The past week has been quiet in the markets, seeing a weakly risk-off environment dominate as markets anticipate several rate hikes from major central banks over the coming week.
The difference between success and failure in Forex / CFD trading is highly likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. There are some valid short-term trends in the market right now, which might be exploited profitably. Read on to get my weekly analysis below.
Fundamental Analysis & Market Sentiment
I wrote in my previous piece on 27th November that the best trade opportunities for the week were likely to be cautious short-term long trades in the GBP/USD. This was a good call as the GBP/USD currency pair rose by 1.91% over the next week.
The news is currently dominated by two major central banks hiking rates last week, and anticipated rate hikes by other major central banks over the coming week. Neither of the hikes, by the Bank of Canada and the Reserve Bank of Australia, came as a surprise, with both widely anticipated.
The Bank of Canada raised rates by 0.50% to a total overnight rate of 4.25% last week, the joint-highest of any major central bank with the Reserve Bank of New Zealand.
Earlier in the week, the Reserve Bank of Australia hiked its cash rate by 0.25% to a total rate of 3.10%.
The other most important market news last week was Australian GDP data coming in just a whisker below expectations at a quarterly increase of 0.6%, and slightly higher than expected US PPI data which showed a month-on-month increase of 0.3%, suggesting inflation in the US may not be falling as rapidly as hoped. There was also an indication of stronger than expected consumer demand in the US – despite rising interest rates, consumer demand has tended to remain strong over recent months.
Global stock markets ended the week mostly lower, as did most commodity markets, notably in crude oil. The Forex market saw most strength in the US Dollar last week. The weakest currency was the Canadian Dollar.
Rates of coronavirus infection worldwide rose for the fifth consecutive week. However, the raw numbers have not been this low since the end of the first wave in the summer of 2021. The most significant growths in new confirmed coronavirus cases overall right now are happening in Guatemala and Japan.
The Week Ahead: 12th December – 16th December 2022
The coming week in the markets is likely to see a higher level of volatility, as there are several major central bank data releases scheduled, some of which might have a strong impact if there are any surprising elements. The scheduled releases are:
- US Inflation Data
- US Federal Funds Rate and FOMC Statement
- European Central Bank Main Refinancing Rate and Monetary Policy Statement
- UK Inflation data
- British Official Bank Rate and Monetary Policy Summary
- SNB Policy Rate and Monetary Policy Assessment
- British GDP data
- US Retail Sales data
- US Flash Services PMI data
- US Empire State Manufacturing Index
- German / British / French Manufacturing & Services PMI data
- British Unemployment data
With the world’s two largest central banks making crucial reports, and several others also likely to announce rate hikes over the coming week, we are likely to see a considerably more active market compared to last week. US inflation data is especially pertinent as it is currently the biggest driver in capital markets worldwide.
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows the U.S. Dollar Index printed a bearish inside candlestick which showed a very small rise over the week. However, the former support level at 102.94 has acted as resistance. The chart is showing bearish price action without question.
The long-term bullish trend in the US Dollar is over technically, as we see the current price making 3-month lows, with 6-month lows also in sight.
Short-term direction in the US Dollar looks likely to bearish due to the resistance level at 104.92, and the bearish price action, especially if the price breaks down over the coming week to new long-term lows seen a couple of weeks ago. Therefore, it may be wise to only enter trades which are short of the US Dollar. However, keep in mind there are major central bank releases due this week which could cause volatility, especially if there are any surprises.
XAG/USD (Silver)
Last week saw Silver print a bullish hammer candlestick which closed above the previous week’s high, making the highest price seen since April this year. There is firm bullish momentum, so all factors are showing a successful bullish breakout and a fairly strong bullish trend.
Although most commodities are not performing strongly in today’s market, Silver is a notable exception. Bulls might be wise to be a little cautious as although the price of Gold has been rising lately, it is not performing as bullishly as Silver, which might be a reason to doubt that the price of Silver which go much higher over the short term.
I think that Silver will continue to rise, with no obvious resistance level until the big round number at $25 is reached.
WTI Crude Oil
Last week saw WTI Crude Oil print a relatively large bearish engulfing candlestick which made its lowest weekly close in a year. An imperfect but somewhat convincing linear regression analysis also shows the presence of a long-term bearish trend.
The weak performance of global stock markets and a general environment of rising rates has slowed demand, with China having special problems of its own relating to coronavirus measures. This has tended to reduce demand for Crude Oil and is helping push prices lower.
Short trades in commodities are always risky, but there is a bearish trend here, although OPEC may take measures to try to stop the price falling much lower.
USD/CAD
Last week the USD/CAD currency pair printed a bullish candlestick with a healthy range and closed near its high. The Canadian Dollar is being hit due to the weakness in Crude Oil, of which Canada is a major exporter. However, it is worth noting that technically, the price was still suppressed by the resistance level at $1.3642, with the price closing right on this level at the end of last week.
It may be a good idea to trade the CAD short only over the coming week, but the US Dollar is unlikely to be its best long counterparty. Using the Swiss Franc or Euro may be a better bet.
Bottom Line
I see the best opportunity in the financial markets this week as likely to be a long trade in Silver against the US Dollar (XAG/USD).There may also be short-term opportunities in taking a short trade in WTI Crude Oil.
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2022-12-11 13:49:24Z
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