Analysis Market overview

Top Market Opportunities 10.01.2022 – 14.01.2022

Markets Patiently Wait for CPI Figures

The calendar is not as heavy as last week, and markets are more likely to offer no real directional clues until US inflation figures get released on Wednesday.

Last week’s Non-Farm numbers disappointed, however, unemployment fell to 3.9%, and wages averaged 0.6% increase month-on-month, showing evidence of a conceptual spiral that decently explains Fed’s hawkishness last FOMC.

Economists expect CPI to rise from 6.8% to 7% YoY and core figures to fall from 5.4% to 4.9%. If inflation falls, markets will likely perceive it as if the Fed won’t have to act quickly. However, if the inflation figures come as expected or higher, it’d support Fed’s recent hawkishness, which will spill over to the markets.

An upside surprise could send USDJPY back to last week’s highs at 116.38. However, high volumes, a large wick, and a close below the November high all suggest technical exhaustion for the pair. In addition, both the RSI and MACH histogram indicate a clear bearish divergence, which makes the upside questionable regardless of the CPI figures, suggesting the yen might strengthen going forward. In that case, the next level of support lies at 115 and 114.69.

Eurozone Unemployment More Critical Than Ever

The EZ will report its latest unemployment figures on Monday. Despite the release not often receiving much attention, markets are interested in the impact of unemployment figures on inflation as the latter has reached its highest yearly reading at 5% YoY.

The unemployment rate for November is expected to rise from 7.3% to 7.2%. Although the appreciation would have been seen as marginal during normal economic conditions, high unemployment would keep a lid on inflation as low demand won’t allow wages to increase.

Considering that Italy’s unemployment is also likely to increase from 9.3% to 9.4%, investors will focus on improving unemployment figures to get early signals at wage pressure. If unemployment tilts up, it will take the stress off the ECB to hike and may lead to declines. However, if unemployment falls, it would imply higher demand for wages, thus adding pressure on ECB to reduce liquidity and perhaps announce a monetary tightening plan.

If both releases come out negative, EURUSD will come under pressure and deteriorate towards 1.1285 and 1.1237 if the golden ratio fails to hold. If not, the pair could see a slight upside to 1.14, which is likely to hold bulls as the medium-term outlook continues to look bearish with the RSI near but not at an oversold territory and momentum negative.

Natural Gas Prices Are Poised to Improve

There is still a considerable correlation between Omicron and oil prices as with cases rising, and restrictions reimposed imply less travel.

With covid restrictions easing in the UK and some parts of the EU and the threat from variants receding, the travel industry could take a breather until the next piece of negative news around Covid appears on media outlets.

In addition, sentiment may be supported by the bad weather in the US as cold often leads to increased energy consumption. However, most residential sectors use gas.

Last week the API and EIA reports indicated that oil and gas supplies are tightening. When combined with geopolitical uncertainty, evidence showing that gasoline consumption has returned to pre-pandemic levels continues to support prices.

Despite opening on a gap, natural gas prices could see higher prices if the API and EIA data prove to be positive. Already gapped up and above the round $4 level, the next resistance level lies at $4.51 Fibonacci. On the downside, traders might see an opportunity to close the gap at last week’s close at $3.91, playing the lower Fibonacci.

Earnings Reports Put Technology Stocks Under Higher Risk

There will likely be positive news from corporations as the earnings season has officially started. Despite being a somewhat different season than others, upbeat results will add to investor sentiment and might offer a helping hand to the US indices after crashing several points last week.

However, as mentioned above, the US inflation data might put massive pressure on the markets on Wednesday. Technology stocks could be affected most, mainly those that have printed staggering gains in 2021. Especially if their bearishness gets rolling based on quarterly figures.

Nasdaq has already had a massive drop of more than 4% last week but found support at the 50% Fibonacci at 15575. This marks the fifth time the level holds now, while over the opposite side, the index registered only two highs, with the most recent being a failure swing high.

If markets lose 50%, sentiment will turn more bearish than it has been over the past two and a half months, finding support at 15415. But if the weekly open holds at 15575 on the back of earnings reports, a slight or decent correction could be seen by 15726 and 16000, respectively.

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