Weekly Market Outlook: Inflation Figures and Earnings in Focus
All eyes are on equity markets this week as US earnings season kicks off. Most of the biggest banks in the United States reported last week with nearly all reporting better than expected profits and revenues. It’s set a positive ‘risk on’ tone in the market which has helped global stock indices and commodity currencies to rally higher.
The Australian dollar, New Zealand dollar and Canadian have all been top performers in recent weeks but the strength of the trend will be tested this week. Both New Zealand and Canada reporting inflation figures this week while the Reserve Bank of Australia releases its Monetary Policy Report.
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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 20 October at 7.00 am BST, the UK Office for National Statistics will release the latest Consumer Price Inflation (CPI) figure. This measures the change in the price of goods and services purchased by consumers. It’s a big deal as the number is used as a target for central bank monetary policy.
There are no major changes expected. However, the futures market is now pricing in a rate hike from the Bank of England by the end of December. While the central bank has tried to calm market expectations, the pickup in the economy may leave the bank no choice.
Even the market is pricing in the potential of a rate hike this year there are still some major headwinds for the economy. Post-Brexit trade issues with the European Union are starting to unfold with current negotiations on the Northern Ireland protocol not going well. Supply chain disruptions have pushed up inflation and could dent growth.
But, all the information is in the market flows of the currency.
Source: Admirals MetaTrader 5, EURGBP, Monthly - Data range: from 1 Aug 2013 to 15 Oct 2021, performed on 15 Oct 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The monthly price chart of EURGBP shown above highlights a clear long-term trading range. The price rejected the top of the range early this year causing the currency pair to fall (euro weakness and British pound strength).
The next significant support level is the bottom of the trading range around 0.8273, which could be a target level for short-sellers or an opportunity for buyers. If the UK inflation figures support an interest rate hike we could see the price at the bottom of the range very quickly so it’s one to watch.
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Corporate Trading Updates and Stock Indices
In recent weeks global stock market indices continued their downtrends following the traditional seasonal bearish period. However, equity markets have formed a basing pattern in time for a typical seasonal run higher.
All eyes will be on US stock market indices as it is the start of the US earnings season. The outcome of these earnings reports can either lift or weigh on overall sentiment towards the stock market.
Keep an eye on the following companies reporting this week:
- Tuesday – Netflix, Tesla, Johnson & Johnson
- Wednesday – eBay, IBM, General Electric
- Thursday – Intel, Snap, Unilever, Barclays
Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 15 Jan 2021 to 18 Oct 2021, performed on 18 Oct 2021 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: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80
In the daily price chart of the S&P 500 stock market index shown above it’s clear to see the recent weakness after a strong move higher for most of this year. Currently, the price is now back above its medium-term moving averages.
Traders will now be looking for bullish cycle formations such as higher highs and higher lows for more confirmations that buyers are building positions once again – creating a very interesting week ahead!
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