The Week Ahead 16th – 20th January: worldwide recession ahead?

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The Week Ahead 16th - 20th January: worldwide recession ahead?

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

Currency Pair Performance

5-day performance as of January 12th, 2023. 07:30 GMT.

Source: finviz.com

10 Big Stories Last Week

In case you missed it...

China re-opened its borders. China ended its strict zero-COVID measures by re-opening its borders for the first time in three years. The move helped boost risk sentiment.

The World Bank warned of a global recession. The World Bank slashed its global growth forecasts to 1.7% for 2023, down from the 3% forecast just six months ago.

Wholesale gas prices fell back to the pre-n invasion level. A milder winter in northern Europe has seen gas prices fall sharply lower, helping ease recession fears.

Gold rose to an 8-month high. As aggressive Fed hike bets eased, the precious metal extended a rally from $1616 in early November to $1865 this week.

Alibaba rose to a six-month high. A PBOC official said that the years-long regulatory tech clampdown is approaching its end, reviving demand in a sector once termed uninvestable.

Goldman Sachs to cut workforce. The banking giant announced that it will cull 3200 jobs ahead of earnings next week. Investment banking activity has dried up this year.

DAX hit a 9-month high. The German index rose to its highest level since February as recession fears ease thanks to falling gas prices & better than expected data.

US inflation cools further. US inflation continues to trend lower, raising bets that the Federal Reserve will slow the pace of rate hikes to 25 basis points in the next meeting.

EUR/CHF hit parity for the first time since July. Investors continued to unwind bearish Eurozone bets lifting the euro. Hawkish ECB chatter also boosted demand for the common currency.

Australian inflation rose again. Australian inflation rose to 7.3% YoY in November after falling to 6.9% in October. Higher inflation and stronger-than-forecast retail sales raise the prospect of the RBA returning to larger rate hikes.

Chart of the Week

Source: AllStarCharts

Copper, also known as Dr. Copper because of its ability to gauge the global economy's health, is moving higher. The base metal has moved back above 4 for the first time since June 2022 and is back within the trading range that persisted from early 2021 to mid-2022.

As China, the world's largest consumer of commodities reopens its economy, the demand outlook for the metal is rising.

Colin Hamilton, the commodities analyst at BMO Capital Markets, says:

"China is expected to get better, and the rest of the world is expected to get worse. And the playbook for that is to own metal exposure."

5 Things to Watch This Week

1. BoJ rate decision

The BoJ is set to announce its first monetary policy decision of 2023. The most dovish major central bank surprised the market at the end of 2022 by unexpectedly changing the yield control policy, which sent yields roaring higher and helped the yen jump 4% versus the USD. The BoJ is starting to move away from its ultra-loose monetary policy in preparation for the new BoJ leader in the Spring. Another similar move isn't expected this month, but it wasn't last month either!

2. German ZEW economic sentiment

German ZEW economic sentiment is expected to improve again in January after rising to its highest level since the n invasion of e in December. Optimism that the eurozone's largest economy has avoided a severe energy shortage, coupled with cooling inflation and China reopening, raises optimism that the German economy could experience a milder recession than initially feared.

3. US retail sales

Retail sales fell -0.6% MoM in November, missing forecasts and declining by the most in 11 months, pointing to a softening in demand for merchandise. In December, sales are forecast to fall a further -0.5%, which would highlight a loss of momentum in consumer demand for goods amid high inflation. While pandemic-era savings had supported shoppers, there are signs that they are starting to feel the squeeze.

4. Netflix earnings

The streaming giant forecast that 4.5 million subscribers will be added in the year's final quarter. However, analysts are doubtful whether this will be achieved, with some expecting just 2.7 million new subscribers. This comes after the streaming giant smashed forecasts with 2 million new subscribers in Q3. Wall Street expects an EPS of $0.55 on revenue of $7.84 billion.

5. Goldman Sachs earnings

Goldman Sachs is set to report Q4 earnings on Tuesday after announcing that it will cut headcount by 3200, or 6.5% of the workforce, to cut costs that have been rising rapidly and squeezing margins. All expenses are scrutinised, including bonuses and two private jets, as economic uncertainty puts the lender under pressure. Revenues at the bank have dropped 20% in the first nine months of 2022 versus the previous year. The share price is down 11% across the past 12 months outperforming the S&P 500.

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 in an uptrend, posting higher lows and above the 50 SMA.

Price found support at 1.0480 and rallied to new highs over 1.08, which is resistance from the high on May 30, 2022. A drop back under 1.071 support would imply the resistance has held. Should 1.071 hold, the next resistance is at 1.093.

GBP/USD (Daily Candlestick Chart)

GBP/USD is in an uptrend, posting higher lows and above the 50 SMA.

The price significantly corrected to 1.189 support before forming a bullish engulfing pattern. The next support is 1.21. A continued rebound should test 1.234, then 1.244.

USD/JPY (H4 Candlestick Chart)

USD/JPY is in a downtrend, posting lower highs and below the 50 SMA.

Price is currently inside an extensive trading range between 130 and 134.50. A break above the range ceiling could prompt a move to 137.84. A drop under the floor could see prices drop to 126.3.

Gold (Daily Candlestick Chart)

XAU/USD is in an uptrend with higher lows and above the 50 SMA.

Price broke above resistance-turned support at 1876 to extend the latest up move. The next support down in 1830, while the resistance lies at 1915, then around the 1960 mark.

Brent Oil (H4 Candlestick Chart)

XBRENT is in a downtrend, forming lower highs and below the 100 SMA.

Price is consolidating above the low at 75.50 and the recent high at 87.0. A sustained break above 87, then the 100 SMA would be needed to confirm a trend reversal.

US500 (H4 Candlestick Chart)

XUS500 is in a sideways range with 4100 as the ceiling and 3800 as the floor.

After dropping under 3900 and falling to 3780, the price is now back over 3900, making a run at the December highs between 4087 and 4123.

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

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