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Weekly Market Outlook For November 28th To December 4th

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Written by:
Myrsini Giannouli

28 November 2022
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Forex

Important Calendar Events

  • November 28, EUR: German Import Prices, German Retail Sales, M3 Money Supply, Private Loans, ECB President Lagarde Speech
  • November 28, GBP: Nationwide HPI, CBI Realized Sales
  • November 29, JPY: Unemployment Rate, Retail Sales
  • November 29, EUR: German Preliminary CPI, Spanish Flash CPI
  • November 29, GBP: M4 Money Supply, Mortgage Approvals, Net Lending to Individuals
  • November 29, USD: HPI, S&P/CS Composite-20 HPI, CB Consumer Confidence
  • November 30, JPY: Preliminary Industrial Production, Housing Starts
  • November 30, EUR: French Consumer Spending, French and Italian Preliminary CPI, French Preliminary GDP, EU CPI Flash Estimate, EU Core CPI Flash Estimate
  • November 30, USD: ADP Non-Farm Employment Change, Goods Trade Balance, Preliminary quarterly GDP, Preliminary quarterly GDP Price Index, JOLTS Job Openings, Pending Home Sales, Fed Chair Powell Speech
  • December 1, Oil: OPEC Meetings, OPEC-JMMC Meetings
  • December 1, JPY: Capital Spending, Final Manufacturing PMI, Consumer Confidence
  • December 1, EUR: French, Italian, German and Spanish Manufacturing PMI, EU Final Manufacturing PMI, Unemployment Rate
  • December 1, GBP: Final Manufacturing PMI, 30-y Bond Auction
  • December 1, USD: Core PCE Price Index, Unemployment Claims, Personal Income and Spending, Final Manufacturing PMI, ISM Manufacturing PMI, ISM Manufacturing Prices
  • December 2, JPY: Monetary Base
  • December 2, EUR: ECB President Lagarde Speech, German Trade Balance, French Government Budget Balance, Spanish Unemployment Change, PPI
  • December 2, USD: Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate

USD

The minutes of latest FOMC minutes have revealed that there is no clear consensus among Fed members at the moment, leading to mixed signals for the markets.

The dollar lost strength last week, on diminishing rate hike expectations. The dollar index started the week off near the 107.7 level and dropped to 106 on Friday. Thursday was Thanksgiving Day, which is a Bank Holiday in the US, and Friday the 25th was Black Friday which, following Thanksgiving, is an unofficial holiday in the US. The dollar traded with low volatility at the end of the week, extending losses. US Treasury yields also weakened, with the US 10-year bond yielding over 3.8% at the beginning of the week and below 3.7% towards the end of the week.

The minutes of the latest FOMC meeting were released last Wednesday and were more dovish than expected, causing the dollar to collapse. The minutes revealed that many FOMC officials were in favor of slowing rate hikes soon, as they were concerned about the negative impact of rate hikes on the economy. Other Fed members, however, were willing to extend interest rates beyond what they had previously expected. As the meeting minutes have revealed, there is no clear consensus among Fed members at the moment, leading to mixed signals for the markets.

Fed rhetoric remained hawkish this week, although cautiously so, putting pressure on the dollar. Many FOMC members seem to feel that, although inflation is cooling, further tightening will be required to bring inflation down consistently to the central bank’s 2% target. FOMC member Mary Daly stated that a 75-bp rate hike is still on the table, emphasizing that one month’s cooling inflation print is not sufficient to pause rate hikes. Fed’s Loretta Mester reaffirmed that maintaining price stability is a critical objective that will be accomplished using all available means. She stressed that interest rates should be increased further, but hinted at the possibility of a slower pace.

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 odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate. 

US Flash Services and Manufacturing PMI data last week fell below expectations, putting pressure on the dollar. Flash Services PMI in November dropped to 46.1 in November from 47.8 in October, against expectations of 48.0. Flash Manufacturing PMI in November retreated to 47.6 from 50.4 in October, versus the 50.0 expected. Both PMI indicators fell below the threshold of 50, which denotes expansion in November. Contraction in these important economic sectors could be a sign of potential recession in the US. New home sales and Revised UoM Consumer Sentiment data on Wednesday however, were optimistic providing support for the dollar.

US CPI and PPI inflation data in October fell below expectations, indicating that inflation is cooling faster than expected. Annual CPI printed at 7.7%, compared to 8.2% in September and the 7.9% expected. Slowing price pressures may induce the Fed to pivot towards a more dovish policy reducing the aggressiveness of future rate hikes. Market expectations of future rate hikes were considerably trimmed after the inflation reports, causing the dollar to plummet. Slowing price pressures may induce the Fed to pivot towards a more dovish policy, reducing the aggressiveness of future rate hikes. 

Several important economic data are scheduled to be released this week for the US and may affect the dollar. The US Fed will likely rely on economic indicators in the following weeks to determine the strength of its next rate hike. Employment and GDP data due on November 30th are expected to cause some volatility for the dollar. Core PCE Price Index and ISM Manufacturing PMI on December 1st are also highly anticipated, as well as Non-Farm Employment Change and Unemployment Rates on December 2nd.

TRADE USD PAIRS

EUR 

The consensus among ECB members seems to be that the central bank needs to prevent high inflation from becoming entrenched, regardless of a pessimistic economic outlook.

The Euro edged higher last week, benefitting from the dollar’s decline. EUR/USD touched 1.045, before paring some of its gains, closing near 1.038 on Friday. If the EUR/USD pair declines, it may find support at the parity level and further down near 0.973. If the currency pair goes up, it may encounter further resistance near 1.061.

The Accounts of the latest ECB Monetary Policy were released on Thursday and were more hawkish than expected, boosting the Euro. ECB officials appear to be concerned that core inflation will not stabilize. The consensus among ECB members seemed to be that the central bank needs to prevent high inflation from becoming entrenched, regardless of a pessimistic economic outlook. A large number of ECB members appeared to be in favor of a 75-bp rate hike at the central bank’s next policy meeting.

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 at the ECB’s next monetary policy meeting. 

Economic activity indicators released last week for the Eurozone were mostly optimistic, providing support for the currency. German IFO Business Climate for November climbed to 86.3 from 84.5 in October, versus 85.0 forecasted. This is an indication of an improving economic outlook for the Eurozone’s largest economy. 

Eurozone Flash Manufacturing and Services PMI data for November exceeded expectations. EU Flash Manufacturing PMI printed at 47.3 against expectations of 46.0, increasing significantly from 46.4 in October. EU Flash Services PMI was also higher than expected in November, matching October’s print of 48.8 and beating expectations of a decline to 48.0. Germany, Eurozone’s largest economy lead the improvement in the manufacturing and services sectors. Germany’s Flash Services PMI in November printed at 46.4, which was slightly lower than October’s 46.5 but exceeded expectations of 46.1. German Flash Manufacturing PMI in November was also higher than expected, rising to 46.7 from 45.1 in October, versus predictions of a decline to 44.9. The manufacturing and services sectors in the EU remain well below the threshold of 50, which denotes expansion though. Indications of contracting economic activity in the Eurozone add to recession concerns, putting pressure on the Euro.

Current account printed at -8.1B for September, which was more positive than August’s print of -26.9B though and exceeded expectations of -20.3B. The current Account in the EU remains in the negative range, as the value of imported goods in the Eurozone exceeds the value of exports. EU Consumer confidence also improved, printing at -24 for October, against expectations of -26 and September’s value of -28. German inflation cooled in October, as the German PPI declined by 4.2%, against predictions of a 0.9% increase. Easing price pressures in Germany remove some of the pressure on the ECB to hike interest rates.

Final Eurozone headline inflation hit an all-time high of 10.6% in October, mainly due to the high cost of energy. Even though Eurozone inflation reached record highs in October and was much higher than September’s print of 9.9%, it was slightly lower than the preliminary estimate of 10.7%. 

Eurozone economic outlook is poor, showing signs that the EU is entering a recession, limiting the ECB’s ability to raise interest rates. As expected, Eurozone GDP grew by 0.2% in the third quarter of 2022. Economic expansion is slowing down, following a 0.7% GDP growth in the second quarter. Analysts are predicting stagnation later this year and in the first quarter of 2023. Stagflation becomes a real headache for the ECB, which will be forced to battle inflation without the support of a robust economic background.

This week, ECB members’ speeches will be eagerly awaited by traders who aim to gauge the central bank’s future policy direction. The most important economic data are the EU CPI Flash Estimate and Core CPI Flash Estimate due on November 30th. These are key inflation indicators and may affect the ECB’s future stance.

EURUSD 1hr chart

TRADE EUR PAIRS

GBP 

Political developments in the UK put pressure on the Pound, as deputy prime minister Dominic Raab is being investigated on complaints that he has breached the ministerial code.

The Sterling extended gains last week, as the dollar retreated. GBP/USD climbed above the 1.202 level resistance, closing near 1.210 on Friday. If the GBP/USD rate goes up, it may encounter further resistance near 1.228, while support may be found near 1.133 and further down near 1.114. 

Political developments in the UK this week, have put pressure on the Pound once more. Deputy prime minister Dominic Raab is being investigated after complaints surfaced that he has breached the ministerial code. An independent investigation has been launched into the actions of the Deputy Prime Minister and prime minister Rishi Sunak will eventually deliver judgment on Raab’s conduct.

Economic activity indicators for the UK were overall optimistic last week, boosting the currency. UK CBI Industrial Order Expectations for November came at -5, against predictions of -9. A negative value indicates expectations of decreased lower volume. Even though November’s print was lower than October’s -4, it was more optimistic than forecasted, providing support for the Sterling.

UK Flash Manufacturing and Services PMI for November exceeded expectations. Flash Manufacturing PMI printed at 46.2, matching October’s print, against the 45.7 predicted. UK Flash Services PMI was also unchanged in November, printing at 48.8, against a lower print of 48.0 expected. The print for both sectors remained below the 50 thresholds for expansion, indicating that economic activity is reduced and that the British economy is showing signs of recession. Even though both the manufacturing and services sectors did not expand this month, slower than expected contraction boosted the Sterling. UK Public net sector borrowing continued to increase in October. The UK public sector has a budget deficit of 12.7B in October, which was lower than the 19.1B expected, however, and the 16.9B deficit recorded in September.

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. Annual core CPI, which excludes food and energy, printed at 6.5%, exceeding expectations of 6.4%. 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.

BOE members voted to increase interest rates by 75 bps at the latest monetary policy meeting. 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. The BOE will also be introducing another round of gilt sales this month, as they shrink their balance sheets.

Several economic activity indicators are scheduled to be released this week for the UK and may affect the Sterling. MPC members’ speeches may also cause volatility in the Sterling price and especially BOE Governor Andrew Bailey’s testimony before the Lords Economic Affairs Committee, in London on the 29th.

GBPUSD 1hr chart

TRADE GBP PAIRS

JPY

BOJ Core CPI for October exceeded expectations, rising to 2.7% on an annual basis against 2.0% in September, mainly due to the high cost of imported energy.

The Yen gained strength last week, with the USD/JPY pair touching a three-month low. USD/JPY briefly tested the 138.4 level support but climbed back to 139.3 on Friday. If the USD/JPY pair declines, it may find support at 138.4, while further support may be found at 130.4. If the pair climbs, it may find resistance at the psychological level of 145.0 and further up at 146.9.

BOJ Core CPI data exceeded expectations last week, providing support for the Yen. 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 Core CPI data also indicated that inflation in Japan continues to rise. 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 price pressures continue to rise in Japan. 

Flash Manufacturing PMI data for Japan fell short of expectations last week, putting pressure on the Yen. Manufacturing PMI in November dropped to 49.4 from 50.7 in October, against expectations of expansion to 50.9. November’s PMI crossed the threshold of 50 which denotes a contraction in the sector, indicating that Japan’s economic outlook is worsening.

Recent preliminary GDP data were disappointing, showing that Japan’s economy shrank in the third quarter of 2022 by 0.3%, against expectations of growth of 0.3% and 0.9% growth in the previous quarter. The annual Preliminary GDP Price Index printed at -0.5%, indicating that the Japanese economy is contracting, 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.

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 and may affect the Yen's price.

USDJPY 1hr chart

TRADE JPY PAIRS

Gold 

The dollar edged lower last week but gold prices remained flat, failing to take advantage of the dollar’s weakness, raising speculation that gold prices might have capped.

Gold prices were stable last week, trading with low volatility, fluctuating around the $1,745 per ounce level. If gold prices decline, support may be found near $1,666 per ounce and further down at $1,616 per ounce. Resistance may be found at $1,785 per ounce and higher up at around $1,802 per ounce.

The dollar edged lower last week but gold prices remained flat, failing to take advantage of the dollar’s weakness, raising speculation that gold prices might have capped. The dollar index started the week off near the 107.7 level and then plummeted, closing near 106 on Friday. The dollar traded with low volatility at the end of the week, extending losses. US Treasury yields also weakened, with the US 10-year bond yielding over 3.8% at the beginning of the week and below 3.7% towards the end of the week.

The minutes of the latest FOMC meeting were released last week and were more dovish than expected, causing the dollar to collapse. The meeting minutes have revealed that there is no clear consensus among Fed members at the moment, leading to mixed signals for the markets.

Fed rhetoric was especially important last week. Traders followed FOMC members’ speeches closely for hints on the US central bank’s direction. Fed rhetoric remained hawkish this week, although cautiously so, putting pressure on the dollar. Many FOMC members seem to feel that, although inflation is cooling, further tightening will be required to bring inflation down consistently to the central bank’s 2% target. 

Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

US CPI and PPI inflation data in October were below expectations, indicating that inflation is cooling faster than expected. Annual CPI printed at 7.7%, compared to 8.2% in September and the 7.9% expected. Slowing price pressures may induce the Fed to pivot towards a more dovish policy reducing the aggressiveness of future rate hikes. Market expectations of future rate hikes were considerably trimmed after October’s inflation reports, causing the dollar to plummet. Slowing price pressures may induce the Fed to pivot towards a more dovish policy, reducing the aggressiveness of future rate hikes. 

XAUUSD 1hr chart

TRADE GOLD

Oil 

G7 leaders have so far failed to reach an agreement on the Russian oil price cap, with some countries suggesting a price cap in the range of $65 - $70, which is above the current market level.

Oil prices extended losses last week, with WTI dropping to $76.9 per barrel on Friday. If the WTI price declines, it may encounter support near $76.5 per barrel, while resistance can be found at $90.3 per barrel and further up at $93.4 per barrel. 

US crude oil inventories fell below forecasts last week, dropping by 3.7M barrels, against expectations of a 2.6M barrel drop. Declining crude inventories, however, failed to provide support for oil prices, which continued to drop.

Oil prices went down last week as the G7 leaders attempted to decide on the Russian oil cap. G7 nations reportedly considered a price cap on Russian oil in the range of $65 - $70, which is above the current market level. Such a price cap would not hinder the trading of Russian oil, making this sanction against Russia a little more than a gesture. G7 leaders, however, have so far failed to reach a consensus on the price cap, and talks have hit a dead-end. EU energy ministers could not decide on this issue, because their views diverged largely.

Reports that China has increased Covid measures fuelled global recession concerns pushing oil prices down last week. Chinese authorities had to lock down Guangzhou’s largest center, while schools in Beijing closed. On Tuesday, Covid measures were also tightened in Shanghai. The country continues to grapple with rising Covid cases, with heavy restrictions impacting economic output. Beijing and other major Chinese cities have reported record coronavirus cases, dashing expectations of ending lockdowns. Health authorities in China seem committed to keeping strict lockdowns and quarantines in place for the time being. 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. 

Unsubstantiated rumors that OPEC planned an oil hike, caused oil prices to plummet early last week. OPEC+ members were reportedly considering an increase of up to half a million barrels a day for January. Saudi Arabian officials denied the news, however, causing oil prices to recover quickly. Other OPEC producers, such as the United Arab Emirates and Kuwait, reaffirmed the organization’s commitment to oil production cuts. OPEC+ members hinted that the organization will likely maintain production cuts through 2023, boosting oil prices.

This week, OPEC and OPEC-JMMC Meetings are scheduled for December 1st and may cause high volatility in oil prices. After recent statements by OPEC+ members, the organization is expected to continue oil production cuts into the next year to boost oil prices.

WTI 1hr chart

TRADE WTI

Bitcoin and Major Cryptocurrencies

Bitcoin and other major cryptocurrencies edged higher at the end of last week, after bouncing off of 2-year lows mid-week, indicating that their collapse might have been arrested for the time being.

A risk-aversion sentiment has prevailed over the past couple of weeks, driving cryptocurrency prices down. Risk sentiment was renewed mid-week however, boosting crypto markets and stock markets. 

Bitcoin and other major cryptocurrencies edged higher at the end of last week, after bouncing off of 2-year lows mid-week, indicating that their collapse might have been arrested for the time being. The low cryptocurrency prices have attracted buyers, with Bitcoin and Ethereum showing some signs of recovering.

Bitcoin price dropped to a 2-year low near $15,500 mid-week, then climbed to $16,500 and remained steady during the weekend. If BTC declines, support can be found at $15,000, while resistance may be encountered at $18,150 and higher up at the psychological level of $20,000. 

Ethereum price dropped to $1,075 during the week, then climbed to $1,200 and traded with low volatility around this level for the rest of the week. If Ethereum's price declines, it may encounter support further down at the psychological level of $1,000, while if it increases, resistance may be encountered near the psychological level of $1,500.

The minutes of the latest FOMC meeting released last week revealed that many FOMC officials were in favor of slowing rate hikes soon. 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 increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.

Increased risk aversion sentiment has hit crypto markets hard after the recent collapse of FTX. The FTX token faced liquidity issues, triggering a generalized crypto market sell-off. FTX CEO Sam Bankman-Fried has resigned and the company declared bankruptcy. These developments have undermined confidence in the crypto industry, giving rise to concerns of a cascading crypto crisis. Though many cryptocurrency-related institutions are still at risk from the fallout, such as Crypto Bank Silvergate, which has seen its stock price plummeting this month.

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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