The Week Ahead 📈 24th – 28th JAN

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The Week Ahead 📈 24th - 28th JAN

Hello, welcome to the Key To Markets preview of the Week Ahead.

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Contents

• Currency Pair Performance


• 10 Big Stories Last Week


• Chart of the Week


• Economic Calendar Highlights


• 5 Things to Watch this Week


• Technical Analysis: EUR/USD | GBP/USD | USD/JPY | AUD/USD | USD/CAD | Gold | Oil | S&P 500

Currency Pair Performance

5-day performance as of January 20, 2022. 16:00 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it....

Oil 7-year high. Brent crude oil rose over $89 per barrel this week to reach its highest since 2014.

Yields on the move. US Treasury yields hit a 2-year high ahead of the coming Fed meeting, sparking a risk-off tone across markets.

UK inflation. GBP fell back this week despite data showing UK inflation hit a 3-decade high in December.

Nasdaq correction. The Nasdaq Composite has fallen over 10% from its record high formed late last year.

S&P 500 hits 100 DMA. The US benchmark index has rebounded off the 100 DMA successfully 8 times since the lows in March 2020 and just hit it again.

Operation Save Big man. The UK Prime Minister is still fighting for his career with reports of a codenamed scheme inside Downing Street to save his skin.

China cuts rates. Last week China cut its benchmark interest rate and a key mortgage rate to support its ailing property sector.

Bank earnings. US banks reported some of the highest profits on record this quarter but it was a mixed bag relative to high expectations.

Oranges. Concentrated orange juice futures jumped on news that Florida will have the smallest citrus crop since WWII.

Profitless tech – A basket of 'profitless tech' stocks that don't earn any money created by Goldman Sachs is down 50% from its high.

Chart of the Week

Source: Crescat Capital / The Daily Shot

What does inflation do to stocks? One way of answering that question is to compare the annual rate of CPI growth y/y with the Price/Earnings ratio of the S&P 500 at the time. The chart shows a clear trend for higher valuation multiples (higher P/E) when inflation is low – and a tendency for much lower multiples when inflation is high.

The red dot is our current situation – suggesting we are living in a major outlier vs historical trends. For that red dot to move back towards the line of best fit, inflation will need to drop very quickly – or the S&P 500 needs a correction to get back into line with corporate earnings for this rate of inflation.

Economic Calendar Highlights

	TIME (GMT)	Country	Event	CONSENSUS	PREVIOUS
Mon 24	8:30	EUR	Markit PMI Composite(Jan) PREL	–	49.9
	9:30	GBP	Markit Services PMI(Jan) PREL	–	53.6
	14:45	USD	Markit Services PMI(Jan) PREL	–	57.6
Tues 25	0:30	AUD	Consumer Price Index (YoY)(Q4)	–	3%
	9:00	EUR	IFO - Expectations(Jan)	–	92.6
Wed 26	15:00	CAD	BoC Interest Rate Decision	–	0.25%
	19:00	USD	Fed Interest Rate Decision	–	0.25%
Thur 27	13:30	USD	Durable Goods Orders(Dec)	-0.20%	2.60%
	13:30	USD	Gross Domestic Product Annualized (Q4) PREL	5.80%	2.30%
Fri 28	13:30	USD	Core PCE – Price Index (YoY)(Dec)	4.80%	4.70%

5 Things to Watch This Week

1)     Fed meeting

This is the main event that's starting to see markets freakout. Stocks are falling and the USD is rising in anticipation the Fed will signal its first post-pandemic rate hike in March. The probability according to Fed funds futures is now almost 100% for a March rate hike. That means investors will be looking for confirmation of the March lift-off date from Fed Chair Jerome Powell's press conference.

2)     Bank of Canada

The Bank of Canada sets interest rates on Wednesday before the Fed, which will steal its thunder a few hours later. No change in policy is expected but soaring oil prices, which helps Canada's energy-exporting economy and rising inflation means the BOC looks on course to raise interest rates in H1 2022.

3)     Apple earnings

Apple reports 4th quarter earnings next week after the close (Thursday January 27). The Street estimates revenue of $118.3 billion with $1.89 earnings per share. $68.1 billion of that revenue is projected to come from the iPhone during the quarter in which the iPhone 13 was available for the first time.

4)     PMIs

PMIs are starting to show some stress, which is not what you want to see when central banks are planning to tighten policy. Notably Germany is expected to have a composite PMI reading in contraction territory (under 50). While things look a bit better in the US, rising inflation is hurting consumer sentiment and that is weighing on the service sector.

5)     US Q4 GDP

US Q4 GDP is released on Friday and is forecast to offer some welcome news after what might be a difficult Fed meeting. Markets will want to see some evidence that the US is in an economic position to handle rate hikes – and not showing signs of stagflation (slowing growth and rising inflation).

Technical Analysis

Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.

EUR/USD (H4 Candlestick Chart)

EUR/USD has seen its breakout completely reverse into a failed break as it finds itself back inside the former 1.12-1.14 trading range.

GBP/USD (H4 Candlestick Chart)

GBP/USD broke a rising trendline, re-tested it and dropped again in what looks like a possible trend reversal.

USD/JPY (H4 Candlestick Chart)

USD/JPY is turning back lower after retracing the sharp drop from the January high. The trend is now downwards with critical support near 113.

AUD/USD (H4 Candlestick Chart)

AUD/USD has been in a wide rising channel but now after a false breakout of 0.727, the channel looks on course to break with next support at 0.71.

USD/CAD (H4 Candlestick Chart)

USD/CAD has found a short-term base at 1.245 after a long drop from just short of 1.30. Resistance is 1.255 then 1.262.

Gold (H4 Candlestick Chart)

XAU/USD broke out above1830 resistance after forming a higher low on a rising trendline. 1850 is near term resistance with 1868/70 next.

Brent Oil (H4 Candlestick Chart)

BRENT found a short-term top near 88.50, possibly setting up a correction towards the 20 DMA but price remains in a solid uptrend.

US 500 (D1 Candlestick Chart)

US500 has broken below the critical 100 DMA support and is trending sharply lower in the short term – with possible support from the September-October trading range.

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

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