Uncertainty has emerged as the main theme in finance. Bank failures and runaway inflation are driving monetary policy, and with the end of Q1 upon us, the question on everyone’s mind is: Are the markets finally ready to pick a direction? Perhaps late March trading will provide us with much-needed answers.
Uncertainty has emerged as the main theme in finance. Bank failures and runaway inflation are driving monetary policy, and with the end of Q1 upon us, the question on everyone’s mind is: Are the markets finally ready to pick a direction? Perhaps late March trading will provide us with much-needed answers.
Welcome to trading week number 13 of 2023. I’m Shane Vernier, Market Analyst at HowToTrade.com. Compared to last week’s packed economic calendar, the upcoming five days are expected to be relatively quiet. Of course, volatility has no schedule, and there are still events that could sway the markets across asset classes. Let’s break down the key underpinnings of week 13.
Inflation: The Hidden Tax That Keeps Everyone Guessing
Over the past 18 months, inflation has negatively impacted all of our lives. It’s the hidden tax that no one can truly avoid, yet consumer prices are beginning to taper. This week, we’ll look at the latest German CPI, EU CPI, and US PCE readings to gauge pricing stability. Wall Street expects these numbers to come down from previous levels. If they don’t, brace for heavy volatility across the FX majors.
Banking Crisis Fallout
Inflation continues to dominate the narrative around the economy, but the financial world buzzed over the recent turmoil concerning Silicon Valley Bank, Signature Bank, and Credit Suisse. Some believe this crisis is behind us; Fed Chairman Jay Powell stated last Wednesday that SVB was an “isolated incident” because of poor management. But is the U.S. banking crisis of 2023 really over? The answer remains uncertain, and the world is watching.
With inflation and banking pressures on the front burner, the markets have been in a flux for the last two weeks. Let’s take a look at the changing market dynamics through expert analysis.
Monday: The Calm Before the Storm
The economic calendar on Monday is light, with a brief reprieve following the fallout of the banking crisis. However, the German IFO business climate data will be important, more so as we approach the end of the month and the first quarter. There is a high chance that Germany would be the first major economy to go into recession and, therefore, DAX will be a key to watch. Look for any signs of momentum divergence on MACD, especially in 15,500 to 14,900. This zone, from January 2022, could be a potential downside move if data shows a softening economic outlook.
Tuesday: Australia’s Retail Sales and the China Reopening Dilemma
The focus shifts to the Australian dollar, on Tuesday, as direction on the country’s reopening economics is sought. The data on retail sales are expected to underperform, thus showing the economy hasn’t recovered. The day chart shows a bearish flag formation, pointing to a further move to the downside. The low in October 2022 ranges from between 65.00 and 64.22. A break below this area might send the Australian dollar lower.
Wednesday: Oil and the Commodities Market
The commodities market, especially crude oil, has been in risk-off mode due to banking uncertainty. A bullish butterfly setup on the daily chart indicates a price reversal zone around $66 per barrel. Although the continuation to the downside is probable, any intervention from OPEC+ could trigger an upward reversal. Stop-loss levels should be placed below recent lows, with profit-taking targeted at the 38.2% and 61.8% Fibonacci retracements of the X to A swing.
Thursday: Japanese Unemployment Data and the Yen’s Strength
Thursday brings Japanese unemployment data, which is expected to stay at 2.4%. While not dovish, any further decrease could signal a potential shift in policy with the new Bank of Japan governor. The AUD/JPY is one currency pair to watch as it has already pushed below the December 2022 swing low of 87.30. A move lower could finally open the floodgates, pushing the pair toward the February 2022 support range of 83.97 to 82.05.
Friday: The PCE Inflation Data – The Market Game-Changer
Friday is reserved for the most important economic release for the week: the United States PCE inflation data. This is the measure preferred by the Federal Reserve, and it is extra crucial because headline inflation keeps rolling over, while PCE keeps stubbornly high. A meaningful downtick in the PCE data could signal a turning point, allowing stocks to rally. Conversely, if the PCE data stays sticky, markets could see a significant pullback, especially as we approach the 2022 yearly close.
Conclusion
As we close Q1 2023, the trillion-dollar question is how the Greenback will perform. Currently, there’s a growing belief that the USD will fade as the year progresses. Derivatives traders are pricing a 95% chance of the Fed cutting interest rates before Christmas. If correct, we may have seen the worst of the equity market turmoil and the USD’s peak. If not, the dollar could regain its strength, pushing risk assets lower.
Stay tuned and ready. If you are having trouble navigating the markets this year, then consider joining the HowToTrade trading room. It features daily live streams, trading tools, and a video library that can be used for learning purposes. We have also added six new training modules to fine-tune your trading. Drop in and check out the HowToTrade Academy; it is designed to make you a better trader.
Compared to last week’s packed economic calendar, the upcoming five days are expected to be relatively quiet. Of course, volatility has no schedule, and there are still events that could sway the markets across asset classes. Let’s break down the key underpinnings of week 13.
Inflation: The Hidden Tax That Keeps Everyone Guessing
Over the past 18 months, inflation has negatively impacted all of our lives. It’s the hidden tax that no one can truly avoid, yet consumer prices are beginning to taper. This week, we’ll look at the latest German CPI, EU CPI, and US PCE readings to gauge pricing stability. Wall Street expects these numbers to come down from previous levels. If they don’t, brace for heavy volatility across the FX majors.
Banking Crisis Fallout
Inflation continues to dominate the narrative around the economy, but the financial world buzzed over the recent turmoil concerning Silicon Valley Bank, Signature Bank, and Credit Suisse. Some believe this crisis is behind us; Fed Chairman Jay Powell stated last Wednesday that SVB was an “isolated incident” because of poor management. But is the U.S. banking crisis of 2023 really over? The answer remains uncertain, and the world is watching.
With inflation and banking pressures on the front burner, the markets have been in a flux for the last two weeks. Let’s take a look at the changing market dynamics through expert analysis.
Monday: The Calm Before the Storm
The economic calendar on Monday is light, with a brief reprieve following the fallout of the banking crisis. However, the German IFO business climate data will be important, more so as we approach the end of the month and the first quarter. There is a high chance that Germany would be the first major economy to go into recession and, therefore, DAX will be a key to watch. Look for any signs of momentum divergence on MACD, especially in 15,500 to 14,900. This zone, from January 2022, could be a potential downside move if data shows a softening economic outlook.
Tuesday: Australia’s Retail Sales and the China Reopening Dilemma
The focus shifts to the Australian dollar, on Tuesday, as direction on the country’s reopening economics is sought. The data on retail sales are expected to underperform, thus showing the economy hasn’t recovered. The day chart shows a bearish flag formation, pointing to a further move to the downside. The low in October 2022 ranges from between 65.00 and 64.22. A break below this area might send the Australian dollar lower.
Wednesday: Oil and the Commodities Market
The commodities market, especially crude oil, has been in risk-off mode due to banking uncertainty. A bullish butterfly setup on the daily chart indicates a price reversal zone around $66 per barrel. Although the continuation to the downside is probable, any intervention from OPEC+ could trigger an upward reversal. Stop-loss levels should be placed below recent lows, with profit-taking targeted at the 38.2% and 61.8% Fibonacci retracements of the X to A swing.
Thursday: Japanese Unemployment Data and the Yen’s Strength
Thursday brings Japanese unemployment data, which is expected to stay at 2.4%. While not dovish, any further decrease could signal a potential shift in policy with the new Bank of Japan governor. The AUD/JPY is one currency pair to watch as it has already pushed below the December 2022 swing low of 87.30. A move lower could finally open the floodgates, pushing the pair toward the February 2022 support range of 83.97 to 82.05.
Friday: The PCE Inflation Data – The Market Game-Changer
Friday is reserved for the most important economic release for the week: the United States PCE inflation data. This is the measure preferred by the Federal Reserve, and it is extra crucial because headline inflation keeps rolling over, while PCE keeps stubbornly high. A meaningful downtick in the PCE data could signal a turning point, allowing stocks to rally. Conversely, if the PCE data stays sticky, markets could see a significant pullback, especially as we approach the 2022 yearly close.
Conclusion
As we close Q1 2024, the trillion-dollar question is how the Greenback will perform. Currently, there’s a growing belief that the USD will fade as the year progresses. Derivatives traders are pricing a 95% chance of the Fed cutting interest rates before Christmas. If correct, we may have seen the worst of the equity market turmoil and the USD’s peak. If not, the dollar could regain its strength, pushing risk assets lower.
Stay tuned and ready. If you are having trouble navigating the markets this year, then consider joining the HowToTrade trading room. It features daily live streams, trading tools, and a video library that can be used for learning purposes. We have also added six new training modules to fine-tune your trading. Drop in and check out the HowToTrade Academy; it is designed to make you a better trader.
