The Week Ahead 31st – 4th November: Missed earnings, further rate hikes and much more

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The Week Ahead 31st - 4th November: Missed earnings, further rate hikes and much more

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

Currency Pair Performance

5-day performance as of October 27th, 2022. 11:00 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it...

Rishi Sunak becomes the British PM. The pound surges to a 6-week high on optimism that the new PM will restore stability and credibility to the UK after Liz Truss' chaotic rule. GBPUSD hits a 6-week high.

Alphabet missed forecasts. Google's parent company missed earnings and revenue forecasts. Ad revenue came in at $54.48B, below expectations of $56.98B showing no firm is immune to the slowdown in digital ad spending.

HSBC drops 5% after profits slide. The bank reported a 42% fall in profits and reported a larger-than-expected impairment charge of $1.2 billion. Net interest income jumped 30%.

Fed dovish pivot bets rise. A run of weaker-than-forecast data raises bets that the Fed could slow the pace of rate hikes after the November meeting. USD fell for five straight days.

Meta plunges 19%. The tech giant missed earnings forecasts, reported falling revenue, and failed to convince investors that big bets on the metaverse were paying off.

Hang Seng hits a 13 year low. Chinese stocks plunged after President XI Jinping introduced his top team. The group of hardliners raise fears that ideology would trump growth going forwards.

EUR/USD regains parity. The ECB hiked rates by 75 basis points, as expected. This was the third straight rate hike and the second of that magnitude.

Musk Twitter deal to close Musk signaled that the $44 billion deal to buy Twitter will close, bringing an end to the turbulent acquisition process. Twitter rallied 21% in October as the deal neared the finish line.

Credit Suisse posts huge Q3 loss. The embattled bank posted losses of Fr.4.034 billion, well above forecasts of Fr.567.93 million. The dire figures come as the bank announces a major strategic overhaul after years of scandal and risk management failures.

Microsoft drops 7% post earnings. The tech giant reported the slowest revenue growth in 5 years on a strong dollar and weak PC demand. Microsoft also warned of a cloud computing slowdown.

Chart of the Week

EUR/USD is breaking out. The pair has risen above 0.9905 support turned resistance and the multi-month falling trendline for the first time this year. Furthermore momentum has pushed into bullish territory.

Bets are rising that the Fed will start to adopt a less hawkish stance after the November meeting, pulling the USD lower across the board and fueling its deepest correction of the year.

Could this breakout run higher?

According to Alvin Tan, strategist at RBC Capital Markets. "A clean break through the September highs just under $1.02 would bring the bigger technical level of $1.035 into focus."

5 Things to Watch This Week

1. Fed rate meeting

The market is almost fully pricing in a 75-bps point rate hike in the November meeting as core inflation continues to rise. However, what will be of more interest is what the Fed suggests is coming next. Expectations have been rising that the Fed will start to slow the pace of rate hikes from December. Currently, the market is pricing in a 51.5% chance of a 50-basis point hike in December, up from just 24% one week ago. Meanwhile, the probability of a 75bps point hike in the final meeting of the year has fallen to 42.5% from 75% one week ago.

2. BoE rate meeting

The BoE is expected to raise interest rates by 75 basis points but could go larger and hike rates by 100bps. The meeting comes after one of the most chaotic times in British political history, which saw gilt yields surge to over 4% before falling back to 3.7%. With the new budget now pushed back until the 17th of November, the BoE will be taking its monetary policy decision without knowing the government's plans for fiscal policy.

3. RBA rate decision

The RBA surprised the market in the October meeting with a smaller-than-expected rate hike of 25 basis points, citing the lag time for rate hikes to take effect in the real economy. Since then, inflation has risen to 7.2% YoY in Q3, and the RBA has continued with the message that there are further rate hikes ahead. Another 25-bps hike is expected at the November meeting, although some policymakers could argue for 50 bps.

4. OPEC meeting

In the October OPEC+ meeting, the group surprised the market with a 2 million barrels-a-day production cut to take effect from the start of November. The group cited the growing risk of recession lowering the demand outlook as justification for the move. The price initially rallied before paring those gains and now trades approximately at the pre-meeting level. According to the UAE, this proves the move was justified. So far, OPEC+ has not indicated that they will cut again. However, OPEC+ members have been very vocal in their support for the October cut, which, combined with growing recession concerns and the price falling, means that another cut could be around the corner.

5. Non-farm payroll

The US economy continued generating jobs at a steady pace in September of 263k, above forecasts of 250k but down slightly from 315k in August. In October, job creation is expected to slip again to 200k while the unemployment rate is forecast to rise to 3.6%, up from 3.5%. So far, the jobs market has shown resilience even as interest rates have risen and recession worries have grown. A weaker-than-expected number could help fuel bets that the Fed may look to slow the pace of rate hikes.

Economic Calendar Highlights

Source: FXStreet.com

Technical Analysis:

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

EUR/USD (Daily Candlestick Chart)

EUR/USD broke above the bearish trend line after posting a higher low and high. The market is above a key level (1.000) which indicates that the bulls are now in control of the market. A correction lower to the same level could attract more buyers to push the price back up to 1.0200. A move and close below 1.000 would indicate a bearish bias.

GBP/USD (Daily Candlestick Chart)

The British Pound broke above the trend line after finding buyers near the 50% Fibonacci retracement level. The market is heading toward the next key resistance level (1.174) to complete the ABCD pattern. A lower correction is possible to the 1.149 mark before the new impulsive wave. If the price breaks and closes below 1.149, we could see a reversal and a move lower toward 1.127.

USD/JPY (Daily Candlestick Chart)

USD/JPY is still in an upward movement even though it posted a deep correction to the 145.0 mark. We are expecting another move lower to this zone to attract more buyers before a new move upward toward the previous high 152.0. However, if the market succeeded to close and break below 145.0 level this would negate our bullish bias.

AUD/USD (Daily Candlestick Chart)

The Aussie is about to retrace to an area of confluence made of the 50% Fibonacci retracement level and a strong resistance level (0.654). More sellers could rejoin the downtrend near this zone and push the price all the way down to 0.635. However, if the price continues its move above 0.654, it could prompt a move toward the 0.670 level.

USD/CAD (Daily Candlestick Chart)

Loonie is still bouncing inside a parallel channel formation. The market is about to test again the lower end of the channel which could lead to a reversal higher since the main direction of the trend is upward. Failing to sustain above the 1.350, would negate our optimistic view.

Gold (Daily Candlestick Chart)

Gold is about to retrace to the 61.80% Fibonacci retracement level. It might take a few days before a reversal lower toward the previous low near 1,620. However, a break above 1,683 could lead to a move higher to test 1,727.

Brent Oil (Daily Candlestick Chart)

UKBRENTOIL broke above the trend line after retracing to the 61.80% fibonacci retracement. Buyers joined the move near this zone and could push the price all the way up toward the next key resistance level 97.75. However, if the price breaks and closes below 92.14, this could lead to a reversal and a move lower to 88.01.

US500 (Daily Candlestick Chart)

US500 posted a double bottom at the low of the bearish channel. This resulted in a higher reversal. The price managed to break and close above 3,809 which indicates that the buyers are in a good position, and might push it above toward 3.911. Failing to close and break above 3,911 would imply a move down to 3,809.

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

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