Strong CPI data impacts AUD

  • Australia Q4 CPI, RBA Trimmed Mean CPI jumps past forecasts.
  • Australian business confidence fell and is below the level during the Delta wave last year.
  • Escalating geopolitical tensions weighs on market sentiment and makes traders stay away from riskier aussie.

 

Australian dollar trades downside against the American dollar at Tuesday despite the inflation data that surprised to the upside in a big way.  

Australian core inflation had accelerated to its fastest annual pace since the year 2014 in the December quarter since the fuel and housing costs created broad-based price pressures; this is a shock that will stoke market speculation of an early hike in interest rates.

Australian Bureau of Statistics revealed data that showed CPI Consumer Price Index had rose to 1.3% Vs 0.3% expectation in the fourth quarter and had rose to 3.5% Vs2.1% expectation for the year.

Moreover, The trimmed mean measure of core inflation favored by the Reserve Bank of Australia (RBA) rose to 1.0% in the quarter, above forecasts of 0.4%.  And the annual pace rose up to 2.6%, above the 2.1% forecast.

“We’ve written a lot about Australia’s upcoming CPI over the past week or two, so we don’t want to keep repeating ourselves. Suffice to say that the number will matter a lot. Most immediately for the RBA, which may need to acknowledge that a rate hike in 2022 is no longer completely out of the question. It could also have political implications, with the cost of living shaping up as a key issue for the upcoming Federal election,” said ANZ ahead of the key inflation data.

On the other hand, Australian business confidence had fell due to the  consumer spending  being hit by the surge in the coronavirus cases and played havoc with staffing, though sales overall were proving resilient so far.

National Australia Bank (NAB) NAB.AX survey on Tuesday showed its index of business confidence had slid 24 points to -12 in December, which is below the level during the Delta wave last year.

Elsewhere, Business conditions had eased by 3 points to +8, since sales held firm at +14 and profitability actually edged up a point to +10. This drag came from its measure of employment, which dropped 9 points to +2.

NAB chief economist Alan Oster said  “It fell despite strong jobs growth reported in official data, reflecting the complexity of the labour market situation as businesses faced growing worker shortages and the prospect of a ‘shadow lockdown’ through the summer.”

Traders seem to be convinced about an eventual Fed lift-off in March and have been pricing in a total of four hikes in 2022. This, along with escalating geopolitical tensions, weighs on investors’ sentiment and further collaborates to drive flows away from the perceived riskier aussie.

AUD/USD 4 Hour Chart:

Support: 0.7092 (S1), 0.7043 (S2), 0.6995 (S3).

Resistance: 0.7189 (R1), 0.7237 (R2), 0.7286 (R3).

The CPI report favors the Aussie, However traders remains cautious in the riskier market sentiment. We expect a mixed trend for AUD/USD.

Dollar edges high on Ukraine jitters

  • Hawkish expectation from the Fed and the Policymakers comments favors the greenback.
  • Russia – Ukraine geopolitical tension magnifies fears and exerts downward pressure on EUR/USD.
  • ECB meeting fails to favor the Euro.

 

Euro continued its downtrend of Friday trading session on Monday early Asian session. This move can be linked to the Traders being nervous about tensions in Ukraine and a possible hawkish tilt by the Federal Reserve at a much-watched meeting this week- Wednesday.

“Markets are largely worrying and waiting, focussing on the FOMC and Russia-Ukraine tensions,” said Moh Siong Sim, currency strategist at Bank of Singapore, referring to the rate-setting Federal Open Market Committee, which kicks off its two-day meeting this week.

Elsewhere, Tensions in Ukraine have been increasing for months after the Kremlin massed troops near its borders, which the West says is preparation for a war to prevent Ukraine from joining NATO. The U.S. State Department announced on Sunday it was ordering diplomats’ family members to leave Ukraine. The New York Times reported that “President Joe Biden was considering sending thousands of U.S. troops to NATO allies in Europe along with warships and aircraft.”

On the other hand, ECB meeting failed to impress Euro. ECB President Christine Lagarde said on Friday that geopolitics and weather factors are driving energy prices higher, However the ECB is not seeing wages being bid up. He also added that demand in Europe is not excessive and, as a result, we are unlikely to face the same inflation as the US.

Finnish central bank chief Olli Rehn said on sunday that the drivers of inflation in the euro zone will subside over the course of the year and inflation will hover around the European Central Bank’s price stability target of 2% in the next two years.

“Personally, I expect the economic data to remain relatively good despite being affected by the Omicron variant,” Rehn said, adding he therefore viewed rate hikes in 2023 as a logical step, at least as long as there are no new economic shocks. However, His comments did not do much help to the Euro.

EUR/USD 4 Hour Chart:

Support: 1.1307 (S1), 1.1274 (S2), 1.1248 (S3).

Resistance: 1.1366 (R1), 1.1392 (R2), 1.1425 (R3).

The Hawkish expectation from the Fed and the Russia- Ukraine tensions seems to favor the US dollar. We expect a bearish trend for EUR/USD.

BTC/USD Weekly Forecast (24th January 2022 – 28th January 2022)

Fundamental view:

Bitcoin dropped against the US dollar during the trading course of the week.  The fall can be related to the souring of global risk sentiment and traders moving towards the safe haven. The recent crypto.com hacking and Russia’s call for banning crypto also weighs on the Bitcoin. On Thursday, Cryptocurrency exchange Crypto.com acknowledged that the company had lost well over $30 million in Bitcoin and Ethereum after a hack that took place on January 17th. Meanwhile, The Central Bank of Russia has called for a blanket ban on domestic cryptocurrency trading and mining. The report titled “Cryptocurrencies: Trends, risks, measures” compares cryptocurrencies to a Ponzi scheme and calls for a complete ban on their use throughout Russia. The authors claim that cryptocurrencies are highly volatile in nature and are being used as a tool for illegal activities. The report also warned that crypto could pose a risk to financial sovereignty and could aid people in taking money out of the national economy.

On the other hand, El Salvador’s National Commission for Micro and Small Enterprises (Conamype) communicated its plans to offer Small and Medium Enterprises (SMEs) $10m in crypto-based loans in Q1 of 2022. It’s been reported that 86% of businesses in El Salvador operate on an informal basis without access to banking services. Moreover, Robinhood is set to offer crypto wallets to 1,000 customers from a waiting list to test the new, unreleased version of the product. The waitlist is reported to boast more than a million users with access to the wallet set to be expanded to 10,000 clients in March due to popular interest. Amidst all the mixed catalysts, bitcoin trades lower.

The major economic events deciding the movement of the pair in the next week are CB Consumer Confidence Index at Jan 25, EIA Crude Oil Stocks Change, Fed Interest Rate Decision, FOMC Press Conference at Jan 26, GDP quarterly report, Core Durable Goods Orders monthly report, Initial Jobless Claims at Jan 27 and Michigan Consumer Sentiment at Jan 28 for US.

BTC/USD Weekly outlook:

Technical View:

Last week’s high was 2.10% lower than the previous week. Maintaining high at 43501.1 and low at 35454.9 showed a movement of 8047 pips.

In the upcoming week we expect BTC/USD to show a bearish trend. The Instrument is trading below the 200 Simple Moving Average and the MACD trades to the downside. Should 33352.6 proves to be unreliable support then the pair may fall further to 30380.6 and 25306.4 respectively whereas a solid breakout above 41398.8 will open a clear path upward to 46473.0 and then will further raise up to 49445.0. In H4 chart symmetrical triangle pattern breakout downside favors prospects of a bearish trend. Bearish engulfing pattern constructs a bearish outlook for the pair in the upcoming week.

Preference
Sell: 36426.8 target at 28469.5 and stop loss at 41402.4

 

Alternate Scenario
Buy: 41402.4 target at 49443.9 and stop loss at 36426.8

XAU/USD Weekly Forecast (24th January 2022 – 28th January 2022)

Fundamental view:

Gold traded high against the greenback and reached to a 2 month high of $1843 during the trading course of the week. The yellow metal remains supported by soaring inflation globally and due to negative real returns. Meanwhile, escalating geopolitical tensions surround US, Russia and Ukraine also make the traders to turn towards the safe haven – gold. The Fed sentiment-driven yields’ price action and inflation concerns worked as the major catalysts in deciding the move the pair. Elsewhere, Data published by the US Department of Labor on Thursday showed that there were 286,000 initial claims which is the highest reading since the month of October for unemployment benefits in the US last week which puts pressure on the US dollar and weighs on the market sentiment.

On Next week Wednesday, the Fed will announce its policy rate decision and release the Monetary Policy Statement after its two-day meeting. Traders are expecting for clearer hints about upcoming rate hikes. Investors are pricing in a first rate hike for March 2022 and at least three hikes through the year.

The major economic events deciding the movement of the pair in the next week are CB Consumer Confidence Index at Jan 25, EIA Crude Oil Stocks Change, Fed Interest Rate Decision, FOMC Press Conference at Jan 26, GDP quarterly report, Core Durable Goods Orders monthly report, Initial Jobless Claims at Jan 27 and Michigan Consumer Sentiment at Jan 28 for US.

XAU/USD Weekly outlook:

Technical View:

Last week’s high was 1.02% higher than the previous week. Maintaining high at 1848.0 and low at 1805.6 showed a movement of 424 pips.

In the upcoming week we expect XAU/USD to show a bullish trend. The Instrument is trading above the 200 Simple Moving Average and the MACD trades to the upside. A solid breakout above 1853.2 may open a clean path towards 1871.7 and may take a way up to 1895.5. Should 1810.8 prove to be unreliable support, the XAUUSD may sink downwards 1787.0 and 1768.5 respectively. In H4 chart bullish crab pattern favors prospects of a bullish trend. Also to be noted Bullish engulfing formation exerts the expectation of uptrend for the pair.

Preference
Buy: 1834.5 target at 1875.7 and stop loss at 1805.8

 

Alternate Scenario
Sell: 1805.8 target at 1769.4 and stop loss at 1834.5