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Weekly Market Outlook For December 12th To December 18th

Home >  Weekly Outlook >  Weekly Market Outlook For December 12th To December 18th

Written by:
Myrsini Giannouli

12 December 2022
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Forex 

Important Calendar Events

  • December 12, JPY: BSI Manufacturing Index, PPI, Preliminary Machine Tool Orders
  • December 12, GBP: Monthly GDP, Construction Output, Goods Trade Balance, Index of Services, Industrial Production, Manufacturing Production, NIESR GDP Estimate
  • December 12, USD: Federal Budget Balance
  • December 13, EUR: French Final Private Payrolls, German Final CPI, Italian Industrial Production, German ZEW Economic Sentiment, ZEW Economic Sentiment
  • December 13, GBP: Claimant Count Change, Average Earnings Index, Unemployment Rate, BOE Financial Stability Report, FPC Meeting Minutes, FPC Statement, BOE Governor Bailey Speech
  • December 13, USD: Monthly CPI and Core CPI, Annual CPI
  • December 14, JPY: Core Machinery Orders, Tankan Manufacturing Index, Tankan Non-Manufacturing Index, Revised Industrial Production
  • December 14, GBP: Annual CPI and Core CPI, PPI Input and Output, RPI, HPI, CB Leading Index
  • December 14, USD: FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference
  • December 15, JPY: Trade Balance, Tertiary Industry Activity
  • December 15, GBP: MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate
  • December 15, EUR: Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference
  • December 15, USD: Core Retail Sales and Core Retail Sales, Empire State Manufacturing Index, Philly Fed Manufacturing Index, Unemployment Claims, Capacity Utilization Rate, Industrial Production, Business Inventories
  • December 16, JPY: Flash Manufacturing PMI
  • December 16, GBP: GfK Consumer Confidence, Retail Sales, Flash Manufacturing PMI, Flash Services PMI, BOE Quarterly Bulletin
  • December 16, EUR: French and German Flash Services PMI, French and German Flash Manufacturing PMI, Eurozone Flash Services PMI, Eurozone Flash Manufacturing PMI, Annual Final CPI, and Core CPI, Trade Balance
  • December 16, USD: Flash Manufacturing PMI, Flash Services PMI

USD

Market expectations currently range between a 50-bps and a 25-bps interest rate increase this week, with odds in favor of a 25-bps rate hike.

The dollar was volatile last week, remaining low on reduced-rate hike expectations. The dollar started the week low, with the dollar index at 104.1, then rallied a little mid-week rising to 105.8, before closing near 104.9 on Friday. US Treasury yields were also volatile, with the US 10-year bond yielding between 3.4% and 3.6% throughout the week.

The next US Fed monetary policy meeting is scheduled for this week on the 14th and traders are attempting to gauge the Fed’s intentions ahead of the meeting. A Fed blackout period started last Saturday and will last until the meeting, during which FOMC members do not deliver speeches that may reveal the central bank’s policy direction. The dollar maintained low volatility last week in the absence of more significant economic indicators and Fed rhetoric. 

The US Federal Reserve voted to increase interest rates by 75 basis points at its latest monetary policy meeting. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate in a range of 3.75% to 4.0%. Market expectations currently range between a 50-bps and a 25-bps interest rate increase this week, with odds in favor of a 25-bps rate hike. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate. 

Market expectations of future rate hikes were considerably trimmed in the past few weeks on cooling US inflation. US headline inflation printed at 7.7% year-on-year in October, compared to 8.2% in September. On Friday however, US PPI data exceeded expectations, indicating that US inflation remains high. Monthly PPI rose by 0.3% in November, against expectations of a 0.2% growth, while data for October were revised to show a 0.3% increase, instead of the 0.2% previously reported.

This week, all eyes will be on the Fed monetary policy meeting on the 14th. The FOMC statement and press conference released after the meeting might generate even more volatility, as traders will be scrutinizing these for forward guidance. The release of the CPI inflation indicators on the 13th may cause high volatility in dollar prices ahead of the Fed meeting. Retail Sales and Unemployment data on the 15th, as well as PMI data on the 16th, may also affect the dollar considerably.

TRADE USD PAIRS

EUR 

This week, traders await the ECB monetary policy meeting on the 15th, a day after the much-anticipated Fed meeting. 

The Euro traded sideways against the dollar last week, with the EUR/USD rate fluctuating around the 1.052 level. If the EUR/USD pair declines, it may find support at 1.029 and further down the parity level. If the currency pair goes up, it may encounter resistance at 1.061.

Revised GDP for Q3 of 2022 exceeded expectations, with the Eurozone economy expanding by 0.3% versus the 0.2% predicted. The economic outlook for the Eurozone seems to be improving, providing the ECB with some leeway toward tightening its fiscal policy. Many analysts however are predicting stagnation later this year and in the first quarter of 2023. 

Eurozone headline inflation showed signs of cooling in November, after hitting an all-time high in October. Final Eurozone inflation dropped to 10.0% year-on-year in November from a record high of 10.6% in October, against expectations of a 10.4% print. 

This coming week the EUR/USD rate will be affected mainly by the Fed and the ECB interest rate decisions, on the 14th and the 15th respectively. ECB rhetoric remains hawkish ahead of the ECB meeting, with ECB President Christine Lagarde recently stressing the need to bring Eurozone inflation down. In its latest monetary policy meeting, the ECB raised its interest rate by 75 basis points to 1.5%, the highest since 2009. Soaring EU inflation rates are forcing the central bank to hike rates aggressively to reduce price pressures. Market odds are currently in favor of a 50-bps rate hike this week, with the possibility of an even higher increase still on the table.

Traders await the ECB monetary policy meeting on the 15th, which is due a day after the much-anticipated Fed meeting. The ECB Monetary Policy Statement following the conclusion of the meeting might be of equal importance to the Euro as the announcement of the Main Refinancing Rate. Flash Manufacturing and Services PMI data on the 16th may also affect the Euro in the wake of the ECB meeting. 

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Market odds are currently in favor of a 50-bps rate hike this week, as the BOE is aiming to tackle soaring UK inflation rates.

The Sterling traded sideways against the dollar last week and the GBP/USD rate fluctuated around the 1.223 level with low volatility. If the GBP/USD rate goes up, it may encounter resistance at 1.234, while support may be found near 1.176 and further down near 1.035. 

UK inflation hit a 41-year high in October, as annual CPI climbed to 11.1%, its highest value since 1981. October’s inflation exceeded September’s print of 10.1% and expectations of 10.7%. Inflation in the UK continues to rise, mainly due to the high cost of energy. Rising UK inflation is forcing the BOE to make some tough choices against a weak economic backdrop.

The British economy is still struggling and policymakers will have to assess how much tightening it can withstand to bring inflation down. UK monthly GDP for September dropped by 0.6%, against expectations of a more modest, 0.4% drop, indicating that the country is already in the grip of recession. Quarterly preliminary GDP for the third quarter of 2022 also came out negative, printing at -0.2%, compared to a 0.2% growth in the second quarter. The BOE predicts that the recession could last for almost two years, with expansion not expected again till mid-2024.

The next BOE monetary policy meeting is scheduled for this week on the 15th, a day after the Fed’s policy meeting. Traders will be paying close attention not only to the Official Bank Rate but also to the Monetary Policy Summary for hints into the BOE’s future policy. At their latest monetary policy meeting, BOE members voted to increase interest rates by 75 bps. Currently, the BOE’s interest rate is at 3.0% and the difference with the Fed’s rate of 4.0% is putting pressure on the Sterling. Market odds are currently in favor of a 50-bps rate hike this week, as the BOE is aiming to tackle soaring UK inflation rates. 

On the data front, monthly GDP data is scheduled to be released this week on the 12th and may affect the Sterling, as the economic outlook of the UK will play a crucial role in determining the BOE interest rate increase later in the week. BOE Governor Andrew Bailey is due to deliver a speech on the Financial Stability Report on the 13th and traders will scan his speech for hints into the BOE’s policy direction. The CPI inflation index is scheduled to be released on the 14th and may cause volatility in the price of the Sterling ahead of the BOE meeting. Flash Manufacturing and Services PMI data on the 16th may also affect the Sterling. 

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

Japanese economy shrank in the third quarter of 2022, raising recession concerns for the world’s third-biggest economy.

The Yen retreated last week, with the USD/JPY pair closing near the 136.5 level on Friday. If the USD/JPY pair declines, it may find support at 133.6. If the pair climbs, it may find resistance at 142.2 and further up at the psychological level of 145.0.

Key economic activity and health indicators last week for Japan were overall more optimistic than expected, but still raised alarms for the future of the Japanese economy. The final GDP Price Index for the third quarter of the year showed economic contraction by 0.3% on an annual basis, which was, however, less severe than the 0.5% decline predicted. Final quarterly GDP for Q3 of 2022 printed at -0.2%, versus the -0.3% predicted. The Japanese economy shrank in the third quarter of 2022, mainly due to the high costs of imported energy. Japan’s economic outlook is poor, raising recession concerns for the world’s third-biggest economy. 

BOJ CPI for October rose to 2.7% on an annual basis, against 2.0% in September and 2.2% predicted. Hotter than expected inflation in Japan is mainly due to the high cost of imported energy. National CPI rose by 3.6% year-on-year in October, beating expectations of a 3.5% rise. October’s data are much higher than September’s 3.0% print, indicating that Japan's price pressures continue to rise. 

In its latest policy meeting, the BOJ left its monetary policy unchanged, as expected. The BOJ maintained its ultra-easy monetary policy keeping its main refinancing rate at -0.10%. Japan continues to pour money into the economy, while other countries are adopting a tighter fiscal policy. The difference in interest rates with other major Central Banks, especially with the Fed, puts the Yen at a disadvantage, driving its price down. 

Several economic activities and health indicators are scheduled to be released this week for Japan, which is not expected to affect the Yen significantly. This week, the Yen is more likely to be affected by the dollar’s movement, as traders await the Fed monetary policy meeting on the 14th.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

Gold prices edged higher last week, as increased recession concerns diminished the odds of higher Fed interest rates.

Gold was volatile last week, dropping to $1,767 per ounce early in the week, then rising above the $1,784 resistance level, touching $1,800 per ounce. If gold prices decline, support may be found near $1,739 per ounce, while further resistance may be encountered at $1,810 per ounce.

US dollar and treasury yields did not regain strength last week, giving gold a chance to go up. The dollar started the week low, with the dollar index at 104.1, then rallied a little mid-week rising to 105.8, before closing near 104.9 on Friday. US Treasury yields were also volatile, with the US 10-year bond yielding between 3.4% and 3.6% throughout the week.

Gold prices edged higher last week under diminished expectations of rate hikes. Increased recession concerns reduced the odds of higher Fed interest rates. As rate hike bets cool off, gold prices go up. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

The next US Fed monetary policy meeting is scheduled for this week on the 14th and traders are attempting to gauge the Fed’s intentions ahead of the meeting. The US Federal Reserve voted to increase interest rates by 75 basis points at its latest monetary policy meeting. Market expectations currently range between a 50-bps and a 25-bps interest rate increase this week, with odds in favor of a 25-bps rate hike. Market expectations of future rate hikes were considerably trimmed in the past few weeks on cooling US inflation. On Friday however, US PPI data exceeded expectations, indicating that US inflation remains high.

This week is packed with important news for the dollar that is likely to affect gold prices as well and especially the CPI inflation data on the 13th and the Fed interest rate decision on the 14th. The ECB and BOE meetings on the 15th might also cause volatility in gold prices to a lesser degree.

XAUUSD 1hr chart

TRADE GOLD

Oil 

Oil prices dropped last week to levels seen before the war in Ukraine, as global recession concerns limited the oil demand outlook, driving oil prices down.

Oil prices plummeted last week, with WTI prices dropping to a yearly low below $71.0 per barrel. If the WTI's price continues to retreat, it may encounter further support at $62.6 per barrel, while resistance may be found near $90.3 per barrel.

Oil prices dropped last week to levels seen before the war in Ukraine. Re-ignited global recession concerns limited oil demand outlook, driving oil prices down. Supply concerns were not sufficient to boost oil prices last week even as oil tankers from Russia faced delays in the Mediterranean due to G7 restrictions. A Canadian pipeline at Keystone was temporarily shut down after an oil spill, boosting oil prices but only for a short while. 

Oil prices have been dropping since the beginning of last week, despite the announcement of a Russian oil price cap. G7 leaders have agreed to enforce a price cap of $60 per barrel, which is slightly lower than the current market level. The cap on Russian oil might limit supply, especially if Russia decides to retaliate by refusing to trade with countries that enforce the price limit. Oil prices plummeted since the announcement of the Russian oil cap, however, since markets were pricing in a tighter price limit. Fears that the price cap would reduce global crude supplies have prompted a wave of precautionary buying of oil in the past couple of months, driving oil prices up.

China’s economic outlook remains poor after the prolonged Covid lockdowns. Covid cases in China have finally started to drop, leading Chinese authorities to relax some of the harsh Covid restrictions. The Chinese government eased some of its strident Covid regulations, abandoning its zero-Covid policy. The uncertainty over oil demand in China has influenced oil prices considerably as China is the world’s largest energy importer and zero-Covid restrictions severely limit oil demand. However, China’s easing of restrictions has already been priced in by markets, providing only a temporary boost to oil prices. 

OPEC+ members agreed to continue oil production cuts into the next year to boost oil prices. The organization decided to curtail oil supplies by 2 million barrels per day, maintaining its previous decision made in October. OPEC’s oil production cuts are set to run throughout 2023, although the group stated that they would address market developments if necessary.

WTI 1hr chart

TRADE WTI

Bitcoin and Major Cryptocurrencies 

Increased global recession concerns put a damper on risk sentiment last week, keeping a lid on cryptocurrency prices.

It was a quiet week for crypto markets, with most major cryptocurrencies trading sideways with low volatility. The week ahead is packed with important news and market participants remained cautious, especially ahead of the US Fed meeting.

Risk sentiment was boosted last week on hopes of China’s economic recovery, benefitting crypto markets, and stock markets. After widespread protests last month, Chinese authorities finally relaxed some of the harsh Covid restrictions. The Chinese government eased some of its strident Covid regulations, abandoning its zero-Covid policy. China’s economic outlook, however, remains poor after the prolonged Covid lockdowns. Increased global recession concerns put a damper on risk sentiment last week, keeping a lid on cryptocurrency prices. 

Bitcoin was rangebound between $16,700 and $17,400, trading near $17,200 over the weekend. If the BTC price declines, support can be found near $16,000, while resistance may be encountered at $17,400. 

Ethereum price also remained in a narrow range last week, oscillating around $1,260. If Ethereum's price declines, it may encounter support at $1,149 and further down at the psychological level of $1,000, while if it increases, resistance may be encountered near $1,350.

The US central bank’s next monetary policy meeting is scheduled for this week on the 14th and traders are trying to gauge the Fed’s policy direction. Market expectations of future rate hikes were considerably trimmed after recent US inflation data showed that inflation is cooling at a faster rate than expected. Reduced rate hike expectations diminish global recession concerns, boosting risk sentiment. Market odds are currently between a 50-bps and a 25-bps interest rate this week.

Increased risk aversion sentiment, however, has hit crypto markets hard after the recent collapse of FTX. The FTX token faced liquidity issues, triggering a generalized crypto market sell-off and undermining confidence in the crypto industry. The FTX collapse is likely to cause ripples in the crypto industry for some time, with two US Congress hearings coming up this week.

BTC/USD 1h Chart

BTCUSD 1hr chart

 

ETH/USD 1h Chart

ETHUSD 1hr chart

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

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