Thread: Daily Market Analysis from ForexMart

European equities closed lower

Britain's FTSE 100 shed 0.8%, Germany's DAX shed 0.01%, France's CAC 40 shed 0.7%, Spain's IBEX 35 shed 0.5% and Italy's FTSE MIB shed 0.6%.

Air France-KLM shares lost 3.4%. The airline said it had paid the French authorities € 500 million in debt repayment totaling € 4 billion. In addition, Air France-KLM agreed with the country's authorities to change the debt repayment schedule: if earlier it had to pay off the debt in full in May 2023, now it will be able to pay it off until May 2025.

Germany's Daimler Truck Holding AG, a truck maker, rose 10.7% in its second trading session after divesting from Daimler. JPMorgan analysts have set the target price for the company's shares at 48 euros per share, while Bank of America has set a different price, 40 euros. At the same time, Daimler AG's value fell 0.3% yesterday.

The capitalization of the German software developer SAP AG increased by 2.6% after analysts at UBS improved the recommendation on the stock of the company from neutral to buy.

Australian biopharmaceutical company CSL has confirmed that it is in talks to buy the Swiss drug manufacturer Vifor Pharma. Vifor Pharma shares jumped 18.5%.

Credit Suisse Group AG on Monday announced a structural reorganization and appointed new chief executives for its core divisions. The structure of the bank from next year will consist of 4 main business divisions and 4 regional divisions. Credit Suisse lost 1.8%.

Shares in British mining company Rio Tinto fell 0.1%. The company will write off $ 2.3 billion in debt from the Mongolian government to finally move forward with the expansion of the Oyu Tolgoi gold-copper project.

The market is awaiting meetings of the world's largest central banks scheduled for this week.

The Federal Reserve System (FRS) is holding a two-day meeting on December 14-15, the European Central Bank (ECB) and the Bank of England will release their decisions on December 16, the Bank of Japan will hold a meeting on December 17.

The ECB is expected to discuss at the upcoming meeting the future prospects for its asset repurchase programs, while the Fed may decide to step up the pace of its quantitative easing (QE) program, which it launched in November.

The Bank of England is likely to keep monetary policy parameters unchanged, as the latest GDP data proved disappointing, and in addition, the country's authorities are introducing new restrictions to contain the spread of COVID-19.

The UK National Statistical Office (ONS) on Friday reported a slowdown in the country's GDP growth in October to 4.6% on an annualized basis from 5.3% a month earlier.

The statistics released on Monday showed an acceleration in the growth of wholesale prices in Germany in November to a record 16.6% in annual terms. As noted by the Federal Statistical Office of Germany (Destatis), the growth of wholesale prices accelerated compared to 15.2% in October against the background of higher prices for raw materials and intermediate goods.

EUR/USD: Widening gap between the US dollar and Euro

Analysts said that serious problems in the EUR/USD pair are caused by an imbalance between both currencies. Bank of America experts point to the excessive overvaluation of the US dollar and the lack of attention to the euro.

Before the Fed meeting, the issue of a fair assessment of the euro and the US dollar is extremely relevant. According to Bank of America reports, the US currency turned out to be overvalued by investors this month, while the euro is undervalued. Analysts believe that this upsets the balance in the EUR/USD pair.

The calculations by Bank of America's currency strategists demonstrate that the current greenback estimate is 0.7 points higher than the long-term average, while the euro is 1.1 points lower. These indicators are negatively affected by rising inflation expectations in the United States (up to 6%) and extremely high inflation, which has reached peak values for the last almost 40 years. The current situation increases the degree of tension between the US dollar and the euro. On Wednesday morning, the EUR/USD pair experienced noticeable volatility, trading around the level of 1.1270.

By the middle of this week, the US dollar maintained its growth, unlike the euro amid expectations of the most important Fed meeting. Despite the growing tension, the dynamics of the American currency are almost unchanged in relation to other key currencies. The euro, on the contrary, has to make a lot of efforts to stay afloat. Experts are afraid of increasing dissonance in the EUR/ USD pair, although there are no serious prerequisites for this.

In anticipation of the Fed meeting, many analysts turned to the Fed's updated dot forecast, the so-called dot plot. Experts carefully analyze the data presented in order to predict the rate of increase in the key rate in 2022. According to the previous dot plot published in September 2021, the federal funds rate should be increased once (until December 2022). However, a lot has changed now, so the markets are confident that in the coming year the rate will be raised twice (25 bp at each meeting).

Bank of America experts believe that the regulator is able to surprise the markets and raise rates following the meeting on Wednesday, December 15. The implementation of such a scenario will lead to a shock and force you to radically rebuild. On the contrary, if the completion of the asset purchase program goes twice as fast, that is, it will be completely curtailed in March 2022, then the markets will remain calm. It can be recalled that this option is the most expected.

At the same time, there is a possibility of another scenario: if the regulator does not raise rates at the current meeting, then it will have to be done twice (by 0.50%) in March next year. The reason for this decision is the overheating of the US labor market. Therefore, most market participants expect the regulator to raise rates in the second half of 2022. At the same time, many investors do not rule out a weakening of inflation next year, despite the persistence of price pressure.

A surprise for the market may be the updated December "dot" forecasts of the Fed (dot plot), which allow for the probability of a threefold rate hike in 2022. The implementation of such a scenario will help the US dollar strengthen its position, but stock markets will be under pressure.

US dollar continues its growth

The US dollar celebrates the victory after the meeting of the Fed, which the markets were looking forward to. It managed to rise and continue the upward trend, despite a temporary decline.

The growth of this currency accelerated after the decision of the regulator, which announced the preservation of the interest rate and the completion of incentive programs. It can be recalled that the Fed expected to leave the key rate at 0-0.25% per annum and announced its readiness to double the pace of curtailing the asset repurchase program (from the previous $15 billion to $ 30 billion per month). The implementation of these measures is planned from January next year. According to preliminary calculations, such rates of QE reduction will allow the central bank to fully complete the program by March 2022.

According to Fed chairman Jerome Powell, the early elimination of stimulus programs is necessary because of extremely high inflation. Fed representatives believe that the acceleration of inflation in the United States and the strengthening of inflationary pressure amid a prolonged labor shortage significantly affect economic forecasts and the current monetary policy. It is worth noting that the regulator kept rates near zero until the situation in the US labor market improved.

Representatives of the Open Market Committee (FOMC) presented an updated forecast on the trajectory of rates, which implies their threefold increase in 2022-2023. Along with this, the authorities expect a gradual decrease in inflation.

Experts emphasize that the regulator's forecasts on rates are not a pre-approved plan. This process is determined by the current economic situation, according to which it is adjusted. Against this background, Fed officials came to the conclusion that the most appropriate is a gradual increase in rates.

According to experts, the rapid growth of the USD after the Fed meeting occurred against the backdrop of a pronounced "hawkish" position of the regulator. Representatives of the Federal Reserve predict a sharper increase in rates than the market expected. In view of this, US assets rose significantly: the US dollar continued its upward trend, and the leading S&P 500 index interrupted a two-day decline.

The current situation favourably affected the EUR/USD pair, which was trading at the level of 1.1284 on Thursday morning. Like the American one, the European currency also felt confident, gradually gaining momentum. It tried to consolidate in the current positions, but to no avail. As a result, the single currency fell to low values.

The near-term prospects of the US dollar are quite optimistic. Many experts agree that the Fed helped the US dollar to rise, due to which it received a growth impulse. Analysts said that this trend will continue, since it has enough resources to withstand the difficulties that arise.

Forecast for AUD/USD on December 17, 2021

Yesterday, the Australian dollar traded in a range of 80 points, it closed the day by gaining 15 points, which is not very impressive with the fall of the US dollar index by 0.36%. At the moment, the price is between two levels: 0.7171 and 0.7227. Now the breakthrough above the upper level of the 0.7227 range will open the target along the MACD line at 0.7285, consolidating below 0.7171 can send the price to the 0.7065 level, which was not reached at the beginning of the week.

On the 4-hour chart, the Marlin Oscillator formed a divergence with the price. At the moment, the price is staying above the balance indicator line (red moving one), which retains the bulls' advantage. The situation turns out to be twofold, therefore the technical signal levels 0.7171 and 0.7227 acquire the main attention and the main role. The bears' first target at 0.7130 is the MACD line on H4.

US indices closed lower

The Dow Jones Industrial Average fell 1.48% on Friday and ended trading at 35365.44 points.

Standard & Poor's 500 dropped 1.03% to 4620.64 points.

Meanwhile, the Nasdaq Composite lost less than 0.1% to 15169.68 points.

By the end of the week, the Dow fell 1.7%, the S&P 500 fell 1.9%, and the Nasdaq Composite fell 3%.

Earlier this week, the Federal Reserve System (FRS) decided to accelerate the pace of winding down its asset-buying program and signaled its readiness to raise rates several times next year. In addition, the Bank of England was the first among the world's leading central banks to raise its key rate to 0.25% from 0.1%.

Meanwhile, Andrew Brenner of NatAlliance Securities believes that the sharp decline in the US stock market was caused rather not by fears of tightening monetary policy, but by other reasons. In particular, he points out that Friday was the so-called Quadruple Witching Day, when index and stock futures and options expire. On this day, there is often increased volatility in the market.

A strong decline on Friday was demonstrated by securities of financial companies. Quotes from Goldman Sachs Group Inc. fell 3.9%, while JPMorgan Chase & Co. fell 2.3%, quotations of the payment system American Express Co. fell 1.8%, quotations of Visa Inc. dropped by 1.2%.

General Motors shares tumbled 5.5% on news of the unexpected resignation of Dan Amman, head of the self-driving car business.

American chain restaurant operator Darden Restaurants fell 5%. The company released strong quarterly earnings, but gave a weak annual forecast and said its CEO, Eugene Lee, will step down next May.

Johnson & Johnson's capitalization fell 2.8% after the US Centers for Disease Control and Prevention (CDC) recommended that citizens get vaccinated with Pfizer or Moderna coronavirus vaccines instead of J&J vaccines because of the risk of blood clots.

Meanwhile, FedEx Corp. jumped 5% in trading after one of the world's largest transportation and logistics companies beat market expectations in adjusted earnings and revenues and improved its full-year forecast.

Forecast for GBP/USD on December 21, 2021

The pound approached the first target level of 1.3160 by 34 points by the end of Monday. The success of the bears, that is, overcoming this support, will open the second target at 1.3012 - the October 2019 high. The Marlin Oscillator is declining in the negative area. The general trend is downward.

On yesterday's four-hour chart, the strength of the resistance of the MACD indicator line was confirmed - the price turned down from it (arrow). The Marlin Oscillator is developing in the negative area. We look forward to further declines.

Forecast for USD/JPY on December 21, 2021

At the end of yesterday, the situation with regard to the yen had practically not changed - the price continued to stay between the support of the trend line of the price channel at 113.22 and the MACD indicator line at 113.96. On December 15, the signal line of the Marlin Oscillator reversed from the zero line, now it moves horizontally below it - this is the market's preparation for a decline. Also, stock indices fell yesterday: S&P 500 -1.14%, Euro Stoxx 50 -1.30%, which helps the pair USD/JPY to develop a downward movement. The target of the decline at 110.80 is the price channel line of the higher timeframe.

On the four-hour scale, the price is strongly supported by the MACD indicator line. Accordingly, consolidating below it becomes the main condition for the formation of a medium-term fall. The direct signal will be the price crossing below the level of 113.22.

The Marlin Oscillator has crossed the border with the growth territory, but this may turn out to be a false signal.470

US shares higher at close of trade; Dow Jones up 1.60%

At the close in New York, the Dow Jones climbed 1.60%, the S&P 500 gained 1.78% and the NASDAQ Composite rose 2.40%.

In the leaders of growth among the components of the Dow Jones at the end of today's trading were shares of Nike Inc, which rose in price by 9.65 points (6.15%), to close at 166.63. Boeing Co rose 5.86% or 11.04 points to end at 199.52. American Express Company added 3.22% or 5.02 points to close at 160.91.

The biggest losers were Merck & Company Inc, which fell 1.14% or 0.87 points to end the session at 75.54. Verizon Communications Inc rose 0.58% or 0.31 points to end at 52.78, while Johnson & Johnson was down 0.32% or 0.54 points to 167. , 21.

The growth leaders among the S&P 500 index components at the end of today's trading were Citrix Systems Inc, which gained 13.63% to 95.05, Micron Technology Inc, which gained 10.54% to close at 90.68, and also Expedia Inc, which was up 9.14% to end at 177.27.

The biggest losers were General Mills Inc, which fell 4.03% to close at 65.06. The Kroger Company shed 3.60% to end the session at 43.87. Pfizer Inc was down 3.39% to 58.95.

The leaders of growth among the components of the NASDAQ Composite index at the end of today's trading were shares of Reliance Global Group Inc, which rose in price by 78.69% to the level of 5.450, Biofrontera Inc, which gained 44.75%, to close at 11.03, as well as shares IsoPlexis Corp rose 40.82% to end at 6.90.

On the New York Stock Exchange, the number of shares that went up (2,671) exceeded the number of those that closed in the red (604), while the quotes of 88 shares remained practically unchanged. On the NASDAQ stock exchange, 2889 companies rose in price, 880 declined, and 215 remained at the level of the previous close.

Aldeyra The shares fell to a 52-week low, shedding 50.91%, 3.63 points to trade at 3.50. Biofrontera Inc rose to an all-time high, gaining 44.75%, 3.41 points, to trade at 11.03. DBV Technologies shares fell to historic lows, down 48.52%, 1.310 points, and ended trading at 1.390. CytomX Therapeutics Inc fell to a 52-week low, down 40.00%, 2.580 points to trade at 3.870.

The CBOE Volatility Index, which measures the value of S&P 500 options trading, was down 8.13% to trade at 21.01.

Gold Futures for February delivery was down 0.28% or 5.05 to $ 1,789.55 a troy ounce. Elsewhere, WTI crude for February delivery rose 3.92%, or 2.69, to $ 71.30 a barrel. Futures contract for Brent oil for February delivery was flat 0.00%, or 0.00, to trade at $ 74.03 a barrel.

Meanwhile, on the Forex market, the EUR / USD pair was up 0.02% to hit 1.1286, while the USD / JPY was up 0.01% to hit 114.10.

The US Dollar Index Futures was down 0.10% at 96.445.

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Forecast for EUR/USD on December 23, 2021

Yesterday, the euro decided to choose an upward direction, intending to complicate and lengthen the horizontal movement, which began on November 29-30. There are about 20 points until the resistance of the MACD line (1.1363), and without breaking the main scenario and its own sideways movement, it is likely that the price will turn down from this resistance. If it overcomes the 1.1363 level, the main scenario will change to a price reversal from the target level of 1.1415. But if the price settles above 1.1415, then an alternative scenario will take effect with the price rising to the target level of 1.1572 (the January 2019 high).

An interesting situation develops on the Marlin Oscillator. Yesterday's exit of the signal line from the rectangular area of consolidation, marked with a gray area, repeats the exit of the signal line from the same consolidation on October 28 - it is marked with a red oval. And, as you can see, after the signal line returned to the range, the price fell.

On the four-hour chart, the price settled above the MACD line, Marlin is confidently rising in the positive area - the situation is upward. Probably, the price will decide to test the strength of the resistance range of 1.1363-1.1415.

Forecast for AUD/USD on December 23, 2021

The Australian dollar approached the resistance of 0.7227 for the second time in the last five days. According to one of the scenarios we are considering, the price may turn down from the resistance today. A modified, but also a scenario for a reversal, assumes a price reversal from the MACD line in the area of 0.7275. Settling above 0.7275 reveals the growth scenario for the aussie to hit the first target at 0.7414. Returning to the area below 0.7171 will open the target at 0.7065.

On the four-hour chart, the price is in an upward position. The planned reversals of the price and the oscillator cannot yet clarify the situation of the higher scale, we are waiting for a signal from the target levels - which one the price could overcome.

Pound sterling reached the high and the small pullback was not critical

The British currency has confidently moved to the next peaks by the end of this week and successfully reached its high. A slight decline did not prevent it from enjoying the victory, which is not the last in the list of this currency.

Yesterday, it managed to rise to a one-month high against the US dollar amid improved risk appetite as concerns about the Omicron coronavirus strain eased. On this wave, the British currency reached the psychologically significant level of 1.3400 and further moved up. Such growth was recorded for the first time since November 23 of this year in view of the US dollar's temporary collapse. According to MUFG Bank analysts, the increased risk appetite negatively affected the American currency and gave a head start to the British one. However, they believe that the prospects for raising interest rates in the United States in 2022 will significantly support the USD.

The pound tried to rise previously, especially before the meeting of the Bank of England. Short bursts of growth did not make significant changes in the dynamics of the pound. However, the situation has now stabilized. On Friday morning, the GBP/USD pair was around the level of 1.3404, but could not hold its gained positions and remained in the range of 1.3392-1.3393.

Analysts said that the pound has risen to the upper border of the wide range, wherein it has been since this month started. Many experts believe that the current dynamics of this currency are caused by technical rather than macroeconomic factors. Analysts pay attention to the overbought GBP, the fact of which is putting pressure on buyers. The current situation forms the so-called "swing" between sellers and buyers. This contributes to the transition of the GBP/USD pair into a downward spiral, where the nearest target is the level of 1.3290.

Meanwhile, the UK's macroeconomic data did not affect the dynamics of the pound very much. Some of them, particularly the rates of economic growth, were revised upward (from the previous 23.6% to the current 24.2%). UK GDP data for the third quarter of 2021 turned out to be slightly worse than forecasted, but quite acceptable – economic growth slowed down by 6.8%. A relatively calm economic environment favorably influenced the dynamics of the pound. According to analysts, the closest prospects for the pound look positive. Based on January 2022 forecast, the British currency may rise.

Gold's price rises again amid the strengthening coronavirus risks

The new COVID-19 strain has left a negative imprint on Christmas this year, helping gold in post-holiday trading in Asia. On Monday morning, the metal started to rise.

Last week, which was shortened due to the celebration of Christmas, the precious metal closed with a rise of 0.4%. The quotes were mainly supported by the growing fears about the spread of the Omicron strain.

On Monday, investors remained concerned that a new variant of the coronavirus could slow the global economic recovery. The degree of panic in the market is raised by disappointing statistics.

It should be noted that the average number of new coronavirus patients in the US last week rose 45%, namely to 179,000 per day. In addition, the UK and France are reporting a new daily high of COVID-19 cases. In these countries, the figure exceeded 122 thousand and 94 thousand, respectively.

The surge in morbidity has led to additional restrictions on Christmas, when travel has traditionally been increasing. To reduce the spread of the virus, commercial airlines around the world canceled more than 4,500 flights over the holiday weekend.

In view of this, the US dollar and the yield on US Treasuries began the new trading week on a minor note. Earlier, the index of the US currency declined by 0.08%, reporting to 96.10 points. At the same time, the yield fell to 1.482%, retreating from the 2-week high reached the day before.

The weakening US dollar and falling yields allowed gold to rise to $1,812.

The tense geopolitical situation also contributed to the upward dynamics of precious metals on Monday morning.

On the other hand, analysts call optimistic data on US retail sales during the holiday shopping season as among the negative factors that are holding back gold's growth. According to the MasterCard report, the indicator increased by 8.5% from November 1 to December 24.

In addition, a current potential danger for the yellow asset is the prospect of adopting the plan of US President Joe Biden. According to experts, any comments on the approval of this bill may put downward pressure on gold quotes in the near future, while on the contrary, the demand for risky assets will grow.

In general, analysts are confident that this week's trading of gold will be weak and limited by a narrow price range because it is currently impossible to single out any particularly powerful trigger among the contradictory factors that are present in the precious metal market.

Experts suggest that a stronger price fluctuation on the current seven-day period is likely to be caused by the publication of the Federal Reserve Bank of Dallas production index for December. Economists expect an increase to 13.2 from the 11.8 achieved last month.