Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of September 2nd, 2021. 22:00 GMT
In case you missed it….
Dollar weakness: The dollar dropped after Powell’s Jackson Hole speech and trended lower for most of last week before non-farm payrolls data.
Euro rebound: The euro has been rising versus other currency crosses, including the pound (EUR/GBP) and yen (EUR/JPY) before this week’s ECB meeting.
Friendly OPEC+: There was more agreement at OPEC+ this time around with Saudi Arabia agreeing to raise output to the delight of the UAE and other oil nations.
Euro stocks streak: The Euro Stoxx 600 index has had its longest streak of winning months since 2013 as of August.
Spain inflates: Spanish consumer inflation rose 3.3% y/y in August, its highest in almost a decade. Higher European inflation is a conundrum for the dovish ECB.
Afghanistan out: The repercussions, especially humanitarian, will linger but the US completed its withdrawal of US troops from Afghanistan.
Kid nightmare: To the likely distress of Chinese under-18s, a new government diktat says they will be restricted to 3 hours of online gaming per week. Chinese gaming stocks plunged then rebounded.
Zoom crashed: No not the connection to your online meeting, ZM shares slumped on weak profit guidance now that economies are reopening.
GOOGLE gains: Shares of Alphabet rose 7% in August for an eight consecutive monthly gain, and longest monthly win streak since 2009.
1500% meme: Support.com is the latest meme favourite, with shares rallying 1500%, rivalling the likes of AMC and GameStop earlier this year.
Source: Bloomberg / Mohamed El-Erian
It’s the start of a new month and the official end of ‘choppy summer trading’ comes after Labour Day in the US this Monday. That’s a good time to reflect on the performance statistics year-to-date. From there you start to delve into what is setting up for a good end of the year, and what looks more at risk. For example, oil looks overdone on a performance basis, as does the S&P 500. The mirror of that is Chinese stocks, which have sold off and will tempt some to buy the dip.
Source: FX Street
In the aftermath of a dovish ‘strategy review’ that resulted in targeting higher inflation and allowing for periods of overshoots, the ECB has been quiet. In recent months the Fed took all the limelight over its tapering plans, enabling the ECB to do nothing on the side-lines. That looks to be changing. Eurozone inflation came in at its hottest in 10 years in August and ECB hawks are paying attention. EUR/USD has rallied in the past week, in part because markets are pricing in a convergence of Fed and ECB policy. It seems unlikely the ECB mentions tapering directly, but a hawkish shift could be coming.
The Aussie central bank caught markets by surprise at the August meeting by reaffirming plans to start tapering bond purchases in September. Analysts had assumed the central bank would delay its decision owing to new national lockdowns that are likely to crimp economic activity. Now it is September and with Australia still in lockdown, it’s the last chance to delay the decision. Continuing as planned should be Aussie dollar-positive
Politics might stand in the way of anything too controversial at this Bank of Canada meeting. Prime Minister Justin Trudeau has called a snap election to take place in 3-weeks’ time so the central bank will want to shy away from looking politicized. The BoC has been one of the more hawkish, having already began a tapering program. The consensus for the next taper is in Q4, which conveniently allows them to bypass the election. Also of note, Canadian GDP unexpectedly declined in Q2 and in July so we can probably expect a wait-and-see approach. For now oil prices remain a prominent driver for USD/CAD
For June and July, US consumer price inflation (CPI) has come in at 5.4% y/y – the highest since 2008. Behind the rise in consumer prices is producer prices, which rose 7.8% in July and are expected to rise 7.3% in August. Most economists, including those at the Fed, expect inflation to level off from here. The word they use is ‘transitory’. From an FX trading standpoint, if inflation comes down as expected there is less pressure on the Fed to get tapering done ASAP and start hiking rates. That puts a ceiling on how high the dollar can go.
Don’t expect too much action on Monday, unless the fallout from non-farm payrolls is really huge – because Americans are away from the markets celebrating their Labour Day long weekend. US stock and bond markets will be closed, as will those in Canada. Forex markets will probably slow down heading into the New York session on Monday, all else being equal.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD has seen upwards momentum continue with a breakout above the falling channel indicating a move to 1.19 and beyond.
GBP/USD has cleared resistance at 1.38. The new uptrend faces resistance at 1.387 and 1.395.
USD/JPY remains rangebound, having failed to break higher and is now back below the 110 handle.
AUD/USD has surged up to 0.74 and major resistance from the July through early August peaks.
USD/CAD has fallen below a long term rising trendline and key support at 1.26, suggesting lower prices ahead.
XAU/USD has retaken most of the flash crash decline but remains choppy in its re-test of the supply area at 1830.
BRENT unwound its entire monthly loss but still looks directionless with major resistance near 75.0.
US500 struck has steadied above 4500, finding support from a rising trendline through the peaks. The market is overbought but refuses to rollover.
Thank you very much for reading – and have a great week trading!
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