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The Week Ahead 12th – 16th December: the crucial week of the central banks

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The Week Ahead 12th - 16th December: the crucial week of the central banks

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

Currency Pair Performance

5-day performance as of December 8th, 2022. 10:30 GMT.


10 Big Stories Last Week

In case you missed it...

BoC hikes rates by 50 basis points. The central bank raised rates to 4.25% and suggested that rate hikes could now be paused.

RBA hikes rates by 25 basis points. The Australian central bank voted for another 25-basis point rate hike taking the OCR to 3.1%, its highest rate in a decade.

China to reopen. Beijing announced that China would ease Covid measures by moving away from its zero-Covid strategy. Despite the big announcement, there wasn't a big market reaction.

US investment brace for recession. The CEOs of Wall Street's largest banks warned that the US would likely fall into recession next year and unemployment would likely rise.

Foxconn's revenue dropped. The iPhone assembly plan saw revenue fall 239% in November compared to October amid staffing disruptions. Concerns rise that Apple will experience lost sales in the billions on reduced handset production.

Oil falls to a 2022 low. Oil prices fell to a 2022 low of $71.75 as US recession fears hurt the demand outlook and OPEC+ kept output unchanged.

Tesla's Shanghai factory sets a delivery record. The EV maker reported 100,291 deliveries from the Shanghai gigafactory. Tesla denied reports that output would reportedly fall 20% compared to November.

Bitcoin rose to its highest level in almost a month. BTC/USD briefly rose to 17400 as traders moved on from concerns over FTX contagion.

Nasdaq dropped 4%. A hattrick of stronger-than-forecast US economic data, including US jobs data, ISM services, and factory orders, raised questions over the Fed's ability to slow the pace of rate hikes.

G7 oil price cap was implemented. The group agreed to cap n seaborne oil at $60 per barrel. The move didn't boost the oil price but did cause a jam of oil tankers off Turkey while insurance papers were being checked.

Chart of the Week

The most aggressive federal Reserve tightening in 40 years is expected to weigh on the economy in 2023.

This week we heard that CEOs from JP Morgan, General Motors, Walmart and Citigroup are preparing for an economic slowdown.

While savings and government aid in the pandemic are helping to keep things stable now, that is not expected to last. Inflation and interest rate hikes are eroding those reserves quickly.

JP Morgan Jamie Dimon said, "Inflation is eroding consumer wealth and may cause a recession."

5 Things to Watch This Week

1. Fed interest rate decision

Expectations are for the US Federal Reserve to hike interest rates by 50 basis points on Wednesday, down from the larger 75 basis point increase in the previous four meetings. This would be consistent with recent comments from Federal Reserve officials, including Federal Reserve chair Jerome Powell who signalled that the Fed would likely slow the pace of rate hikes from the December meeting. The market is pricing in a slim possibility of a 75 basis point hike.

2. ECB interest rate decision

Inflation in the eurozone appears to be cooling. November's CPI fell by more than expected to 10% YoY, down from 10.6% YoY in October. PPI also dropped sharply to 30.8% YoY, down from 41.9%. The ECB is widely expected to raise interest rates by 50 basis points following two consecutive hikes of 75 bps. The central bank is also likely to signal that interest rates will need to be lifted several more times to tame inflation. Could policymakers also start to talk about quantitative tightening?

3. BoE interest rate decision

The BoE meets as inflation in the UK is at 11.1%, a 40-year high, and as the UK economy is on the brink of recession. The BoE has hiked rates at eight consecutive meetings in its fight against inflation. In November, the BoE raised interest rates by 75 basis points to 3%. Expectations are for the central bank to raise interest rates by an additional 50 basis points, taking the benchmark rate to 3.5%. At the last meeting, BoE Andrew Bailey said that the market was overpricing the terminal rate. Is this still the case?

4. Eurozone PMIs

Eurozone PMI data could shed some light on how the economy is holding up. Expectations are for business activity to improve slightly in December but remain below 50, the level which separates expansion from contraction. The data is likely to confirm that GDP contracted in the final quarter of the year.

5. UK, Eurozone & US inflation data

The coming week is a huge week for economic data. On the most closely watched releases will be inflation figures. Inflation data from the US, Eurozone, and the UK is set to be released ahead of the relevant central bank meetings giving policymakers the benefit of the most up-to-date readings. All three regions are expecting to report a cooling in inflation which could drive expectations for a slowdown in rate hikes.

Economic Calendar Highlights


Technical Analysis:

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

EUR/USD (H4 Candlestick Chart)

EUR/USD remains in an uptrend, posting a series of higher lows and holding above the 100 SMA. Another rally could test 1.077. The pair has pulled back from just short of 1.06 to test resistance-turned-support at 1.044 for a second time. A break of this level would expose the next support at 1.029.

GBP/USD (H4 Candlestick Chart)

GBP/USD is trending higher, characterised by a series of higher lows and price holding above the 100 SMA. The price has pulled back from the higher high to find support at the former high and 1.213. The next support is 1.194. Another leg up in the uptrend could test 1.263.

USD/JPY (H4 Candlestick Chart)

USD/JPY continues to trend lower, posting lower highs and staying below the 100 SMA. A rebound has tested support-turned resistance at 137.6. Near-term support can be found at 136 then the lowest low at 133.9. A break above the downtrend line would suggest a trend reversal and a test of 139.8.

AUD/USD (H4 Candlestick Chart)

AUD/USD has stalled at the aforementioned resistance at 0.682 created by the major low in May 2022. This led to a break of the 100 SMA, indicating a possible trend reversal. Any rally could again find resistance at 0.678 then 0.683. If new range-trading conditions are in place, a drop to 0.659 makes sense.

USD/CAD (H4 Candlestick Chart)

USD/CAD avoided a bearish reversal and made another strong move, this time to the upside, keeping the uptrend intact. A deeper pullback could find support at 1.349 then 1.34. If the 1.365 level holds, another move up to 1.379 can be expected.

Gold (H4 Candlestick Chart)

XAU/USD remains within an uptrend with a series of higher lows and has held the 100 SMA in its latest pullback from 1800. A break of 1765 would indicate a trend reversal, bringing 1730 into play. Further upside should test the recent high at 1807 then possibly 1835.

Brent Oil (H4 Candlestick Chart)

XBRENT has resumed its downtrend with a break below major long-term support and the big 80 round number. The fakeout of resistance at 86.80 reversed at 89.0 and the 100 SMA. Any rebounds could find difficulty surpassing 80.80 then 82.50. Next major support is 70.80.

US500 (H4 Candlestick Chart)

XUS500 has dropped below its last swing low and the 100 SMA, indicating a bearish reversal of the uptrend. However, each of the last 4 drops below the 100 SMA triggered big upside moves to new highs. Resistance is at 4000, then 4088, with support at 3906, then 3807.

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

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