Analysis Market overview

Top Market Opportunities 22.11.2021 – 26.11.2021

Lagarde and Covid Cases Dent Euro Sentiment

Euro continued to fall towards the end of last week despite dollar stalling as ECB’s Lagarde reaffirmed to investors that the bank would not tighten as inflation pressures subside.

Speaking twice last week, the President ended her Friday speech with a dovish flourish, stealing away every last bit of enthusiasm seen in the markets during mid-week’s price action. As a result, EURUSD reached a 16-month low at $1.1250, registering the most significant one-week decline since June.

With natural gas prices mixed amidst Nord Stream’s holdup, it is doubtful that ECB will change rhetoric soon as inflation’s impact slows down.

Moving on to this week, the euro’s performance will depend on a series of PMI prints, both in the EU and US, the FOMC minutes, and Germany’s GDP, with the highlight being the release of the minutes. Will they prove policymakers remain split on hikes or less hawkish following the departure of Rosengren and Kaplan?

The pair is due to a correction as prices remain idle by the golden ratio. However, without volumes increasing, we could see somewhat of a slow price action running up to the FOMC minutes, perhaps even after the event as the US celebrates Thanksgiving.

Markets will likely find a top around $1.1360, which is a correction halfway through last week’s drop, and a bottom at around the $1.1168 support of June.

Forex analysis | Amega

FTSE Suffers Losses Amidst 10Y Inflation Spike

While Eurozone’s inflation turns sour in terms of forward guidance for the ECB, inflation in the UK reached a 10-year high of 4.2 percent. In addition, the British pound saw a boost from a joyous round of employment and retail data last week, as we noted in last week’s report.

Market participants see the rising figures as an early signal for a potential rate hike from BoE as the multi-year print reignites support for curbing inflation.

However, let’s remember that the MPC proved everyone wrong-footed in their last meeting – some will wait for more data until the December 16 meeting. This week, Bailey’s speech might be where pricing-in stops, but the British pound is set to remain biased up until then.

The ‘risk’ of hiking rates pushing the pound higher means added pressure on the FTSE last week. This might continue as the index has made a close below 7235.5, which is the top of a multi-month range with a bottom at 6824.3.

Although traders might attempt to push through the range top, it will be highly pretty difficult to recuperate last week’s losses at 7283.4. The likelihood of retesting 71.87.4 15-week low is slightly higher. Even though the support at 7158.7 would offer a bounce should markets experience a continuous selloff.

Forex analysis | Amega

Crude Oil Breaks Range on Covid and SPR Concerns

The oil prices fell last week, losing the support of the range. However, it still trades at levels visited back in July.

For one, the increasing number of covid cases with an epicenter in Europe largely impacted WTI at the end of last week. And this might continue as cold weather is setting in across the colder European countries, setting fresh lockdowns in motion.

In addition, people have had a hard time keeping up with the increasing costs of everything from milk to clothing to gasoline, which are somewhat justified given the strong demand, giving reason to start tapping oil reserves.

The Strategic Plan Reserves story has made headlines for a few days now as Biden felt the need to set a bearish tone to increasing oil prices, requesting even China, Japan, and others to SPR releases.

Although some analysts believe the event is priced-in, the actual release and awaiting the release could drive prices lower. Bluff or not, as some suggest, EIA’s bullish report last Thursday did not see crude prices finishing higher.

Furthermore, despite the market sitting in well-positioned macro support, the covid situation will likely remain the main driver should we head halfway through the last upside leg at $73.35.

Although early, with the 38% Fibonacci at $76.13 breaking, the chances of moving down to the 50% subsequently have increased. If bulls made a decent attempt to the said resistance and through the lower channel trendline, they could reach the top of $77.60 for the week. However, as this is the range bottom, it would flip the market to the lower market zone. Higher levels are pretty unlikely, regardless.

Forex analysis | Amega

Kiwi Primed to Recoil on Expected Policy Change

Meanwhile, RBNZ is not expected to pull the rag during Thursday’s policy statement like BoE did in November. Any surprise might be to the upside as futures markets are pricing in a 0.36 hike, contrary to rates market 0.25.

The kiwi is holding up a good fraction against the US counterpart compared to other major currencies. However, it remains under threat as the USD adds to downside risks. This makes Aussie the perfect candidate to trade against as it remains weak by lingering slowdown concerns in China and as commodity currencies continue suffering.

Regardless, however, the risk-sensitive currency might continue to climb higher against Aussie and other currencies for the foreseeable future due to its perceived hedge against the dollar’s strength and the expected increase in rate differentials.

AUDNZD traders can focus on unity in the short-to-medium term and perhaps up to the end of the year. But on this week’s trade, a break of 1.027 will increase the bearish tone as the room to ~1.02 will open up. If RBNZ disappoints, or if the event would be largely priced-in, which is not so evident – so far, bulls would find an excellent level to take some profits between 1.040 and 1.042.

Forex analysis | Amega

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