The Week ahead 23rd – 27th January: large US companies’ earnings ahead

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The Week ahead 23rd - 27th January: large US companies' earnings ahead

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

Currency Pair Performance

5-day performance as of January 19th, 2023. 10:30 GMT.

Source: finviz.com

10 Big Stories Last Week

In case you missed it...

BoJ stirs up volatility on inaction. The most dovish major central bank kept the monetary and yield curve policy unchanged, initially sending the USD/JPY back above 131.00 before the USD weakness took hold again.

The US dollar fell to a 7-month low. Falling US retail sales & PPI raised bets that the Fed will slow the pace of rate hikes in the coming meetings.

UK inflation stayed in double-digit. UK inflation cooled for a second straight month to 10.5%, from 10.7%. Core inflation remained unchanged at 6.3%. The pound rose to 1.24.

Gold rose to a fresh 8-month high. The precious metal rallied to 1929, its highest level since April, as the USD fell and hawkish Fed bets eased.

Goldman Sachs' profits drop by two-thirds. The investment bank posted a fifth quarter of falling profits as earnings plummeted to $3.32 per share and revenue dropped 16% to $10.59 billion.

World Economic Forum in Davos. News from the WEF included China saying peak Covid has passed and the IMF saying peak inflation has passed. CEOs and economists worry about a recession.

Oil rose to a monthly high before falling. The IEA warned that oil demand could increase to a record level in 2023 as China reopens and supply from  could remain constrained.

Microsoft announced plans to slash 10,000 jobs. Hot on the heels of Amazon cutting 18,000 jobs, Microsoft is the latest tech firm to reduce its headcount by around 5%.

US debt ceiling hit. Treasury secretary Janet Yellen wrote to new House Speaker Kevin McArthy to say, "beginning on January 19, the outstanding debt of the United States was projected to reach the statutory limit.”

Rumours circulated that the ECB could slow the pace of hikes. Bloomberg reported that the ECB could look to slow rate hikes to 25 basis points from March. Villeroy shut down the rumour, but has the seed of doubt been planted?

Chart of the Week

The chart shows that investors are turning bullish on Eurozone stocks for the first time since the n war.

The change in tone comes as German ZEW economic sentiment bounced this week, turning positive for the first time since the war started.

Meanwhile, at the World Economic Forum in Davos, German Chancellor Olaf Scholz said that he is convinced that Germany, Europe's largest economy, would avoid a recession this year.

5 Things to Watch This Week

1. Microsoft earnings

Microsoft is due to report fiscal Q2 earnings, which come hot on the heels of the tech giant announcing that it will slash the workforce by 5%. Wall Street is forecasting a 2.4% YoY increase in revenue to $52.97 billion, while EPS is forecast to decline 6.9% to $2.31. This would mark the slowest pace of top-line growth in over five years and the first fall in earnings in over eight years as demand is falling and costs rising.

2. Tesla earnings

Tesla is expected to report Q4 earnings on January 25, after the closing bell. Wall Street expects EPS of $1.15, up from $0.85 in the same period last year. Revenue is expected to be $24.96 billion, up from $17.72 billion in Q4 2021. The earnings come after the EV maker announced price cuts in the US and Europe earlier in the month to retain market share as competition heats up. The prices cuts mean that Tesla will see margins and earnings hit.

3. Eurozone PMI

PMI data at the start of the week will provide the first glimpse into how services and manufacturing sector activity are holding up at the beginning of the year. PMI data in December showed that business activity contracted by less than expected, raising optimism that a recession may not be as deep as initially feared. The composite PMI in January is expected to fall to 48, down from 49.3 in December but still up from November's 47.8.

4. US GDP Q4

The US economy is expected to have expanded 2.8% in Q4 QoQ, annualised. While this is slightly weaker than the 3.2% growth seen in Q3, it is still some distance from a contraction. Even so, worries over a US recession gathered pace last week after weaker-than-forecast retail sales data, which sent US stocks and the USD lower. Softer-than-expected GDP data could fuel those recession fears further.

5. BoC rate decision

The BoC has raised interest rates from 0.25% to 4.45% over the past 11 months. With rates in the restrictive territory and inflation falling, the central bank has become much more data-dependent. Since the December meeting, core inflation has remained stubbornly high, and December's jobs report was solid, suggesting that there is still more room to hike rates.

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. The price is above resistance at 1.07, which should now act as support. Should this give way, the next support lies near 1.048. Should the trend extend higher, the first resistance is the 1.10 round number, then 1.115, the March 2022 high.

GBP/USD (Daily Candlestick Chart)

GBP/USD is in an uptrend, posting higher lows and above the 50 SMA. The price has rebounded since closing below the 50 SMA and is now testing resistance from the nearby high at 1.244. The next resistance comes from May 2022 high at 1.266. Support lies at 1.21, then 1.183.

USD/JPY (H4 Candlestick Chart)

USD/JPY is in a downtrend, posting lower highs and below the 50 SMA. A long-wicked candle tested support-turned resistance at 130.5, suggesting high selling pressure. The next support is 126.35, then the 125 round number. A break of the down trendline would be needed to demonstrate a trend reversal.

Gold (Daily Candlestick Chart)

XAU/USD is in an uptrend with a series of higher lows and above the 50 SMA. The price looks overbought, having not touched the 50 DMA since November. Another minor correction could find support at 1878, whereas a drop to 1824 could signal the start of a trend reversal. 1960 is resistance from the November/December 2020 highs.

Brent Oil (Daily Candlestick Chart)

The XBRENT is in a downtrend, forming lower highs and below the 100 SMA (but above the 50 SMA). A higher low and intraday break of the prior high at 86.87 shows the price attempting a trend reversal. The downtrend has been choppy, so a break of the down trendline would be needed to prove the downtrend has ended.

US500 (Daily Candlestick Chart)

XUS500 is in a sideways range with 4100 as the ceiling and 3800 as the floor. A down trendline has been tested for a 4th time, and the price has dropped under the 50 SMA, suggesting a possible re-test of the recent low around 3,800. A break of the downtrend line could signal a significant new uptrend with the first resistance at 4140.

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

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