Outlook Trend: USD
USD is the global main currency, so let’s look at FED Minutes update as below.
From FOMC statement on 14th December 2022, the FED remains to achieve maximum employment and inflation at the rate of 2 per cent. In this December meeting, the committees decided to raise interest rate by 50Bps, stands at 4.25% to 4.50%.
However, the Committee will continue to monitor TWO incoming information for the economic outlook.
Here, let us look at the 2 important criteria:
US unemployment rate vs US Average hourly earnings
From these economic data released, US Unemployment Rate and US Average Hourly Earnings both shown same flat direction and expected to continue to be stay flat OR reverse direction in coming months. These indicators show that the US employment market had reached its maximum capacity and it is slowing down. This might provide implications that FED will on hold the Interest Hikes.
In conclusion, we speculate the end of monetary tightening, and the capital flow might outflow from USD dollar.
Now, let’s look at Dollar index at weekly chart.
Further, look in details at daily chart.
From the chart above, trend line had been removed. If daily intervals candle stick remained below 104.5 in coming days, it is dovish for USD dollar index to next support level. However, a bounce back or retracement could send DXY to supply zone around 106 and then only extend its downswing.
Next, USDJPY has the identical of chart under weekly time zone as
below.
Thus, further explore in Daily time zone.
There could be 2 scenarios foresee here, in the scenario 1: USDJPY will pull back to supply zone 136 to 138 to accumulate volume and descending to lower level.
However, if we observe daily candles stay below price of 130, it might be crushing lower inside a descending channel.
With the above findings, my bias more on dovish of USD.
Outlook Trend: EUR
Next, we look at headlines on EUR Outlook on December 15th, 2022, The ECB believes that interest rates will need to rise significantly and steadily to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. The Governing Council also discussed principles for normalising the Euro system’s monetary policy securities holdings.
Before we reach conclusions, let’s check out Euro Area Inflation rate.
EURO Area Inflation Rate
Euro Area inflation is remained at 10%, which is above the forecast. This would speculate that ECB would has its continual tightening with higher interest rates. We could summarize that Euro is hawkish above mentioned.
As summary, this is a DIVERGENCE of monetary policy between FED vs ECB, we might expect a Bull for EUR and a short for USD!
Trading Theme: EUR/USD
Market is expecting capital flow heading into EURO and outflow from USD. However, 1.04 price level is a strong support area and it might pull back to test the support before it continues to move uptrend.
The outbreak news from Wall Street Journal below does match with our findings of the above, where FED may monitor and consider to be accommodative the next move with the latest employment situation.
Next, we read some investment banking scorecard data that indicating
current institution capital flow preferable to Technology and Energy sectors as
below.
Top 5 Global ECM Sectors 2022
Besides, through Bank of America’s survey, it also found persistently high inflation and a deep recession were viewed as the biggest tail risks for 2023. Equity market is expected to face a rough first half of 2023.
Global Growth Expectation
Outlook Trend: China
BofA Survey says Investors are less gloomy on growth over China, where expecting stronger growth in China as it reopens from Covid restrictions, a jump from just 13% in November 2022 and the most positive outlook since May 2021.
With the expected stronger growth, we might speculate that EEM will have higher odds towards reach 44.0 to 46.0 price supply zone area.
Now, most financial markets are reporting a similarly of topics – “Think ahead if a deep recession is hitting soon in 2023”. I am expecting those market institution would begin to shift the capital flows to energy and commodity sectors slowly, which is next recovery trading theme.
Trading Theme: Energy/Crude Oil/XLE
We had seen OPEC opting to cut production on October 31, 2022, and
continue to stick with the plan with supply cuts as of December 4, 2022. This
will give a signal that oil price will hike in 2023.
Crude oil had retraced to support level and ranging with no trend indicator.
Like crude oil, XLE is no trend now. It may continue to be ranging horizontally before breakout to new ascending direction.
Trading Theme: GOLD
Lastly, in times of global outlook uncertainty, capital flow would go to gold. With an exit of US bond markets, investors are hopping into safety-haven asset (GOLD) in a long position.
Keep an eye on coming mid of February to June 2023 (our expectation), we expect an arriving of deep global recession, after majority of global listed companies published their 2022-year end audit reports to market.
In summary, we might look a Bull run to Gold market from now.