Welcome to next week’s Key to Markets preview.

Performance of the currency pair

5-day performance as of 22 Sep 2022 12:30 GMT.

Source: Forex Performance (finviz.com)

Last week’s 10 big stories

If you missed it…

Japan intervenes for the first time since 1998. The Japanese government stepped in to support the yen after the Bank of Japan stubbornly stuck to its very loose monetary policy, sending USD/JPY up to 146.00.

The Fed raised rates by 75 bps. The Fed raised rates in line with expectations and halved its rhetoric. The US dollar rose to a 20-year high after the announcement, while US stocks fell.

Russia started a war in Ukraine. Putin ordered a partial mobilization, the first since World War II, and Russia began holding referendums on annexation. EUR/USD falls to a 20-year low around 0.98.

BoE raises interest rates. The Bank of England raised rates by 50 basis points to 2.25%, but the vote was split between 0.25%, 0.5% and 0.75%. GBP/USD traded at a 37-year low.

BTC/USD fell to a 3-month low. The cryptocurrency fell to $18,300 after the Fed’s dramatic announcement of a fall in risk assets.

Ford falls 11%. The automaker warned of $1 billion in additional supply chain costs in the third quarter, but confirmed full-year adjusted earnings of $11.5 billion. This did not reassure investors.

SNB ends negative rates. The traditionally dovish central bank rose 0.75% and said more hikes were likely. The CHF was down 1.2% on the EUR/USD exchange rate announcement.

The Riksbank is getting big. Sweden’s central bank raised rates by 100 basis points, ahead of a forecast of 75 basis points, and said more increases would follow. A message about the fall of the crown.

Gold falls to a 2.5-year low. The precious metal fell to $1,654 after the Fed hike before recovering slightly. The precious metal looks vulnerable as the dollar strengthens and Fed rates rise.

Meta falls to fresh 2.5 year lows. The stock has lost nearly 60% of its value this year, falling 12% this month alone. Slowing ad revenue and heavy spending on the meta universe are hitting the stock.

Chart of the week

Source: Trading View

Tokyo is tired.

At its September meeting, the Bank of Japan defied a global rate hike and stubbornly stuck to ultra-low rates and hawkish policy guidance. That came just hours after the Fed raised rates by 75 basis points and doubled down on its dovish outlook.

The result? USD/JPY crossed the 145.00 mark on the sand, prompting Tokyo’s intervention for the first time since 1998. USD/JPY dipped below 141.00 before stabilizing around 142.50.

However, with the BOJ sticking to the world’s only negative discount rate, the troubled yen may still need more support unless the BOJ is willing to change its stance.

5 things to watch this week

1. Elections in Italy
Italian voters will go to the polls on Sunday in a snap election expected to be won by the far-right. Polls show that Fratelli d’Italia, led by Giorgia Meloni, is ahead. A victory for this party in the elections could lead to the fact that the leader Meloni will become the first ever Italian woman prime minister. It would lead to a right-wing coalition, the country’s most significant political shift in years as Italy grapples with rising inflation and continued economic instability.

2. Inflation in the Eurozone
In August, inflation in the Eurozone rose to a record level of 9.1% y/y. Core inflation, which excludes more volatile items, also rose to 5.5% y/y. Headline inflation is expected to remain at 9.1% in September. However, core inflation is expected to ease to 5.1%. Despite this, it is unlikely to prevent the ECB from raising the rate. After raising rates by 75 basis points in September, another hot streak in inflation could see the central bank lean toward another 75 basis point hike, especially after the Fed’s sharp hike.

3. Core US PCE
PCE fell to 6.3% y/y in July, well below the forecast of 7.4%. However, core PCE, the Federal Reserve’s preferred measure of inflation, fell only marginally to 4.6% from 4.8%. In August, it grew by 0.1% on a monthly basis. Core PCE is expected to rise 0.3% on the month in September. Meanwhile, personal spending is also expected to increase by 0.2%, suggesting that inflation is unlikely to cool as quickly as the Fed would like. The data likely supports the Fed’s hawkish stance.

4. IPO of Porsche AG
Volkswagen plans to list Porsche AG shares on September 29 on the Frankfurt Stock Exchange, in what is shaping up to be one of the largest IPOs in European history. The luxury carmaker could be valued at €75 billion, with shares priced between €76.50 and €82.50, although that is slightly below the initial target valuation of €85 billion. Porsche’s debut will end the IPO drought that has been hanging over the markets.

5. The strength of the US dollar
The dollar’s strength remains unchanged in recent weeks. Hotter than expected inflation, a solid labor market and a hawkish Fed is keeping the greenback at a good level. Safe harbor flows are also at work here as Putin escalates the war in Europe and fears of a global recession grow. Coupled with the fact that there are now few compelling alternatives to the US dollar, given the deteriorating economic conditions in Europe and the UK and concerns about China, dollar strength is likely to remain a key trend.

Highlights of the economic calendar

Source: Economic Calendar – FXStreet

Technical analysis:

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

EUR/USD (H4 candlestick)

EUR/USD successfully broke the parallel channel to the downside. The market is about to post a higher correction after the completion of the ABCD pattern. More sellers may return to the downtrend near 0.988 to push the price down to 0.964. A move above 0.988 could lead to a move higher to 1.003.

GBP/USD (H4 candlestick)

The British pound is correcting below a bearish trend line that coincides with recent lows around 1.136. More sellers could join the downtrend near the confluence area and push the price back to 1.115. However, if the price breaks above the 1.136 level, we could see the pound test 1.145.

USD/JPY (H4 candlestick chart)

USD/JPY is stuck inside the parallel channel from the levels of 142 and 145. As the market is still in an uptrend on the daily timeframe, we expect to break out of the channel to the upside. If this scenario occurs, the price of the yen may reach 147.4. A close below 142.6 could lead to a return to 141.6.

AUD/USD (H4 candlestick)

The Australian broke below the parallel channel and is now retesting the bottom of the channel. After this correction, we expect a new bearish impulse wave to complete the ABCD pattern. Therefore, the price may reach the next support level around 0.650. However, if the price breaks above 0.667 again, it could trigger a move higher to 0.672.

USD/CAD (H4 candlestick chart)

Looney aggressively climbs higher. However, the price reversed to the confluence area formed by the 50% Fibonacci retracement level, strong support and the bullish trend line. More buyers may return to the uptrend near this area and push the price towards the 1.360 mark. A move and close below 1.339 would invalidate our bullish view.

Gold (H4 candlestick)

Gold bounces inside the parallel channel. There is a high probability of a breakout below the bottom, in line with the downward trend on the daily timeframe. If this scenario occurs, the price could reach 1617. However, a close above 1.655 could trigger a move higher to 1.677.

Brent oil (H4 candlestick)

UKBRENTOIL is bouncing inside a bearish flag formation where the price may test its upper limit. More sellers could retrace the downtrend near the 61.8% Fibonacci retracement level and push the price towards 86. However, if the price breaks and closes above 91, it could go higher to 94.

US500 (H4 candlestick)

The US500 broke below its parallel channel to the downside after finding more sellers near the 61.8% Fibonacci retracement level. A correction above to the lower end of this range could be seen, leading to more selling pressure, with price moving towards 3735. A close above 3.833 would invalidate our bearish view.

Thanks so much for reading – and have a great week’s trading!

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