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Market sentiment notably improved this past week. On Wall Street, Nasdaq 100, S&P 500 and Dow Jones futures soared about 8.4%, 5.7% and 4.02%, respectively. This was some of the best performances in months. Risk appetite also improved around the world. The Dax 40, Nikkei 225 and Hang Seng soared 5.68%, 3.91% and 7.21%, respectively.
The key driver of sentiment last week was October’s US inflation report, where both the headline and core rate of CPI unexpectedly softened. Traders quickly pared back 2023 Fed rate hike bets as odds of a 75-basis point rate increase in December virtually disappeared overnight. The US Dollar tumbled as gold prices soared.
From a financial markets’ standpoint, this data overshadowed US mid-term elections, where expectations of a Republican ‘red wave’ faltered. Cryptocurrencies were in the hot seat last week amid FTX filing for bankruptcy after Binance walked away from a possible acquisition. Despite the surge in stocks, Bitcoin was down about 20 percent last week.
As far as economic event risk goes next week, the US will see more Fedspeak, PPI and retail sales data. Unexpectedly strong showings here may to a certain extent risk reversing some of the market moves to the CPI print last week. For the British Pound and Canadian Dollar, the UK and Canada will release inflation data.
Meanwhile, the group of G-20 nations will be meeting in Bali, Indonesia during the middle of the week. Tensions are high amid the war in Ukraine and ongoing high levels of inflation. Earnings season is also in play, with major retailers in focus such as Walmart and Home Depot. What else is in store for financial markets in the week ahead?
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US Dollar Performance vs. Currencies and Gold
GBP/USD pushed higher last week but with a full UK economic calendar ahead, cracks could start to appear.
Two of the biggest names in the cryptocurrency market, FTX and Alameda, may be worthless now after revealing losses running into billions of US dollars.
The U.S. dollar could extend its near-term correction as slowing U.S. inflation could keep Treasury yields biased to the downside as traders reprice lower the path of monetary policy.
Gold prices rallied the most since March 2020 last week as a softer US inflation report saw traders price in a less hawkish Federal Reserve. Ahead, eyes are on Fedspeak, PPI and retail sales data.
EUR/USD is on track to test the August high (1.0369) ahead of the US Retail Sales report amid growing speculation for a smaller Federal Reserve rate hike in December
The outlook for the Canadian Dollar is mixed as the Loonie struggles against G10 counterparts.
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A gold price breakout is underway with a rally of nearly 5% taking price though yearly downtrend resistance. Levels that matter on the XAU/USD weekly technical chart.
If stocks don’t sell-off on bad news, there’s probably something else going on. And for the Nasdaq and S&P 500, that may be a continued squeeze after bullish breaks of falling wedge formations.
WTI price action not providing the clearest picture at present. Any further gains likely to be capped by double top formation.
The pound may appear to have turned a corner when viewed against the dollar but wider comparisons confirm that GBP remains under pressure
A sharp slide last week has raised the odds of an interim top in USD/JPY. How could the trend play out in the short term and what are the signposts to watch?
The Dollar sell-off following Friday’s CPI number has the DXY running lower towards the 200-day MA.