Omicron variant takes center stage as the holidays begin
If you are trading the forex and financial markets this week, be careful! Markets at the end of the year tend to be slow, with spikes in volatility.
The last two weeks of the year are usually reserved for holidays and slow markets, as much of the world is away from their desks after the year is over. Indeed, many market participants ended their trading a little earlier this year due to last week’s onslaught of central bank meetings. With the benchmark S&P 500 up about 20% this year, why risk losing profits? However, as the Omicron variant of the coronavirus looms on the year-end horizon, this could cause some volatility in illiquid markets. In addition, there is still data the markets will be watching, such as the Fed’s preferred inflation measure, the Core PCE.
Central banks
For forex currency traders who were looking for the big central banks to become more hawkish late in the year due to soaring inflation, they weren’t disappointed! The Fed, BOE and ECB have all complied. The BOE rose 15 basis points to 0.25%. The US Federal Reserve increased the pace of reduction of bonds from $ 15 billion per month to $ 30 billion per month, thus ending its quantitative easing program in March 2022. In the summary of economic projections, members are looking for 3 rate hikes in 2022 and 3 in 2023! The ECB took a slightly less conciliatory tilt, as it announced that the emergency pandemic purchasing program would end in March 2022, as planned. And although he has announced that he will buy 40 billion euros of bonds in the second quarter, 30 billion euros of bonds in the third quarter and 20 billion euros of bonds in the future, he has left the door open to a possible rate hike at the end of 2022. Even the ultimate dove, the BOJ, announced that it would stop buying corporate bonds at the end of its fiscal year (March 2022), which constitutes a step towards “tapering”. The only consistent theme these central banks cited as the reason for their “hawkish” orientation was rising inflation. Will the rise in inflation continue in 2022?
Omicron
What was initially just another variant of the coronavirus has turned into a possible global worsening. Is this variant more contagious? Probably. Will more people get sick? It looks like it. Will more people end up in the hospital? It doesn’t look like it. Will more people eventually die from the Omicron variant of the coronavirus? I’m not a virologist, but it looks like I’m not. The Omicron variant is likely to become the most dominant variant in the world over the next few weeks. Will everything stop again? Unlikely, which is why I called this variant more of a worsening than a full-fledged pandemic. The variant can slow growth in the first trimester as more people get infected. Daily new cases in cities and countries around the world are increasing day by day. But since this wave is expected to pass more like a hurricane than a month of slow rain, the slowdown should be limited. The next few weeks will tell us if the variant is here to stay or if it will go away as quickly as it arrived. As I mentioned, I am not a virologist, and this is just information I gathered from my eyesight.
Economic data
With the vacation week shortened for much of the world, most of the data has been put forward. However, given that so many central banks met last week (and won’t meet until late January at the earliest), many data points should have a moderate reaction. The inflation data will be the highlight going forward. As such, the most important data for the week will be the release of the US PCE data and the Japanese CPI. Below is more economic data to watch this week:
Monday – December 20, 2021
United Kingdom: CBI Industrial Trends Orders (DEC)
New Zealand: Westpac Consumer Confidence (NOV)
Australia: RBA meeting minutes
Tuesday – December 21, 2021
Germany: GfK Consumer Confidence (JAN)
United Kingdom: CBI Distributive Trades (DEC)
Canada: New Housing Price Index (NOV)
Canada: Retail Sales (OCT)
EU: Flash on consumer confidence (DEC)
United States: 20-year bond auction
Japan: Report of the BoJ meeting on monetary policy
Wednesday – December 22, 2021
United Kingdom: Current account (Q3)
United Kingdom: growth rate of final GDP (Q3)
United States: growth rate of final GDP (Q3)
United States: CB Consumer Confidence (DEC)
United States: Existing Home Sales (NOV)
5 year TIPS auction
Stocks of crude
Thursday – December 23, 2021
Mexico: mid-month inflation rate (DEC)
United States: durable goods orders (NOV)
United States: Personal Income (NOV)
United States: Personal Expenses (NOV)
United States: PCE Price Index (NOV)
United States: New Home Sales (NOV)
United States: Michigan Consumer Sentiment Final (DEC)
Japon : IPC (NOV)
Japan: Housing starts (NOV)
Friday – December 24, 2021
Public holiday
See ” ECONOMIC CALENDAR
Forex chart of the week: USD / TRY daily
This is not the first time that we have seen this graph. USD / TRY was the chart of the week as the pair broke through 10.00. Weeks later, the pair is up on forex by almost 70%, reaching a high of 17.1667 before the central bank intervened to stop the devaluation of the Turkish lira on forex. Is the summit behind? Who knows? It wouldn’t be wise to try and pick a top here. The RSI has been in overbought territory since October, and there is no reason to believe it will return to neutral territory anytime soon. Considering the rate of change of the USD / TRY pair, the next strong resistance will not come until the psychological figure at 20.00.
However, there is minor resistance at Friday’s high of 17.1667. If the high is reached, the first support in the daily period is not until the December 13 high at 14.6296, just ahead of the 38.2% Fibonacci retracement level from the November 10 low to Friday’s high, at 14.3232. Horizontal support below is at 13.8935 then the 50% retracement from the same time period near 13.4449.
With central bank activity behind us this week, the focus will be on the Omicron variant direction and inflation data. If you are reading this and trading forex this week, be careful. Year-end markets tend to be slow, with spikes in volatility.
The coming week won’t be released next week due to the holidays, but there will be one for the start of the new year on January 3, 2022!
If you are celebrating this holiday season, take advantage and be careful!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone relies on such information.
