The Week Ahead 28th November – 2nd December: will inflation finally start to decline?

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The Week Ahead 28th November - 2nd December: will inflation finally start to decline?

Welcome to the Key to Markets preview of the Week Ahead.

Currency Pair Performance

5-day performance as of November 24th, 2022. 11:00 GMT.

Source: finviz.com

10 Big Stories Last Week

In case you missed it...

Fed minutes show a less hawkish stance. The minutes of the November Fed meeting show policymakers agree that the time to start slowing rate hikes could be approaching.

BTC/USD fell to a two-year low before bouncing back. BTC/USD fell to 15.5k as the fallout from FTX's collapse continued. More industry players halted withdrawals as contagion fears rose.

Tesla dropped to a 2-year low. The EV maker has been in the headlines for all the wrong reasons, including vehicle recalls, Elon Musk focusing too much attention on Twitter, COVID in China and rising competition.

Zoom dropped 8% on weak guidance. The stock trades 90% down from its pandemic peak as it struggles to adjust post-COVID. Q3 earnings beat forecasts, but Q4 revenue guidance fell short of expectations.

The OECD highlighted the UK's underperformance. The OECD forecast that next year the UK economy will be the weakest in the G20, except for -

OPEC rumour injected volatility into the oil price. Oil prices fell to an 8-month low before sharply rebounding after Saudi Arabia denied reports that the oil cartel would raise oil production in December.

Copper falls to a 10-day low. Rising COVID cases in China and fears of more lockdowns hit the demand outlook for copper.

GBP/USD rises to a 3-month high. The pound capitalised on USD weakness and briefly spiked over 1.21, a 3-month high, even as PMI data added to evidence of a recession.

RBNZ raised rates by a record 75pbs. The central bank ramped up its fight against 2-decade high inflation and indicated that more hikes were to come. AUD/NZD fell to an 8-month low.

Disney pops as Bob Iger returns. The former CEO is back, replacing Bob Chapek, his successor, after a run of disappointing earnings and huge streaming losses.

Chart of the Week

Source: AllStarCharts

The chart shows the number of US sectors trading above their 200-day moving average.

Historically in bear markets, there is an expansion of sectors in downtrends. This chart suggests the opposite, with more sectors creating higher highs.

Firstly energy stocks were in an uptrend; then healthcare joined last month. Industrials, materials and financials joined the uptrend, and now consumer staples are in an uptrend.

5 Things to Watch This Week

1. Non-farm payrolls

The US labour market continues to show resilience despite high inflation and rising interest rates. After 261k jobs were created in October, expectations are for a further 200k to have been added in November. Unemployment, which rose by more than expected to 3.7%, is expected to continue rising to 3.8% in November. Meanwhile, average hourly earnings are expected to hold steady at 4.7%. A stronger-than-expected jobs market could see investors rein in dovish pivot bets.

2. Cyber Monday

According to Adobe Digital Insights, sales on Cyber Monday are expected to rise 4.7% YoY. The data for Black Friday sales will also start pouring in and could impact US retail stocks. The holiday quarter is the “Golden Quarter” for in-store and online sales. These sales events are hoped to provide a much-needed boost amid signs that consumer spending could start to wane.

3. Eurozone inflation

Eurozone inflation reached a record 10.6% YoY in October and is expected to ease slightly to 10.2% YoY in November. With over half the countries in the eurozone experiencing double-digit inflation, pressure remains on the ECB to keep hiking interest rates. Some ECB policymakers have started to mention slowing the pace of hikes. Cooler than forecast CPI could encourage more policymakers to adopt a less hawkish stance.

4. US Core PCE

The Fed's preferred gauge for inflation will be under the spotlight next week as the market continues to watch for signs that inflation in the US economy is cooling. While CPI, core CPI, and PPI inflation cooled in October, core PCE is expected to rise to 5.2% YoY, up from 5.1%. Will this affect the pricing of a 50-basis point rate hike in December? At the time of writing, the market is pricing in a 64% likelihood of a 50-basis point hike in December.

5. China manufacturing PMI

With COVID cases in China at a six-month high and rising, concerns over further lockdown restrictions are unnerving investors. Manufacturing and retail sales data earlier in the month highlighted the negative impact that tighter curbs were having. The Caixin manufacturing PMI is expected to fall again in November to 49, down from 49.2 in October. Level 50 separates expansion from contraction.

Economic Calendar Highlights

Source: FXStreet.com

Technical Analysis:

TA of the major asset classes (Forex – Commodities – Indices...).

EUR/USD (Daily Candlestick Chart)

EUR/USD is still in a clear upward movement on the weekly time frame. The market broke and closed above the 1.027 mark on the daily time frame. This indicates that the bulls are in control of the market. Further movement up is expected toward the next resistance level (1.061). A move and close below 1.027 would indicate a bearish bias.

GBP/USD (Daily Candlestick Chart)

The British Pound is bouncing inside a bullish channel showing that the buyers are overwhelming the sellers. The price is heading to the area of confluence made of the resistance level (1.228) and the higher end of the channel. If the market reverses and closes below the 1.177 mark, the uptrend is exhausted.

USD/JPY (Daily Candlestick Chart)

USD/JPY is in a clear downward movement where lower lows and highs have been left. The market posted a higher correction to the 142.1 resistance level and continued its move down. We expect further movement down in the same direction of the main trend toward the 135.7 mark. However, if the market fails to continue its move down and closes above 142.1, this would negate our bearish bias.

AUD/USD (Daily Candlestick Chart)

The Aussie is trending up where big bullish bars have been posted. The price successfully broke and closed above a major key resistance level (0.669). If the buyers continue to overwhelm the sellers, then we can see the Aussie reaching the 0.682 mark. However, if the price breaks and closes below 0.669 mark, this would negate our bullish bias.

USD/CAD (Daily Candlestick Chart)

Loonie posted a higher correction to the 61.80% fibonacci retracement level where more sellers joined the downtrend. This led to a move lower and the price could be pushed further down toward the next support level (1.324). If the market fails to move lower, then there is a chance the price could retest the previous resistance around 1.349.

Gold (Daily Candlestick Chart)

Gold found buyers near the 61.80% fibonacci retracement level and was pushed up. The price could test the next resistance level (1,787) in the coming days. If the price fails to continue its move higher and closes below 1,734 mark, then Gold could test the previous support level near 1,705.

Brent Oil (Daily Candlestick Chart)

UKBRENTOIL is trending down where lower highs and lows have been left. A higher correction is expected toward the area of confluence made of the 61.80% Fibonacci retracement level and the previous resistance level (90.40). More sellers could join the downtrend near this zone and push the price again to the next support level (82.40). However, if the price breaks and closes above 89.22, this would negate our bearish view.

US500 (Daily Candlestick Chart)

US500 broke the bullish flag pattern up and it is heading toward the next resistance level (4,160) to complete the ABCD pattern. However, if the price fails to close above the 4,047 mark, then the 3,912 level could be tested again.

Thank you very much for reading - and have a great week trading!

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