Markets have generally been indecisive so far this week as participants digest new information about omicron and price in the Fed’s pivot toward hawkishness. Some of the strongest movers since Monday have been indices, especially the Nasdaq 100 (USTEC), which has now recovered almost all of its losses since late 22 November. Today’s weekly analysis looks at USDCAD, GBPJPY and BTCUSD ahead of the Bank of Canada’s meeting this afternoon and key data on Friday from the UK and the USA.
Most stock markets posted gains yesterday as fears surrounding omicron declined and the American government made some progress on increasing its debt ceiling. The Federal Open Market Committee’s hints on earlier rate hikes now seem to have been priced in: the majority of participants expect at least one rate hike by 4 May 2022 and a large minority expect a hike on or before 16 March according to CME’s FedWatch.
Oil’s strong rally from last week’s lows seems to have halted so far today around $75 a barrel for Brent. Gold meanwhile has been pretty static in the last few days below $1,790. Many participants are looking ahead to this week’s critical data on Friday afternoon, American inflation, while regional releases like the BoC and British GDP are likely to drive movement for other major currencies.
The greenback’s latest round of losses against its northern counterpart might suggest strong sentiment in favour of the loonie. In the context of an ongoing uptrend lasting a month and reaching overbought, one would usually expect a relatively minor retreat and consolidation with an obtuse angle to suggest possible continuation. However, the consolidation in this case is clearly acute.
The main short-term targets for sellers around the BoC’s meeting today are the 100 and 50 SMAs around $1.259 and $1.253 respectively. Beyond these, in the medium term the 200 SMA around $1.246 and the latest low near $1.232 might come into view.
The Canadian dollar’s traditional correlation with crude oil hasn’t been very clear in the fourth quarter so far, so it’s unclear at the moment how or whether the commodity’s pause might affect CAD. Generally strong data on GDP and jobs from Canada – more than 150,000 net new jobs were added last month – contrast with last week’s mediocre NFP. This has driven some participants to expect that the BoC might even hike its base rate before the Fed starts tightening seriously. More hints on this might come from this afternoon’s news and the FOMC’s next meeting and press conference a week today.
Pound-yen is generally one of the more reactive symbols to shifting sentiment in markets: so far this week it shows no clear sign of another imminent leg down. After landing on support just below ¥150 on Friday, there was a bounce on Monday with fairly high volume of buying. Moving averages are somewhat mixed, with the 100 SMA having moved below the 200 but not displaying a traditional death cross.
The slow stochastic’s upward crossover within oversold would usually signal a retracement and pause of the downtrend. A move back towards the recent technical reference around the 161.8% weekly Fibonacci extension area near ¥153.50 is a possible scenario ahead of or around key British data on Friday.
With the Bank of England’s next meeting coming up on 16 December, some of the most important data include Friday morning’s British GDP and balance of trade followed by claimant count change on Tuesday 14 December and inflation the next day. Activity for GBPJPY is likely to increase significantly at the end of the week and persist at least until the BoE’s meeting.
The outlook for quicker tightening of monetary policy in the USA and various other countries has dented sentiment on bitcoin somewhat because this erodes the main cryptocurrency’s importance as a hedge against inflation. Friday’s NFP was also somewhat negative because weaker growth in wages is anti-inflationary.
The flash crash earlier this week tested the 50% weekly Fibonacci retracement area and the 200 SMA unsuccessfully, while the test of the main psychological area of $50,000 is ongoing. From a purely technical point of view, ongoing losses below about $46,000 don’t seem likely at the moment. In the absence of strong fundamental drivers, consolidation over the last few weeks of 2021 might be a favourable scenario.