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

Currency Pair Performance

5-day performance as of October 13th, 2022. 10:30 GMT.

Source: finviz.com

10 Big Stories Last Week

In case you missed it...

IMF warns of global recession. The IMF cut its forecast for global growth to 2.7% for 2023 and warned that a third of the worldwide economy could contract next year.

OPEC+ cuts demand outlook. OPEC cut its oil demand forecast for 2022 to 2.64 million bpd from 3.1 million as the economy slows. This comes after the group cut output last week by 2 million bpd.

BoE is set to end bond market support. The BoE is set to end its bond-buying programme, which was announced in the wake of the Chancellor's mini-budget to stabilise the gilt market.

COVID cases rise in China. Mass testing in Shanghai and Chengdu and the return of some COVID restrictions unnerved the market, dragging commodity prices lower.

USD/JPY rises to a new 24-year high. Central bank divergence lifted the pair to a breath of 147, above the 145.90 level where the Japanese MoF stepped in to shore up the yen in September.

FOMC minutes show Fed is serious about inflation. The minutes of the September meeting highlighted the Fed's hawkish stance. Policymakers noted that the risk of doing too little outweighs the risk of hiking too hard.

Google partners with Coinbase. Google selects Coinbase to take cloud payments with cryptocurrencies, bringing some validation to the industry.

UK GDP unexpectedly contracts. The UK economy shrank -0.3% MoM in August, after 0.2% growth in July, missing forecasts of 0%. The UK is on the brink of recession.

Nasdaq falls to a 2-year low. Expectations of higher interest rates for longer and rising recession fears pulled the Nasdaq and the S&P500 to levels last seen in November 2020.

PepsiCo impresses. The snacks and soda maker jumped 4% after beating expectations on both the top & bottom lines. The firm has so far successfully passed price increases.

Chart of the Week

Source: ConferenceBoard

The IMF joined the World Bank this week in warning over a global economic slowdown.

The risk of a recession in the US is rising. The US conference board sees a 96% recession probability in the coming 12 months, with the most expected downturn in Q4 2022 and Q1 2023.

With hot inflation and the Fed committed to aggressively hiking rates, even if that means causing a slowdown, the likelihood of a recession beyond the 'technical recession' the US is in is growing.

The depressed mood is reflected in stocks, with the S&P500 and the Nasdaq dropping to 2-year lows, while the safe-haven USD resumed its rally.

5 Things to Watch This Week

1. Netflix earnings

Netflix is due to report Q3 earnings after the close on Tuesday. The figures come as the share price trades 64% lower across the year, making it one of the worst-performing stocks on the Nasdaq. Wall Street expects Netflix to report revenue of $7.85 billion, up 4.5% annually. Operating income is expected to fall 28% to $1.05 billion. Subscriber numbers are set to rise by 1 million.

2. UK CPI

UK inflation fell to 9.9% YoY in August, down from 10.1%. However, September's CPI print is not expected to cool further, instead rising to 10.2%. After the Government's cap on energy bills, inflation is no longer expected to rise to the 20% level forecast by Goldman Sachs. However, other expansionary fiscal policies from the Chancellor mean that the BoE will have a more challenging time bringing inflation down. The BoE is expected to hike rates by 75, if not 100, basis points in November.

3. German ZEW Economic Sentiment

German investor confidence tumbled in September to -61.9, a new low, which was perhaps not that surprising given the country's headwinds, including surging energy costs and the deepening cost of living crisis. The economic outlook could deteriorate further amid the prospect of energy shortage across the winter.

4. Tesla earnings

Tesla is set to publish Q3 earnings on October 19. The quarter saw deliveries soar to a record high of 343,830, up around 42% annually, thanks to a recovery in China and a gradual ramping up of production at the new facilities in Texas and Berlin. Prices across Q2 rose 14% YoY and could increase further in Q3, which would help margins for the quarter. Wall Street forecasts EPS of $1.03, up from $0.76 in Q2 on revenue of $22.3 billion, up 62% YoY and 32% sequentially.

5. China 20th National Communist Congress

The once every-five years Communist Party Congress takes place this week. President Xi Jinping is expected to secure his rule until 2027. Policies are likely to be set out, which will help to determine the speed at which the Chinese economy can recover and whether it will surpass the US economy. The Congress takes place as Q3 GDP data for the country is also set to be released and is forecast to record growth of 1%, up from 0.4% in Q2.

Economic Calendar Highlights

Source: FXStreet.com

Technical Analysis:

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

EUR/USD (Daily Candlestick Chart)

While trading inside a bearish channel, EUR/USD is still in a clear downward movement. The market rebounded to the strong resistance near 0.975 after the Euro lost ground to the US Dollar. More sellers could rejoin the downtrend around this zone and push back the price to the downside toward the previous low at 0.954. A move above 0.995 would indicate a bullish reversal.

GBP/USD (Daily Candlestick Chart)

The British Pound continued its move lower after testing the bearish trend line. The market is making a higher correction to resistance at the 1.109 mark. Near this level, more sellers could rejoin the downtrend and push it down to 1.054, the September low. If the price breaks above 1.109 and the trendline, we could see a reversal and a move higher toward 1.146.

USD/JPY (Daily Candlestick Chart)

USD/JPY successfully broke the parallel channel to the upside, and now it is heading to the next resistance level (147.4). If more buyers join the uptrend, we could see the market breaking the 147.4 resistance and moving all the way up toward the 149.4. Failing to break the 147.4 mark could lead to a move lower to the top of the channel (144.8).

AUD/USD (Daily Candlestick Chart)

The Aussie broke its parallel channel to the downside with good momentum. The market might continue its move lower toward the 0.600 round number to complete the ABCD pattern. However, if the price moves back above 0.640, it could prompt a move higher toward the top of the channel (0.654).

USD/CAD (Daily Candlestick Chart)

Loonie is still trending higher; however, it is facing a solid resistance near 1.384 from the late September peak. A break above the resistance area would be in line with the broader uptrend. If this scenario occurs, USD/CAD could reach the 1.414 mark. Failing to close above the 1.384 mark could see the price retest to the 1.3595 mark.

Gold (Daily Candlestick Chart)

Selling has resumed in gold after a bullish correction since the price is still in a downtrend. The market is testing support near 1,660. If the bears succeed in breaking this area to the downside, then XAUUSD could be seen around 1,620, the September low. However, failing to break 1,660 could lead to a move higher to test the 1,727 mark.

Brent Oil (Daily Candlestick Chart)

UKBRENTOIL is still overall in a downtrend. The price posted a fakeout above the bearish trend line showing that the bears took back control of the market. Further movement to the downside could be seen toward 86.75. If the price breaks and closes above 92.60, this could lead to a reversal and a move higher to 103.

US500 (Daily Candlestick Chart)

US500 found sellers near the 3,788 mark, leading to a move lower in the same direction as the main trend. The market is now back at the prior support level (3,553). If sellers continue to overwhelm the buyers that could lead to a huge selloff toward 3,247. Holding 3,553 would imply a move back up to 3,788.

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

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The post The Week Ahead 17th – 21st October: are we facing a wordwide upcoming recession? appeared first on Key To Markets Blog.