Forex analysis | Amega

Top Market Opportunities 06.12.2021 – 10.12.2021

6 December 2021 Amega

All Eyes on Friday’s CPI Since Fed’s U-Turn

As the new virus continues to raise uncertainty for global economies Fed’s Chair decided to shift the rhetoric from transitory to hawkish, indicating that the committee’s focus has shifted from growth concerns to inflationary pressures.

Powell’s hawkish message was detrimental for stocks as he hinted at earlier tapering on expected supply shortages, most notably for technology stocks in the NASDAQ index, as it plummeted 5 percent last week.

Despite last Friday’s payroll numbers printing worse than expected figures, the Fed seems determined to push ahead before a full recovery as it expects the impact of Omicron to prove more problematic for inflation than for growth.

With “transitory” no more, markets will hang on how the situation around the new variant develops in the US up until the end of the week on Friday, where inflation data will give an idea of how sooner the Fed might start tapering.

As recent data suggest, if the variant proves less worrisome, the index could consolidate between the 38 and 50 Fibonacci retracements at 15865 and 15578 until further clarity on the US CPI. However, if markets panic on Omicron getting out of hand, or should new data indicate it’s a worse variant than Delta, then panic selling might continue, bringing the index down to 15291.

Forex analysis | Amega

RBA to Hold But Statement Mihgt Hint at Tapper

Uncertainty around Omicron impacted and is likely to continue impacting risk-sensitive currencies such as the Aussie and the Canadian dollar. Although markets expect both currencies to remain under pressure amidst recent outflows, the reality is that investors wait for the last monetary policy meetings of the year for both RBA and BoC.

The RBA is not close to even thinking about hiking at this stage. However, recent concerns about the bank’s stake in the bonds markets hint at a potential word on a taper.

Aussie might slip away from bearish sentiment if the bank delivers such a signal after the meeting. If not, this will likely reinforce the bearish narrative, especially against the euro, as inflation there increased beyond ECB’s target.

Aussie losing 1.62 versus the euro might find resistance at 1.64 next. Contrary, if the former finds strength in RBA’s statement, EURAUD could lose the 1.60 round support and head towards 1.5850.

Forex analysis | Amega

BoC Likely to Remain Hawkish as Inflation Keeps Rising

The central bank of Canada, On the other hand, has kept a relatively hawkish stance since October’s meeting, where they signaled a hike in early Q2 2022.

Considering last Friday’s jobs numbers, BoC might indeed be the second bank to raise after RBNZ. However, whether the bank sticks to hawkish guidance or not will also depend on oil demand, which continues to decline.

With rates unlikely to change during the Dec 8 meeting, USDCAD might see further upside towards the 1.2950 resistance running up to the year’s end. If BoC hints at no delays in the first hike, the pair might find support closer to 1.2726 and perhaps move lower to 1.2573.

Forex analysis | Amega

Natural Gas Impacted by Warm Weather

Oil prices crashing over the past few weeks did not find relief last week either as OPEC+ decided to continue pumping oil in the markets. Even though Thursday’s decision was a non-event, it has been well priced in as priced dumped up to $10 per barrel last week.

Natural gas did not manage to hold the support at $4 either, and it is currently under severe pressure as demand continues to decline on above-normal temperatures. As the weather is set to change mid-December, the gas price could find decent support at $3.32 by next week’s end. If it loses the level, the next support lies at $3.

Forex analysis | Amega

Until then, prices might consolidate ahead of the EIA report on Wednesday, where additional data will add to or remove from the weakness.

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