Global equity markets settled lower on Friday due to mounting fears of a global economic slowdown and concerns related to the Middle East conflict. On the other hand, Federal Reserve Chair, Jerome Powell, commented on Thursday about persistently high inflation rates, suggesting that the monetary policy is yet to tighten.
The new trading week has started off fairly quietly in terms of price action as the macroeconomic calendar is completely empty at the beginning of the week, but the volatility is expected to increase from Tuesday onwards when we get global PMI readings. Attention this week will be on planned central bank meetings. Major central banks, such as the European Central Bank and Bank of Canada are to hold monetary policy meetings this week.
On the other hand, the release of US Personal Consumption Expenditures (PCE) Price Index data will likely have a significant effect on the markets because the PCE data is said to be the Federal Reserve’s preferred measure of inflation.
On the earnings front, the companies scheduled to release their last quarter financial results this week will be Microsoft, Alphabet, Amazon, Boeing, Visa, Intel, Verizon, IBM and Snap.
Gold continues to find demand as buyers cheered escalating geopolitical tensions surrounding the Middle East, as well as dovish remarks from Federal Reserve policymakers. Looking forward, gold will continue to move upside as a traditional safe-haven this week unless investors see convincing signs of de-escalating the Palestine-Israel conflict and the Fed’s rate-hike concerns for near-term direction. As a result, this week’s PCE inflation will be a crucial event to watch while also keeping an eye on geopolitics for fresh impulse.
Gold price slightly retreats from a fresh 3-month high but still the overall movement remains bullish, which for now does not mean a downward movement but only a correction. Only a break and close below $1950 will signal a more significant signal and amplify negative sentiment. In the short term, we may see a further potential push down towards the $1965/60 area. On the flip side, a 4-hour close above $1993 invalidates the short-term bearish scenario for a squeeze up towards the next resistance at $2020.
The US dollar Index (DXY) started the new week slightly higher. The sentiment in the dollar has been fairly less volatile as prices have been stuck in a range for the last 4 trading days. DXY continues to swing between losses and gains across the last week. Technically, the immediate outlook seems slightly neutral as the latest decline back to 105.50 was met with fresh buying. For dollar, the key events to focus on for this week are Thursday’s US double goods order numbers and Friday’s PCE inflation figures. Both the numbers could help investors determine how the Federal Reserve will move ahead with its interest rate policy.
From a technical perspective, The 105.90 area of confluence has recently been held as a firm support, failure to defend the mentioned support levels has the potential to drag the pair further towards the 105.50/40 support zone. On the upper side, in case the DXY manages to settle above 106.80, it will extend upside momentum and head towards the next resistance level at 103.80 and 104.
EURUSD closed last week slightly higher but it is far too early to suggest the euro-dominant downtrend is over. This week, investors largely focused on the European Central Bank rate decision and ECB President Christine Lagarde’s speech. Presently, the expectation for this week's ECB meeting is no rate change as in recent days, ECB policymakers have conveyed dovish messages regarding their interest rate intentions. ECB officials hinted at the possibility of achieving a 2% inflation rate without resorting to more hikes. Given the backdrop of the expected ECB announcement and the geopolitical tensions, the EURUSD pair might find itself under downward pressure this week. Specifically, if the ECB deliver a dovish pause, the euro could lose ground against the U.S. dollar.
The currency pair has been moving sideways lately at crucial technical levels, in anticipation of the upcoming critical monetary policy decisions, which will likely determine its trajectory. The pair bounced last week but failed ahead of the 1.0620 region. As long as the common currency is constrained below the 1.0640 region the momentum is expected to be bearish. On the flip side, a move above 1.0640 again will push the pair into a new trading zone, which may offer further buying opportunities until the 1.0690 and 1.0730 zones.
Dow futures and other major US indices rebounded modestly on Monday, potentially on bargain hunting after last week's steep losses. However, the market has become very pessimistic due to the wars and the sticky inflation. Some of the key data points expected to dictate this week's Dow Jones movement include the US PCE inflation data and earnings results from some of the world's largest tech companies. During the last week, Netflix and Tesla reported the Q3 earnings results. Netflix stock rose by as much as 16% the day after the report was released, while Tesla shares, on the contrary, collapsed more than 10%.
Technically the current price action signals suggest that the medium-term bearish trend remains intact. On the downside, the decline is more extensive, and it will be hard to rule out a run towards 32,800/600 if the bearish momentum continues. On the upper side, 33,460 will act as an immediate while 33,600 will be a critical resistance zone.
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