Weekly Market Outlook: Earnings and Inflation in Focus
All eyes will be on the US earnings season this week. With US stock market indices struggling this year so far, investors will be looking towards corporate earnings to help lift sentiment. Some of the companies reporting this week include Goldman Sachs, Bank of America, Morgan Stanley, Procter & Gamble and Netflix, among others.
The economic calendar is also filled with important data points this week including the UK and Canada consumer price inflation (CPI) report on Wednesday. Both of these currencies have been the best performers this year so far, so expect a heightened degree of volatility in them.
The Japanese Yen experienced a sharp sell-off at the end of last year which makes this week’s Bank of Japan outlook report more important. It’s likely the central bank will note the turnaround in the Japanese economy but will still keep interest rates where they are.
You can learn more about some of the global themes affecting the markets in this selection of education articles.
Weekly Forex Calendar
Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.
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Trader’s Radar – UK CPI Figures
On Wednesday 19 January at 7.00 am GMT, the Office for National Statistics will release the latest UK consumer price inflation (CPI) figure. Analysts are forecasting a rise in the year on year CPI number to 5.2%.
CPI figures are considered one of the most important data points for the UK as central bank monetary policy is based upon achieving a 2% inflationary target. In fact, inflation is one of the most significant drivers of currency flows as most central banks use an inflation target to govern their monetary policy.
As the UK inflation figures have been running at a high level for some time, traders have been buying the British pound in anticipation the Bank of England will increase interest rates soon. It’s just one reason why the British pound has been one of the strongest currencies this year.
Currently, the implied probability of an interest rate hike taken from futures data is above 75%.
Source: Admirals MetaTrader 5, GBPUSD, Monthly - Data range: from 1 Aug 2013 to 16 Jan 2022, performed on 16 Jan 2022 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The monthly chart of the GBPUSD above shows a long-term uptrend for most of the second half of 2021 with a recent rise in the exchange rate over the last two months. Interestingly, this rise started at a significant level of horizontal support shown by the black horizontal line around 1.3350.
If the price can stay above this level, then there is a case for a potential move to the next major horizontal resistance line around 1.4220. It’s worthwhile remembering that this is a monthly chart and there are likely to be some significant price swings on the lower timeframes, such as the daily chart.
Many traders will use technical analysis indicators such as moving averages and price action to help identify potential turning points that are in line with the overall trend. You can find many of these indicators in the MetaTrader 4 and MetaTrader 5 trading platforms provided by Admirals.
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Corporate Trading Updates and Stock Indices
US stock market indices have had a sluggish start to the year with Nasdaq 100 index one of the worst-performers so far. The concern regarding growth in corporate America is based upon the upcoming interest rate hikes this year which makes borrowing capital more expensive and causes consumers to save a bit more.
European stock market indices have fared much better in the opening weeks of January but have also experienced some weakness last week. Therefore, it’s up to the US earnings season to lift overall sentiment.
Some of the companies reporting this week include Goldman Sachs, Bank of America, Morgan Stanley, Procter & Gamble and Netflix, among others.
Source: Admirals MetaTrader 5, SP500, Daily - Data range: 12 Apr 2021 to 16 Jan 2022, performed on 16 Jan 2022 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2021 = 26.99%, 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%
While the S&P 500 stock market index remains in an overall uptrend, the price action has been very choppy since November 2021. While there have been some major price swings on the chart, they are not exhibiting the trend like features from early last year.
Currently, the price is sitting in between the 50-day exponential moving average and the 100-day exponential moving average. If the price can stay above these moving averages, then the overall picture still remains bullish but the price will need to make new higher high cycles to confirm buyer intent.
A break below the 100-day exponential moving average could see a greater correction back down to the September 2021 lows.
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