getting yanked in multiple directions. Still, investors may continue to embrace weak data, especially if signs of descending wage inflation continue. Any indications in the data that the Fed could tap the brakes on its monetary tightening cycle could boost calls for a softer landing that may be optimal for equities. However, as inflation and rates volatility apex, growth and recession risk will likely be the principal risk factors in 2023. Against that backdrop, if central banks continue tightening, real rates may move higher, choking both corporate profits and the economy more forcefully Hence US equity risk premia are too low considering recession risks, uncertainty over the growth/inflation mix and relatively weak expected profit growth.  On the other side of the pond, traders generally remain bullish on STOXX 600 from a valuation perspective amid China tailwinds. Still, based… Read More »Earnings and CPI should make for a bumpy ride ahead

2023 has arrived and it looks set to be another interesting year for financial markets. Diverging forces are at play leaving markets in a tug of war between different drivers. In bond markets lower inflation and recession points to lower yields, but on the other hand still strong labour markets and high wage pressures as well as the Chinese reopening, which is set to be an inflationary force, is pulling in the other direction. An easing of financial conditions also challenge central banks as tighter conditions are needed to cool down the economy further. Hence, we see a risk of more hikes (and fewer cuts in H2 and 2024) than markets currently price – especially in the US. We look for bond yields to be range bound for some time caught in the middle of the diverging forces. In equity markets lower inflation, somewhat better visibility than in 2023, the Chinese reopening as well as plenty of cash on the sideline are all positive forces that could reduce risk premia and underpin stocks. However, the outlook of recession, still hawkish central banks and profits under pressure still point to a more defensive stance. We believe stocks will end the year… Read More »A tug of war in financial markets