Sample Category Title

WTI oil futures entered the red zone following the rejection near the 20-day simple moving average (SMA), stretching their 2022 downtrend to a new yearly low of 71.75 on Wednesday. The 38.2% Fibonacci retracement of the 2020-2021 upleg proved to be a tough obstacle too near 83.20.

The four-day bearish streak could see a continuation, as the RSI and the stochastics have yet to confirm oversold conditions. Adding to the discouraging signals is the MACD, which has resumed its negative momentum below its red signal line.

An extension lower would bring the 50% Fibonacci of 68.55 under examination, while slightly beneath that, the 66.25 level has been frequently tested since March 2021 and might be another important area to watch. Note that the resistance-turned-support line is also positioned here. Hence, if sellers claim that barricade, the decline may get another leg to 62.00 and then to 57.30.

If the bullish scenario unfolds, the price may face initial limitations near the 76.00 level before heading for the 20-day SMA, currently around 79.60. A decisive close above the 38.2% Fibonacci of 83.20 could strengthen bullish engagement up to 88.60, unless the 85.50 barrier blocks the way higher.

In brief, the depreciation in WTI oil futures seems to have some room to go. The next pivot point could occur near 68.55

Equity markets look a little flat on Thursday, perhaps a sign that we've entered into a waiting period ahead of some major data releases and central bank meetings.

This month was always effectively split into two dominant weeks, the first of the month which included the jobs report that proved extremely impactful. And then next week when we get a flurry of interest rate decisions and some big data releases. This week was always going to be the void in the middle and that's how it's largely played out, with the ripple effects from Friday's jobs data continuing to dictate sentiment.

Of course, developments in China have a big role to play, although as we're seeing once again, Covid-related moves are almost exclusively impacting stocks in domestic markets. We can see that again overnight, with reports of looser mask and isolation requirements in Hong Kong lifting the Hang Seng and making it the clear outperformer in the region, while most other indices tread water. ​

There is, of course, US PPI to come tomorrow which could give investors a welcome boost ahead of the main event next week. That said, while probably indicating lower price pressures in the pipeline, it doesn't alleviate the concerns thrown up by the jobs report last week of strong wage growth and the threat of entrenched inflation. So it will be interesting to see how investors react to the PPI report, coming so close to next weeks CPI release and Fed decision.

A floor in oil prices?

Oil prices remain under pressure as traders continue to price in a slower global economy next year and the prospect of deeper recessions. China's efforts to reduce restrictions are probably preventing a much steeper decline in the oil price, although this won't be without disruption as Covid spreads like wildfire throughout the country after such a long period of zero-Covid measures.

Then there's also the pledge by the White House to restock the SPR once oil falls to around $70 a barrel, only a couple of dollars below where it is now, which could in theory put even a temporary floor under the price considering how much it's been drawn down this year.

Gold awaiting the Fed meeting

Gold appears to be steadying ahead of the inflation data from the US and, of course, the Fed meeting next week. The jobs report was a setback and one that could stand in the way of another break higher before the Fed meeting. The inflation data tomorrow and on Wednesday could given the yellow metal a boost but it's the fear of entrenched inflation that could nudge the terminal rate higher. Investors will want to hear what the Fed has to say on the nasty wages surprise last week.

No making up for lost time

With risk appetite not improved, bitcoin continues to trade below $17,000 and await upcoming data. The headlines haven't been favourable recently although the FTX fallout has cooled somewhat. Unfortunately for bitcoin, the timing means it never participated in the last risk rebound and there isn't much appetite to make up for lost time.

AUDUSD has gained little the last couple of sessions, managing to hold above the 20-day simple moving average (SMA) and re-enter the 0.6700 area, with the technical indicators feeding prospects for a possible positive short-term trading. The RSI holds above the 50 level, while the MACD continues to move in bullish territory but below its trigger line.  Also, in Ichimoku indicators, the red Tenkan-sen line keeps standing above the blue Kijun-sen line.

A failure to move higher than the 0.6850 resistance could be a challenge ahead of the 200-day SMA near 0.6900. Above that, the 0.6920 resistance could next come in focus before the bulls shift the long-term outlook to positive as well, testing the 0.7010 peak.

Alternatively, if the 20-day SMA proves easy to get through, the spotlight will turn to the 0.6640 support ahead of the upper boundary of the Ichimoku cloud at 0.6586. Any moves lower could meet the 0.6520 barrier, which overlaps with the 50-day SMA before traders hit the 0.6270 bottom.

In the medium-term picture, AUDUSD has turned bullish after violating the downtrend starting from the 0.7660 peak. Should the market continue the upward pattern, the outlook may turn brighter. A run above the 200-day SMA would turn the outlook strongly bullish.

WTI oil price is consolidating above new 2022 low ($71.74) hit on Wednesday, following sharp four-day fall.

Growing concerns that economic slowdown would further weaken demand and increased production in the US, continue to pressure oil prices, with the latest break of previous low at $73.57 (Nov 28) signaling bearish continuation of the downtrend from a double-top and a lower platform at $93.60/72 (Oct 10 / Nov 7).

Bears cracked support at $72.49 (200MMA), which guards psychological support at $70, with stronger acceleration to threaten of extension towards $64.97 (200WMA).

Oversold daily studies suggest bears may take a breather for consolidation, with under falling 10DMA ($77.06) and broken Fibo 76.4% ($78.48) offering solid resistances which should cap upticks and keep bears intact.

In the long term, the EURUSD currency is expected to form a bearish cycle impulse, which consists of five main sub-waves I-II-III-IV-V.

Most likely, the cycle impulse sub-wave III was fully completed, after which the formation of a bullish correction IV began. This correction is similar to a triple zigzag consisting of primary sub- waves.

The primary sub-waves look complete. The development of the last sub-wave is expected in the near future. It may form a double zigzag pattern (W)-(X)-(Y) near 1.0902. At that level, correction IV will be at 50% of impulse III.

According to the alternative scenario, cycle correction IV has been fully completed.

In the last section of the chart, we can notice the development of the initial part of the cycle wave V, which takes the form of a primary impulse or an ending diagonal.

It is assumed that the bears can re-go to the minimum of 0.953, at which a large impulse wave III was completed.

Perhaps we will continue to observe the main currency pair further.

WTI crude dips on an unexpected rise of US fuel stocks. A close below the previous low of 73.70 shows that the path of least resistance remains down. More traders may look to sell into strength as the commodity struggles to claw back losses. The RSI’s oversold condition may cause a limited rebound. Offers could be expected around the former support of 78.00. 82.50 is a major cap that is likely to keep the price under. A new round of selling would send the price to a 12-month low and at the psychological level of 70.00.

The Canadian dollar struggles as the lack of forward guidance by the BoC hints at slower tightening. A break above the previous peak at 1.3640 has put the bears on the defensive. The RSI’s multiple entries in the overbought area showed exhaustion and led to a pullback as the price tested the support-turned-resistance of 1.3700. A breakout could pave the way for a bullish continuation above the November high of 1.3800. On the downside, 1.3580 is the closest support and 1.3400 a critical level to keep the recovery intact.

The Japanese yen rallies over better-than-expected GDP in Q3. The pair has found solid support at 134.20 near August’s lows. The latest rally is likely to be driven by sellers’ profit-taking, which means that it would be too soon to talk about a full-fledged recovery. 138.80 on the 20-day moving average is the first obstacle, and the bulls will need to clear the daily resistance at 141.50 before they could turn sentiment around. 136.00 is the first level to gauge the strength of buying interest in case of a pullback.

Markets

A third consecutive session of low trading volumes saw US Treasuries jump significantly higher. After a calm European trading session, the final figure of third quarter unit labor costs (I kid you not) lightened the fuse. The figure was downwardly revised from 3.5% Q/Q to 2.4% Q/Q and seen as evidence that second-round inflation effects aren’t at play. This suggests that the Fed won’t be as aggressive against inflation as it says it will be, instead leaving scope not to slam the brakes against the background of a looming recession. It’s the markets’ narrative/hope since mid-October and the wager going into the final Fed meeting of the year is only growing. We still think that markets and the Fed are on collision course. Don’t fight the Fed, they say. The intraday Treasury rally accelerated as the US 10-yr yield fell below 3.5% support (previous cycle peak in June) while the Bank of Canada hinted at a potential pause in its tightening cycle after a 50 bps rate hike to 4.25% (see below). US yield eventually lost 11 to 13 bps across the curve on a daily basis. The US 10-yr yield tested 50% retracement on the August/October move higher (3.42%) which coincides with an incoming downward trend line, connecting end-October, mid-November and early-December sell-off lows. The German yield curve turned less inverse with daily yield changes fluctuating between -5.5 bps (2-yr) and +1.6 bps (30-yr). The German 10-yr yield tested the October low at 1.77% with 50% retracement on the August/October move higher still some way off at 1.61%. US stock markets closed a third consecutive day with losses, though they were very limited this time. The S&P 500 manages to hold above first support in the low 3900-area. The trade-weighted dollar lost interest rate support and ground with DXY sliding from 105.50 to 105. EUR/USD closed at 1.0506 from an open at 1.0467.

Today’s eco calendar is again extremely thin with only US weekly jobless claims. With the Fed already in blackout period ahead of the FOMC, it leaves scope for more sentiment-driven trading. Final ECB speeches ahead of their purdah come from the Lady herself and her lieutenants de Cos and Villeroy. We don’t think that they’ll alter market expectations about a 50 bps ECB rate hike next week.

News Headlines

The Bank of Canada raised its policy rate by 50 bps to 4.25%. Analysts and markets were split between a 25 bps and a 50 bps rate hike going into the meeting. Quantitative tightening also continues. CPI inflation at 6.9% shows that Canadian citizens still face large price increases. Q3 growth was also stronger than expected and the economy continues to operate in excess demand. Unemployment stays near historic lows. Even so, the BoC sees signs that inflation might ease and takes a more neutral stance on further policy steps. Growth in Canada will probably come to a stall at the end of this year and in the first half of next year. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be easing. In this context, the BoC will be considering whether the policy rate needs to rise further to bring supply and demand back into balance and return inflation to target. Canadian 2-y yield initially jumped more than 10 bps intraday, but in line with the broader trend closed marginally lower at 3.78%. The loonie after a brief uptick also closed little changed at USD/CAD 1.365.

The National bank of Poland as widely expected left its policy rate unchanged at 6.75%. Polish inflation decreased in Y/Y terms in November to 17.4% mainly due to lower energy and fuel prices, but there is still pass-through of higher commodity prices into consumer prices. Enterprises also rise prices to cover higher operating costs. As global and Polish growth is expected to slow substantially, the hitherto significant monetary policy tightening by NBP is expected to support a decline in inflation towards the NBP inflation target even as inflation will stay high in the short term. The NBP repeats that an appreciation of the zloty in line with fundamentals would accelerated the decrease in inflation. The NBP remains prepared to intervene in the FX market. The zloty yesterday closed little changed at EUR/PLN 4.69. Markets see room first a first rate cut toward the end of 2023.

Market movers today

Apart from the industrial production data from Denmark, data calendar is empty for today. Industrial production in Denmark has impressed throughout 2022, and has so far not shown any persistent signs of weakness. Nevertheless, many companies are beginning to report a downturn, with the latest business confidence figures clearly showing industry in retreat in Q4 22. We also expect that manufacturing will be increasingly affected by the slowdown.

ECB's Lagarde, de Cos and Villeroy are scheduled to speak.

The 60 second overview

Market sentiment: Easing pandemic curbs and global recession fears continue to drive the markets. Stocks in Hong Kong are rallying after media reports that mask-wearing requirements would be removed. Elsewhere in Asia sentiment is more wary and European stock futures are on red while the euro is slightly weaker against the dollar. We maintain our call for a weaker EUR/USD next year in the context of diverging paths of recovery from the upcoming recession and Europe's long-term energy pains.

Bank of Canada: Yesterday Bank of Canada hiked policy rates by 50bp in a decision widely anticipated with both markets and analysts split between 25bp and 50bp. Meanwhile, the sentence "Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target" clearly indicated that Bank of Canada is contemplating whether the peak in policy rates has now been reached. Also prior to this meeting we pencilled in this 50bp to be the last hike in the cycle; we maintain that call. This was an interim meeting with little other news than the regular press statement. The next Bank of Canada monetary policy decision is in late January next year. The initial rally in CAD FX and rise in CAD rates was quick to reverse as markets digested the fairly soft forward guidance. The drop in oil only contributed to the reversal.

Russia: In a televised address yesterday, Russian president Vladimir Putin acknowledged for the first time that his war is likely to become a long one. He also said that the risk of nuclear war was growing, contradicting comments released yesterday by German Chancellor Olaf Scholz who said that the risk of Putin resorting to nuclear weapons had decreased due to international pressure. Putin denied his government would be planning additional mobilization (but note: he also denied they were planning a mobilization just one week before they announced the partial mobilization on September 21st). Putin continues to claim their operation has achieved "significant result". Same time on the ground, in a further showcase of their tactical superiority and capabilities, Ukraine has been able to strike Russian military bases deep in Russian territory using drones. Winter is likely to play for Russia's benefit though, as Kyiv's Mayor Vitali Klitschko told yesterday that the city could be left without central heating at a time when temperatures fall as low as -15 Celsius. Also yesterday, the EU announced a ninth round of sanctions against Russia, including restrictions on access to drones, chemicals and technologies used for military purposes.

China sanctions: The Netherlands is said to be contemplating similar sanctions for chipmakers in China as those imposed by the US. Outside the US and in line with Japan, Netherlands is one of the largest suppliers of machinery and know-how needed to make advanced semi-conductors.

FI: Since the start of the week, volatility in euro rates markets has been relatively low compared to recent months as we await the major central bank meetings next week. Yesterday, rates traded in a tight range with 10y German Bunds ending 1bp lower on the day at 1.77% amid minor peripheral spread tightening. Bank of Canada raised its policy rate by 50bp, and the associated statement sent signals that this may have been the final rate hike from BoC for now. European rates recorded a minor reaction on the news, while Canadian swap rates ended just 5bp lower across most maturities.

FX: Relatively steady FX markets yesterday where bond yields and oil price dropped further. EUR/USD traded close to 1.05 and USD/JPY around 136. In Scandies, EUR/SEK traded around the 10.90 level and EUR/NOK around the 10.50 level.

Credit:  Credit markets were fairly stable on Wednesday but tilted slightly to the bearish side. iTraxx main widened 0.2bp to close at 91.4bp, while iTraxx Xover widened 0.9bp to close at 465.8bp. Primary markets saw decent activity and even allowed high yield issuers such as Iliad (BB) and Intrum (BB/Ba3), among others, to print at decent spreads.