Week Ahead: It’s All About Inflation!
After a volatile week in forex with key central bank meetings and economic data, this week’s headlines may slow down a bit. But that doesn’t mean the markets will!
Last week, the RBA, BOE and ECB all met to discuss interest rate policy. The RBA ended its quantitative easing program, the ECB moved from a dovish to a hawkish stance and the BOE raised rates. Will the rhetoric continue this week from central bank officials?
Moreover, Boris Johnson is still making headlines as he clings to his political life. Will he be forced to resign? Nonfarm payrolls in the United States were much stronger than expected for January. The Fed will take this into account!
In addition, inflation data will continue this week as the US releases CPI data and the Michigan sentiment survey (watch the prices paid component). Traders will be on high alert, watching for any clues as to whether the Fed will raise interest rates by 25 basis points or 50 basis points at their next meeting in March!
The Reserve Bank of Australia (RBA)
The RBA ended its $350 quantitative easing program at its meeting last week. That’s about as hawkish as the RBA gets! As my colleague Tony Sycamore wrote last week:
Unlike other central banks which have recently abandoned the “transitional” inflation rhetoric, the RBA’s central forecast is that core inflation will rise to around 3.25% over the next few quarters before “ decline to around 2.75% in 2023 as supply issues are resolved”. , and consumption habits are normalizing. The RBA maintained its dovish forward guidance “the Board stands ready to be patient as it monitors developments in the various factors affecting inflation in Australia”.
The European Central Bank (ECB)
The ECB’s statement itself was “as expected.” In the statement, the committee “deems progress on inflation to be sufficiently advanced to be consistent with 2%, although this may also imply a transitional period during which inflation is moderated above the 2% mark. ‘goal. »
However, during the press conference, Christine Lagarde noted that the inflationary surprises unanimously worry the board of governors and that the inflationary risks are on the upside. But it was after the press conference that the ECB showed itself to be the most hawkish.
ECB ‘sources’ have said the ECB will prepare for a possible March policy recalibration, consider an end to net APP purchases possibly in the third quarter, and agrees it is wise not to rule out a rate hike in 2022.
The Bank of England (BOE)
As with the ECB, the BOE’s statement on monetary policy was “in line with expectations”, as the committee raised the key rate by 25 basis points to 0.50%.
However, the hawkish party started with the vote: 5-4 in favor of a hike of only 25 basis points. That means 4 out of 9 members voted for a 50 basis point rate hike!
This took the markets by surprise and the pound surged in forex. Additionally, at the press conference, Governor Bailey said more rate hikes were coming, although he also said not to assume the BOE was on a long streak of rate hikes.
Boris Johnson is hanging his political career by a thread. After Susan Gray’s report said there were serious leadership flaws due to ‘participation’, four councilors resigned after a false claim that the Leader of the Opposition had not prosecuted the attacker child sex. There have been numerous calls from the opposition for Johnson to step down, and even some within his own party, but he refuses to do so. Traders will be watching to see if Johnson finally gives in this week.
Corporate results have been everywhere this season. Highflyers NFLX and FB guided lower and their stock paid the price. In contrast, AAPL and AMZN posted much higher profits and their stock prices rallied. As the earnings season progresses, some large-cap and crisis-period stocks will report this week.
Watch the results of these companies to see if they expect higher interest rates to hurt their bottom line. Some of the top companies to report this week are: AMGN, SPG, PFE, PTON, BP, DIS, CVS, UBER, TWLO, KO, PEP, AZN, TWTR
US nonfarm payrolls were solid Friday at +467,000. Average hourly earnings were also solid at 0.7%. Note that the Fed wants wages to rise with inflation, but they don’t want profits to rise too quickly.
It’s often a slow data week during the second week of the month and this week is no exception. The highlight of the week will be the US CPI on Thursday. Fed Chairman Powell said the Fed’s next decision will depend on the data. If this impression is stronger than the 7.3% expected, it could give the Fed reason to raise 50 basis points at the March meeting.
Also watch the price paid component of the Michigan Consumer Sentiment Index to be released on Friday. Other important economic data due out this week include:
Monday – February 7, 2022
Germany: Industrial Production (DEC)
UK: Halifax House Price Index (JAN)
EU: Speech by Christine Lagarde, President of the ECB
Australie : NAB Business Conditions (JAN)
Tuesday – February 8, 2022
Canada: Balance of Trade (DEC)
United States: Balance of Trade (DEC)
IBD/TIPP Economic Optimism (FEV)
Australia: Evolution of Westpac Consumer Confidence (FEV)
Wednesday – February 9, 2022
Germany: trade balance (DEC)
Mexique : IPC (JAN)
Canada: Speech by Governor Macklem of the BOC
Japan: unemployment rate (JAN)
Japan: PPI (JAN)
Australia: Final building permits (DEC)
Thursday – February 10, 2022
United States: CPI (JAN)
New Zealand: New Zealand Business PMI (JAN)
Australia: Consumer Confidence Expectations (FEB)
Friday – February 11, 2022
Germany: ICC Final (JAN)
United Kingdom: GDP growth rate before (Q4)
United Kingdom: industrial production (DEC)
United Kingdom: industrial production (DEC)
United States: Michigan Consumer Sentiment Prel (FEB)
See ” Economic Calendar
Chart of the Week: Daily WTI Crude Oil
WTI crude oil is cruising, up nearly 6.0% in the past week. Black gold has been rising since the start of the pandemic and hit its highest level since September 2014. As it moved, the oil price WTI had hit a double bottom along the way. The price reached the second low of the setup on December 2, 2021 near 61.87 and hit a high of 93.14 on Friday. The target for the double dip is the height from the bottom of the double dip to the neckline plus the breakout above the neckline. In this case, the target is near 108.30. Will the price reach the target?
On Friday, WTI oil broke through the 127.2% Fibonacci extension from the Oct. 26, 2021 highs to the Dec. 2, 2021 lows near 91.62 and traded on the ascending trend line dated March 8, 2021 , nearly 93.15. If the price moves above the trend line, there is a confluence of resistance at the 161.8% Fibonacci extension of the same period and horizontal resistance from June 2014 between 98.95 and 99 .56. Above there, price may move towards the double bottom objective near 108.30 and the 2013 highs at 112.21. If price breaks below the previously mentioned 127.2% Fibonacci extension, horizontal support is at 88.82 and then double-bottom neckline at 85.39. Below this, the price may drop to the January 24th low at 81.94.
After a volatile week in forex and financial markets, with key central bank meetings and economic data, this week’s headlines may slow down a bit. But that doesn’t mean the markets will! There will always be fallout from the BOE and ECB meetings, as well as US inflation data for traders to digest.
By Joe Perry, CMT, 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 solicitation to buy or sell forex exchange contracts or CFDs. Although the information contained herein has been obtained 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 which may result from the fact that anyone relies on such information.