Euro Fights Back Against a Tumultuous US Dollar Caught Between Risk and a Hawkish Fed

Euro, EUR/USD, US Dollar, Fed, USD/JPY, China, Crude Oil – Talking Points

  • Euro support came back after the US Dollar slid lower
  • Several Fed speakers got the message back out there about higher rates
  • The US dollar could be at a crossroads. Where will it take EUR/USD?

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The Euro has retraced some of yesterday’s losses after broad market sentiment picked up after Chinese authorities cracked down on protesters.

EUR/USD made a five-month high just shy of the psychological 1.05 level on Monday before the rout kicked in. So far on Tuesday, the Euro made up some lost ground with the US Dollar sliding lower across the board.

The weaker US Dollar comes despite several Federal reserve speakers reminding markets that tighter monetary policy lies ahead.

Fed board members James Bullard, John Williams and Lael Brainard led the hawkish rhetoric in the North American session before Thomas Barkin picked up the baton after the New York close.

The over-arching message was consistent. Although rate increases have decelerated, rates are going higher and they might stay there for longer than the market currently thinks.

Wall Street took heed with the Dow, S&P 500 and Nasdaq all finishing the cash session down around 1.5%. Futures are pointing to a steady start when they re-open later today.

Chinese and Hong Kong equity indices raced higher after authorities cracked down on protesters that are opposed to ongoing lockdowns there.

Treasury yields have made up a couple of basis points across the curve that was lost on Monday. The US 2s 10s yield curve dipped below -0.80% again overnight.

Elsewhere, Japan’s jobless rate came in slightly worse than anticipated at 2.6% for October rather than the 2.5% forecast. USD/JPY has firmed above 138.50 after visiting a 2-month low at 137.50 yesterday.

Crude oil has also found firmer footing ahead of the OPEC+ meeting on Wednesday. There had been some speculation that they might cut production by more than the 2 million barrels per day already announced.

The Brent futures contract is approaching US$ 85 bbl while the WTI contract is near US$ 78.50 bbl at the time of going to print.

The cryptocurrency space continues to face headwinds with BlackFi declaring bankruptcy as the fallout from FTX continues.

Looking ahead to today, after Swiss GDP figures, German CPI will be released before Canadian GDP later on.

The full economic calendar can be viewed here.

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How to Trade EUR/USD

EUR/USD TECHNICAL ANALYSIS

EUR/USD was unable to hold onto a five-month high yesterday and has since fallen back into the recent range of 1.0223 – 1.0482.

Support could be at the recent low of 1.0223 ahead of the breakpoint at 1.0198.

On the topside, resistance might be twin peaks of 1.0482 and 1.0497 or further up at the June high of 1.0615 which is slightly below a breakpoint at 1.0638.

image1.png

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

EURUSD Reverses from 1.0500 Again as Fed and ECB Will Both Escalate Signaling

S&P 500, China, EURUSD, Fed and ECB Rate Forecasts Talking Points:

  • The Market Perspective: USDJPY Bullish Above 141; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,750
  • The market’s opened to some modest volatility thanks to focus on Chinese protests over covid lockdowns, but the S&P 500 still hasn’t left its narrow range
  • Monetary policy speculation will ramp up starting today with the US and Europe facing the most fundamental fodder…making for an interesting backdrop for EURUSD

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After the kind of activity that we were faced with through the end of last week with the Thanksgiving holiday drain, any modest pick up in volatility would be highlighted. That’s what we saw this past session as the S&P 500 gapped modestly lower on the open and proceeded to stretch its overall losses on the session to -1.5 percent. That increases the tally of one percent or greater declines on a daily session to once again match the bearish progress of 2008. There was also a fundamental beacon for market participants to gather around and justify the downshift: the growing protests in major Chinese cities over crushing covid lockdowns. However, despite the clear narrative and significant-enough market movement, the S&P 500 would still not leave the comfort of the range it has scoped over the past 10 trading days (equivalent to two weeks). At this point, the 11-day historical range as a percentage of spot is equivalent to 3.2 percent – the smallest trading span since November 24th of last year. The average true range (a measure of realized volatility) is the lowest since January of this year. In other words, we have yet to break the volatility and liquidity seal.

Chart of the S&P 500 with 100 and 200-Day SMAs and 1-Day Historical Range (Daily)

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Chart Created on Tradingview Platform

If we are looking for a fundamental jumpstart to reengage the post-holiday liquidity conditions, we are likely going to have to find it from somewhere other than China. The reports out of the world’s second largest economy were indeed significant. The pushback from the populace against President Xi Jinping’s policies is the greatest we have seen since he came to his role at the head of the country. That creates considerable uncertainty not just for China itself. Back in 2008 when much of the world fell into the spiral of recession, China very notably managed to avoid severe contraction and in turn helped moor the global recovery that followed. The threat that this represents, however, is moderated by the practicality of the control the government has over conditions in China. It is likely that the government quells these uprisings and the economic drain the ‘zero covid’ policy exerts on its economic health will be more modest and exaggerated over time. That said, it is worth keeping tabs on USDCNH – even if you are (reasonably) skeptical over the level of the Shanghai Composite.

Chart of USDCNH with 100-Day SMA Overlaid with the Ratio of Dow to Shanghai Composite (Daily)

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Chart Created on Tradingview Platform

If we are looking for genuine fundamental inspiration, no need to look much further than the upcoming session’s economic dock. We have heavy hitting event risk on tap for major economies – and it is looking to intensify as the week goes on. In particular, the themes of monetary policy forecasting and recession risks are two of the most prominent themes on tap. While there is both an official GDP offering from Switzerland and Canada ahead, I believe the US consumer confidence report from Conference Board and the Eurozone sentiment surveys for November are the bigger reflections of major economies. Add to that the following session the fact that we have the Chinese government PMIs and some key US employment data; and there is serious heft here. That said, monetary policy looks to be the greater lift in ahead. Form the Eurozone, we are expecting both the consumer inflation expectations report for November and Germany’s official CPI release. Though we are not due the US PCE deflator (the Fed’s favorite inflation report) until Thursday, the Fed-speak we are digesting this week is critical considering it is the lead up before the media blackout that precedes the next FOMC rate decision (December 14th).

Critical Macro Event Risk on Global Economic Calendar for the Next 48 Hours

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Calendar Created by John Kicklighter

Given the push and pull of US interest rate expectations, I will be particularly focused on EURUSD. This past session, ECB President Lagarde offered a soft warning that inflation may not have topped in the Eurozone and it could surprise to the upside. Meanwhile, from the Fed, there is a much more concerted effort to signal to the market that the flight path for Fed rate hikes out into 2023 is likely higher than what the market has accounted for. What’s more, they continue to push back against expectations for rate cuts at any point in the year. With EURUSD failing a second time to take 1.0500 – amid a sharp reversal on the season – this is a fundamentally primed market to watch.

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Chart of the EURUSD with 100-Day SMA and ‘Wicks’ Overlaid with EU-US 2-Year Yield Spread (Daily)

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Chart Created on Tradingview Platform

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Australian Dollar Blitzed by China Covid Concerns Souring Sentiment. Where to for AUD/USD?

Australian Dollar, AUD/USD, US Dollar, China, Hang Seng Index, Crude Oil – Talking Points

  • The Australian Dollar tanked after the US Dollar resumed strengthening
  • China is facing scrutiny over their zero-case Covid-19 related lockdowns
  • Risk and growth linked assets are struggling. Will AUD/USD resume its downtrend?

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The Australian Dollar tumbled to start the week while the US Dollar and Japanese Yen leapt higher on deteriorating global growth prospects.

China’s pursuit of a zero-case Covid-19 policy is being challenged as cases increase across the country. The continual lockdowns are facing protests in several major cities in a test of the communist party’s resolution to maintain the policy.

Risk and growth aligned assets have consequently come under pressure. APAC equities are a sea of red with Hong Kong’s Hang Seng Index (HSI) leading the way south, it traded more than 2% down at one stage.

Crude oil made a new low for the year with the WTI futures contract dipping below US$ 74 bbl while the Brent contract is near US$ 81 bbl. Gold is steady around US$ 1,750 an ounce at the time of going to print.

In addition to unfavourable macro conditions for the Aussie Dollar, retail sales for October came in at -0.2% month-on-month rather than 0.5% anticipated and 0.6% previously.

Additionally, RBA Governor Philip Lowe spoke before a Senate estimate hearing. In regard to achieving a soft landing for the economy, he said, “it’s not guaranteed but where I sit today, I think we have a better chance than most other countries of pulling it off.”

The RBA will meet Tuesday next week to decide on monetary policy and the market has priced in a 25 basis point hike.

There are a number of ECB speakers lined up for today, including President Christine Lagarde. Later on, Williams and Bullard from the Fed will also be crossing the wires.

The full economic calendar can be viewed here.

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AUD/USD TECHNICAL ANALYSIS

AUD/USD has peeled back from the recent high of 0.6798 and that level might continue to offer resistance. A descending trend line is near a prior peak at 0.6916 and could also offer resistance.

On the downside, support may lie at the previous lows of 0.6585 and 0.6387, the latter also coincides with an ascending trend line. Between those levels, a breakpoint at 0.6548 could also provide support.

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Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

US Dollar Outlook – Will Heavyweight Data Stem the US Dollar’s Ongoing Decline?

US Dollar (DXY) Price and Chart Analysis

  • The US dollar remains under pressure after this week’s FOMC minutes.
  • UD data releases will steer the greenback next week.

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The Federal Reserve may reduce the size of future interest rate hikes soon after ‘a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate’ according to the latest FOMC minutes. This slowdown, due to uncertain lags and effects of prior increases on economic activity, could also ‘reduce the risks of financial instability in the financial system’ while the balance of risks to the US economy is now ‘skewed to the downside’. After hiking interest rates by 75 basis points at each of the last four FOMC meetings, the market now expects the US central bank to raise rates by half a percent at the mid-December meeting.

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CME FedWatch Tool

Next week the economic calendar is packed full of high-importance data releases and events that traders need to closely monitor. The front end of the week sees the latest CB consumer confidence release, followed the next day by the second look at US Q3 GDP, while the back end of the week sees the latest inflation and jobs numbers released. Last month’s core PCE data – a measure of prices paid for domestic purchases of goods and services – showed inflation moving higher but at a slightly slower pace than market expectations. After a brief bounce post-data, the US dollar resumed its downward path. The Jobs Report (NFP) set to be released on Friday is expected to show a slowdown in hiring in the US and a small uptick in the unemployment rate. A slowdown in hiring will please the Fed who are concerned that a robust jobs market will see wage increases continue to boost domestic inflation. The end of next week may be key in deciding the fate of the US dollar going into the end of the year.

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For all market-moving data releases and economic events see the real-time DailyFX Calendar.

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The US dollar is continuing to fade lower in anticipation of a slightly less hawkish Fed outlook. The US dollar had been a one-way trade for most of 2022, before the recent turnaround. The DXY has fallen 8% from late September with any bounces being sold into. The greenback is now threatening to break below the 200-day moving average, a technical indicator that has provided the USD with support since mid-June 2021. A confirmed break below the 200-dma, and it may not happen at the first attempt, and a push through a prior zone of recent highs and lows between 105.00 and 105.70, would leave the May swing-low at 101.30 the next downside objective. Any move higher is likely to meet stiff resistance at 108.00.

US Dollar Currency Index Daily Price Chart – November 25, 2022

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What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

Serious Market Events Ahead for S&P 500, FTSE 100, DAX and Nikkei

S&P 500, FTSE100, DAX 40 and Nikkei 225 Fundamental Forecast Talking Points:

  • Liquidity will reverse course from this week to next as the US Thanksgiving holiday’s seasonal curb on both US and global markets passes
  • The economic calendar next week is dense including key inflation statistics, economic activity readings and the ever-popular NFPs
  • General ‘risk appetite’ trends have drifted higher, but this seems more supported by unreliable seasonal norms than actual fundamental backdrop

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Fundamental Forecast for the S&P 500: Bearish

Liquidity will return next week to a market that has seen both a seasonal and structural suppression of volatility. While we are heading into the year-end holiday-strewn period which typically amplifies expectations for a tapering off of activity and participation, there is no guarantee that quiet will prevail. In fact, given the unresolved and converging threats of rampant inflation, recession risks and the lagging effect of rapid financial market tightening; maintaining enthusiasm can prove increasingly costly. For the benchmark S&P 500 – the most heavily traded index from the world’s largest market – the drop in implied volatility (‘expected’) volatility mirrors the choppy rebound over the past six weeks. Corrections in prevailing trends happen and there have been glimmers of support from the headlines such as the remarkable enthusiasm that followed the modestly softer pace of CPI at the beginning of the month or this week’s FOMC minutes restating that a slower pace of hikes is likely ahead. That may be enough for a little more stretch, but it doesn’t represent the foundation for an earnest rally moving forward. From the US docket over the coming week, there are data points like the PCE deflator (Fed’s favorite inflation indicator), Conference Board consumer confidence survey and November NFPs that could draw attention. Yet, the probabilities that the data can significantly lower the Fed’s terminal rate or ensure we avoid a recession is low. That skews the potential impact of the data restoring the prevailing bearish trend versus the headlines projecting relief.




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -8% 4% -2%
Weekly -16% 11% -3%

Chart of S&P 500 Overlaid with VIX Volatility Index (Weekly)

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Chart Created on Tradingview Platform

Fundamental Forecast for the FTSE 100: Neutral

In a few short weeks we have seen the Bank of England warn of a painful UK recession, the Chancellor of the Exchequer deliver his own economic warning alongside a tighter budget and the OECD warn that the world’s fifth largest economy was facing pain from internal an external (energy costs) pressures. Yet, wouldn’t get that impression if you were just looking to the FTSE 100. Utilizing a more popular gauge from the US, I’ve overlaid the UK index with the 10-year / 2-year Gilt yield spread as an investor monitored measure of economic forecast. This is not as frequented a measure for UK markets, but the concept is similar. Barring the ‘mini budget’ fiasco of September, the general recognition of economic constraint going forward is increasingly showing through in the pressure behind the higher duration paper. Can the market’s continue to defy this generally expected trend towards economic hardship? The economic docket will not offer up a lot of schedule provocations besides housing inflation, consumer credit levels and a private retail sales report. That may leave the market’s open to global sentiment drift or to unpredictable headline fodder.




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily 7% -1% 0%
Weekly -35% 34% 9%

Chart of FTSE 100 Overlaid with the UK 2-10 Gilt Yield Spread (Weekly)

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Chart Created on Tradingview Platform

Fundamental Forecast for the DAX 40: Bearish

As remarkable as the disparity in equity performance and economic projecting is for the UK markets, I think the contrast from the major mainland Euro-area benchmarks is in a category all their own. While Germany’s DAX 40 is further from its beginning-of-year highs than the FTSE, the 7 week and more than 20 percent charge for the former suggests an optimism that is far removed from the general fundamental backdrop. The OECD’s stiffest warning around economic threat in 2023 was reserved for the Eurozone – even though the official forecast is for a US-matching and tepid 0.5 percent growth. The same group had also called on the ECB to close the rate gap with its US counterpart in order to control inflation from getting even further out of hand. From the docket over this coming week, we have Eurozone and German inflation figures, region-wide sentiment surveys and employment updates. Should we register that impending recession in this data, loosely held confidence may start to seriously waver.




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -13% 9% 4%
Weekly -21% 22% 9%

Chart of DAX 40 Overlaid with the 2-Year Eurozone Bond Yield (Weekly)

image3.png

Chart Created on Tradingview Platform

Fundamental Forecast for the Nikkei 225: Bearish

Japan’s local capital market can be somewhat insular. While it is still open to the ebb and flow of global sentiment, there has been a curb in how severe the ‘risk off’ has been in particular with 2022. That is helped by a local investment appetite that prizes higher capital gain potential versus the relentlessly deflated baseline of yield that can be found in the financial system given the Bank of Japan has kept its commitment to keep interest rates anchored to its virtual zero mark. That said, the rotation of capital within the system cannot keep the markets buoyant forever. Should there be a significant drop in global sentiment that overrides the year-end seasonal expectations or should Japan’s economic glow be snuffed out, we could see the Nikkei 225 not just move back towards the bottom of this year’s range (down to 25,150 – 24,500), it may actually push the index into ‘bearish’ territory which it has thus far been able to avoid. For top event risk, the Japanese docket will offer up retail sales and unemployment on Tuesday, industrial production and housing starts on Wednesday and 3Q capital spending on Thursday.

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Chart of Nikkei 225 Overlaid with the USDJPY Exchange Rate (Weekly)

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Chart Created on Tradingview Platform

US Dollar Nosedives Post Fed Meeting Minutes. Will the USD (DXY) Index Push Lower?

US Dollar, DXY Index, Fed, FOMC, Crude Oil, USD/CAD, USD/JPY – Talking Points

  • US Dollar continued weakening through the Asian session today
  • The Fed minutes disclosed what we already knew but equities liked it anyway
  • If the tightens but to a lesser degree, will the USD be undermined further?

{{GUIDE|EUR}}

The US Dollar is on the backfoot again after the market viewed the Federal Open Market Committee (FOMC) meeting minutes as having a dovish tilt.

Notes from the gathering revealed that some board members are considering rate rises of less than the four successive outsized 75 basis point (bp) hikes already seen to date. The last few weeks saw several Fed speakers sing from this song sheet.

Short term interest rate markets had already factored this in with a 50 bp hike at the December conclave before and after this month’s meeting. It continues to do so now.

Treasury yields are softer across the curve, with tenors beyond 5-years particularly so. The 10-year note is below 3.70%.

In any case, Wall Street was quite enamoured with the news and finished higher on the day with the Nasdaq leading the way, adding almost 1%.

APAC stocks are mostly in the green with the exception China’s CSI 300 with more Covid-19 cases reported there across several major metropolises.

Elsewhere, The Bank of Canada Governor Tiff Macklem also crossed the wires with comments that were also interpreted as dovish.

Crude oil sinking didn’t help the Loonie’s cause and these factors contributed to the Canadian Dollar joining the ‘big dollar’ at the bottom of the currency table. The Japanese Yen has been the best performing currency so far today.

Concerns around the slowdown from China’s lockdowns played a role in oil’s slide, as well a report that EU countries are debating the price cap on Russian supply. It appears that some countries feel that US$ 55 bbl is too generous to Russia.

The WTI futures contract is below US$ 78 bbl while the Brent contract is nearing US$ 85 bbl. Gold has seen modest gains, trading above US$ 1,750.

Germany’s IFO gauge on their business climate will be the data highlight today. A number of speakers from the ECB and Bank of England will be crossing the wires on this Thanksgiving holiday in North America.

The full economic calendar can be viewed here.

{{GUIDE|HOW_TO_TRADE_}}

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY index price has moved below all short, medium and long term Simple Moving Averages (SMA) and this might indicate that bearish momentum is evolving.

Support could be at the prior lows of 105.34, 106.64, 103.67 and 103.42.

On the topside, resistance might be offered at the breakpoints of 107.43, 107.68 or the recent peak at 107.99.

image1.png

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

Looking Ahead to EURUSD Activity, VIX Recharge and Key Market Data

S&P 500, VIX, EURUSD, Rate Forecasts, Recession Risks and Liquidity Talking Points:

  • The Market Perspective: USDJPY Bullish Above 141; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,750
  • Liquidity is the most immediate consideration for market potential, but a transition into next week will see a restoration of participation and an extremely low starting point on volatility
  • There is a dense run of key event risk next week, from Eurozone CPI and the US PCE deflator for rate speculation to US consumer sentiment and NFPs for recession fears

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As many had expected, seasonal conditions would ultimately have their way with the markets heading into the known liquidity drain that is the US Thanksgiving holiday period. Despite the presence of some closely-watched fundamental events (the OECD economic forecasts, November PMIs and FOMC meeting minutes among others), the suppressed levels of liquidity would not inadvertently leverage serious volatility in the main capital markets. Through the rest of the holiday trading week, there will be a significant escalation in the restriction of participation; but that shouldn’t be considered reliable evidence that the markets are going to be wholly contained to neat ranges. Shallow conditions can generate serious, short-term waves. That said, so long as there are no major and unexpected headlines from world’s largest financial centers; we will likely be shifting our expectations for systemic developments out into the new trading week. The S&P 500 – as a leading measure of sentiment – will kick off the return of liquidity after its narrowest 9-day trading range since January. The barriers on this restrained technical span roughly align to the 200 and 100-day simple moving averages…to make monitoring easier from the less technically-inclined.

Chart of the S&P 500 with 100 and 200-Day SMAs and 1-Day Historical Range (Daily)

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Chart Created on Tradingview Platform

As we look into the new trading week with the expectations of post-holiday liquidity and a significant upgrade in the tempo of scheduled event risk, I think it is important to reflect on the state of complacency in the market. There are many ways to measure the market’s ‘sitting duck’ syndrome, but the most ubiquitous VIX index presents the accessible measure with an exceptional level of aloofness. The so-called ‘fear index’ dropped six consecutive trading sessions through Wednesday’s close as it closed in on a well worn wedge low around the 20 handle. This is not a historically extreme low in the VIX, but it does register as a relative nadir that has previously sourced a turn in expected (implied) volatility as well as some notable turns for the underlying capital markets (the S&P 500 as the foundation here). Generally, these seem to be exceptionally low levels given the concerns around recession risks, and not even the ‘holiday trading conditions’ would justify tuning out on risk exposure at this juncture.

Chart of the VIX Volatility Index with 20 and 200-Day SMAs and Consecutive Candle Moves (Daily)

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Chart Created on Tradingview Platform

While liquidity will play a critical role in the market’s ability to generate significant traction in the week ahead, top scheduled event risk will play an outsized role in our eventual activity levels. There are unresolved, systemically-important economic threats in the open market that can be readily provoked by high-level scheduled event risk. In general, I’m monitoring fundamental updates – both scheduled and unscheduled – that speak to monetary policy developments and recession risks. That said unforeseen financial disruptors should be considered a possible risk out of hand. Developments like the Russian invasion of Ukraine, UK ‘mini budget’ debacle and FTX crypto implosion are distinct events thus far in 2022; and they are unlikely to be the last of the unpredictable developments we encounter moving forward. The unpredictable aside, there are very real and known threats in recession risks and monetary policy pressure. On the former consideration, this past week offered the OECD’s warning that the 2023 outlook for economic activity was looking increasingly cool and dependent on expansion from the likes of China and India. The evidence of a tip from throttled economic expansion into outright contraction seems to be a formality of lagging data, but the market seems to still be living on a sense of hope.

Critical Macro Event Risk on Global Economic Calendar for the Next 48 Hours

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Calendar Created by John Kicklighter

For markets at the crossroads of key fundamental trends, there seem few more exposed measures than EURUSD. That is not to mean that this exchange rate is due a clear bearing and productive trend. Reality tends to cater to exactly the opposite outcome when the scheduled event risk is dense. When there is scheduled event risk from both sides of the pair that tends to ‘beat’ or ‘miss’, the impact can be more or less an offset in realized price action. From the Euro side of the exchange rate, the Eurozone’s consumer inflation indicator (CPI) and unemployment rate will be a critical weigh in on an economy that the OECD warned was at exceptional risk in 2023 and given the ECB has been urged to ‘close the gap’ with the Federal Reserve. Meanwhile, the Dollar will be prompted by a combination of event risk in the Conference Board consumer confidence survey, PCE deflation (the Fed’s favorite inflation reading) and November nonfarm payrolls for a comprehensive read on the prime fundamental concerns of the world’s largest market.




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -5% 0% -2%
Weekly 2% -4% -2%

Chart of the EURUSD with 100 and 200-Day SMAs as Well as COT Net Spec Positioning (Daily)

image4.png

Chart Created on Tradingview Platform


GBP/USD, GBP/JPY Rally to Resistance – Can Bulls Force the Breakout?

British Pound Talking Points:

  • GBP/USD sold off last week after a failed test at the 1.2000 psychological level. That led to a move down to support at 1.1760, but bulls have since came in to push a higher low as price sets up for another test at the big figure.
  • GBP/JPY strength has continued after last week’s breakout from the falling wedge formation and price is now nearing a re-test of resistance at 169.08. Support lines up around the 168.06 Fibonacci level.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

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The British pound is running-higher this morning and GBP/USD looks like it is setting up for another test at the 1.2000 psychological level. This is a major price level in Cable as this was the same level that came into play a few months after the Brexit referendum to help set the lows, which held as support all the way into Covid in 2020. At that point, a quick breach developed but prices soon pushed back-above the big figure, and it didn’t come back into the equation until earlier this summer.

Sellers posed a breakdown in August which led to the September collapse-like move; but now that same price is back in the picture but showing as resistance. This held the highs last week and it appears as though another re-test may soon be on the cards.

GBP/USD Monthly Chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Daily

Last week produced a resistance inflection at the psychological level and prices pulled all the way back to a familiar spot of support, plotted at around 1.1760 which was the July swing low. That price helped to set the low last week and buyers have been pushing ever since.

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GBP/USD Daily Price Chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Shorter-Term

At this point, there’s support as taken from a bullish trendline and that’s helped to guide the move-higher. But, there’s been uneven distribution in the trend, leading to the build of a rising wedge formation. These are often approached with the aim of bearish reversals but the first step is the support trendline being broken, which is not showing after the bounce.

This raises the possibility of a false breakout for shorter-term themes. This would need to see a push up to a fresh high with buying demand drying up at some point after; after which reversal themes can become more attractive.

But, at this point, it seems as though bulls are going to make a move on a higher-high which would mean price action is showing both a higher-high and a higher-low, pointing to a bullish trend.

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GBP/USD Four-Hour Chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/JPY

GBP/JPY is similarly angling up for a resistance test. The swing-high from Nov. 7th is at 169.08 and that inflection led to the build of a falling wedge formation. This is the mirror image of the rising wedge above and the falling wedge is often tracked with the aim of bullish reversals which is what’s shown here over the past couple of weeks.

I had looked into GBP/JPY earlier in the week, highlighting a return of Yen-weakness in the pair as the bullish move continued to develop. Price was testing a spot of resistance-turned-support at 167.20 and that helped to mark the low before buyers extended the move into current resistance.

At this stage, there’s support potential around the 168.06 Fibonacci level and there’s a possibility of breakout at the 169.08 price. Above current resistance is the 170.00 psychological level, which becomes the next logical resistance area to look to on a topside break. Bulls weren’t able to hold the move above 170.00 for very long during the prior test so there’s very little reference above that price until the 172.13 level comes into play.

GBP/JPY Four-Hour Price Chart

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Chart prepared by James Stanley; GBPJPY on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

British Pound Pauses as US Dollar Takes Stock of Fed Outlook. Will GBP/USD go Higher?

British Pound, GBP/USD, US Dollar, FOMC, NZD/USD, FTX, Crude Oil – Talking Points

  • British Pound is in a holding pattern with holidays impacting
  • The Fed remains a focus and their rate path continues to create conjecture
  • Sterling volatility has calmed for now. If it breaks out, will GBP/USD cap out?

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Introduction to Forex News Trading

The British Pound held onto to yesterday’s gains through the Asian session today, with the US Dollar remaining under pressure after Fed commentary.

Remarks from Cleveland Fed President Lorretta Mester and Kansas City Chief Esther George appeared to lead the market to believe that there might be a slowing of the aggressive hawkishness from the Fed.

None-the-less, the market is unchanged in anticipating a 50 basis point lift of their target rate at the Federal Open Market Committee (FOMC) meeting next month. This would be a deceleration from the consecutive 75 bp hikes at the 3 meetings prior.

Elsewhere, the RBNZ accelerated their fight on inflation, adding 75 bp to their official cash rate (OCR) today. NZD/USD was boosted as a result, making it the best performing currency so far on Wednesday.

Another surge in Chinese Covid-19 cases triggered more lockdowns on Wednesday, further undermining equity markets with benign price action despite a strong lead from Wall Street.

The FTX saga continues to play out with a bankruptcy filing in Delaware overnight. Initial findings point toward a substantial amount of assets that are missing or stolen. The court also said that the top 50 creditors will not be named.

Crude oil is barely changed since the North American close with the WTI futures contract near US$ 81 bbl, while the Brent contract is a touch above US$ 88 bbl.

A Japanese holiday appeared to contribute to lacklustre markets ahead of Thursday’s Thanksgiving holiday in the US.

Looking ahead, there are PMI numbers due across Europe, the US and other countries as well as US jobs data. The meeting minutes from the last Fed FOMC meeting will be released later in the day.

The full economic calendar can be viewed here.

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How to Trade GBP/USD

GBP/USD TECHNICAL ANALYSIS

When GBP/USD raced to a high above 1.2000, it broke the upper band of the 21-day simple moving average (SMA) based Bollinger Band. Once the price moved back inside the band, it consolidated sideways.

This type of a move could be a signal of a pause in the bullish rally, or a potential reversal.

Support may lie at the breakpoints of 1.1738 and 1.1646 or at the prior lows of 1.1334, 1.1148, 1.1061, 1.0924 and 1.0354.

On the topside, resistance could at the prior highs of 1.2029, 1.2293 and 1,2333.

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Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

S&P 500 at Risk of Breakout as PMIs Hit but Follow Through Would be a Problem

S&P 500, Dollar, Fed Forecast, Recession Risks and Liquidity Talking Points:

  • The Market Perspective: USDJPY Bullish Above 141; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,750
  • The consolidation continues for the S&P 500 with an 8 day range that is among the smallest we have seen in 2022
  • Headlines around recession risks are elevated between the OECD’s forecasts and November PMIs ahead, but is that enough for a pre-liquidity drain break for capital markets?

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We are starting to see the markets pulled between two perspectives. On the one hand, there is the narrow technical patterns developing for benchmarks like the S&P 500 along with some smattering of systemically-important macro updates. Alternatively, there is the consuming expectations of a known liquidity drain this week in the Thursday Thanksgiving holiday. These are contrasting forces that can translate into difficult conditions for the short-term oriented trader. Heading into Wednesday trade, the risk of a technical break from the SPX seems high. The 10-day (two week) average true range on the index is 1.8 percent and the past 8-day range is the smallest we have seen in over three months. Thin liquidity can amplify volatility and we are near the upper threshold of the range. However, if there is a break, the immediate loss of liquidity for the following holiday in the US (Thanksgiving) will leave us with a long break to contemplate the true conviction of any provocative moves. If on the other hand, volatility caters to ‘risk aversion’ it could be a move within an establish congestion which markets may be more willing to evaluate in the short-term and then take up a new perspective when liquidity is restored.

Chart of the S&P 500 with 100 and 200-Day SMAs and 1-Day Historical Range (Daily)

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Chart Created on Tradingview Platform

For fundamental motivation, there remain two themes of interest and capacity to move markets. Interest rate expectations has been one of the more productive drivers for the US Dollar of late, but the Greenback seemed to waver in its recover this past session. That could a mirror of the equities rally as the Dollar reflects upon its safe haven status, but that is a weak fundamental hold of late. Perhaps the OECD’s update carried some specific weight for the greenback and EURUSD specifically. Among their growth forecasts, the economic group would also upgrade their inflation forecasts. Through 2023, the OECD expects inflation worldwide to be 6.6 percent. Most major central banks target 2 percent, which is strong incentive for hawkish policy groups to stay their course. That would seem more a driver for the Dollar than any other central bank considering it is leading the way; however, the OECD called out the ECB in particular saying it needs to close the gap between its rate and that of its US counterpart’s. Will they heed the call?




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -8% 8% 0%
Weekly 19% 3% 9%

Chart of the EURUSD with 100 and 200-Day SMAs Overlaid with EU-US 2-Year Yield Spread (Daily)

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Chart Created on Tradingview Platform

For scheduled event risk over the next 24 hours, there is more fodder for both rate forecasts and growth assessment. Yet, I believe the interest rate speculation will likely take a back seat, with the exception perhaps of the market’s reaction to the RBNZ’s rate decision. That is a direct policy update, they are expected to hike 50 basis points and the New Zealand Dollar has spent a few steady months of trying to recover lost ground to its discounted role as a renowned carry currency. More representative of a fundamental theme Wednesday is economic health. We have a few key earnings (Deere) as well as a smattering of US economic data that is worthy of observation (durable goods and new home sales). However, there is something more comprehensive we may find the market more inclined to digest.

Critical Macro Event Risk on Global Economic Calendar for the Next 48 Hours

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Calendar Created by John Kicklighter

More comprehensive on the growth side of things is the insight we are set to receive on the current actual health of a group of major developed world economies. The S&P Global PMIs are closely watched and timely proxies of GDP for the target economies. At the time of writing, the Australian data was already released and the slide in the composite figure from 49.3 to 47.2 is not a favorable start. All but Japan was in contractionary territory (below 50), so the backdrop will carry some fear in its anticipation. That may make for a greater surprise should the data ‘beat’, but starting a risk run in the twilight of liquidity would likely be more difficult to muster than seeing an unwinding of loosely held risk exposure before Thanksgiving liquidity sets in.

Chart of Global Economic Activity from Monthly PMIs (Monthly)

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Chart Created by John Kicklighter with Data from S&P Global

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