Trading in the markets was rather subdued last week. Canadian Dollar was an exception, as it was pressured by falling oil price and a dovish BoC hike. The Loonie just closed marginally higher against Yen, which was also soft. On the other hand, Swiss Franc was the best performer, followed by the resilient Aussie and Kiwi. Dollar didn’t perform too badly but it’s overall lackluster. Euro and Sterling ended mixed.
Looking ahead, four major central banks will meet this week, and then market will turn into year-end holiday mode. Fed’s meeting will carry slightly larger significance than ECB, BoE and SNB, as new economic projections will also be published. Judging from the actions in stocks and yields, traders might be guarding against a hawkish set of forecasts.
CAD down on BoC and oil prices, AUD Lifted by China
Canadian ended the week broadly lower, except versus Yen. BoC clearly said that it’s “considering whether the policy interest rate needs to rise further”. That is, last week’s 50bps rate hike could be the last in the current tightening cycle. Meanwhile, oil prices extended recent down trend and slumped back to pre-Ukraine war levels.
WT hit as low as 70.34 and 70 handle now looks rather vulnerable. In any case, near term outlook will stay bearish as long as 83.82 resistance holds. Current down trend should target 61.8% projection of 124.12 to 76.61 from 94.25 at 64.88. Such development would continue to weigh on Canadian Dollar.
Australian Dollar ended slightly on the stronger side. RBA’s 25bps might look small comparing to other major central banks. But the board meets on monetary policy 11 times a year, comparing to 8 FOMC meeting. RBA is also not finished with tightening yet. Additionally, Aussie was supported by easing of restrictions in China, which boosted industrial metal prices too.
The Chinese Yuan strengthened notably together with stocks in China and Hong Kong last week, on optimism over reopening. USD/CHN should have completed a head and shoulder top reversal pattern (ls: 7.2670, h: 7.3745, rs: 7.2567). Deeper decline is now in favor. The real test for Yuan is probably at 6.8372 resistance turned support in USD/CNH, which is close to 50% retracement of 6.3057 to 7.3745 at 6.8401. It will need significant progress to break through this level. Otherwise, the support to Aussie could be short-lived.
AUD/CAD’s rise from 0.8596 continued last week and accelerated to as high as 0.9275. The strong break of the medium term channel resistance argues that whole down trend from 0.9991 (2021 high) has completed with three waves down to 0.8596. Further rally is expected as long as 0.9093 support holds. Next target is 0.9514 resistance, and reaction from there would reveal the underlying medium term momentum in the cross.
US stocks and yields turning around?
Traders and investors have turned more cautious ahead of the upcoming FOMC announcement on December 14. A 50bps rate hike by Fed is pretty much a done deal, and the focus is actually on the new economic projections, which should guide the market in estimating the level of terminal rate of the current cycle, and the time to stay there. Judging from the price actions in stocks and bonds, the markets might be leaning towards some hawkish forecasts.
A short term top is likely in place at 34595.51 in DOW, after failing to sustain above 34281.36 resistance Break of last week’s low at 33418.59 will extend the correction to 55 day EMA (now at 32729.03), or even further to 38.2% retracement of 28660.94 to 34595.51 at 32328.50.
10-year yield spiked lower to 3.402 but quickly recovered to close at 3.567. The near term focus remains on whether TNX could defend 3.483 resistance turned support. Break of 3.798 resistance will suggest short term bottoming and bring stronger rebound back above 4% handle, “towards 4.333 high. However, sustained trading below 3.483 will open up deeper decline to 3% handle or even further to 55 week EMA (now at 2.921).
Dollar index has been losing some downside momentum as seen in daily MACD. It’s trying to draw support from 104.63, as well as 55 week EMA (now at 104.03). Yet, there is no clear sign of rebound yet. On the upside, break of 107.19 resistance will indicate short term bottoming and bring stronger rise to 55 day EMA (now at 108.03) and above. However, sustained break of 104 will open up deeper decline to 100 handle, and possibly below to 61.8% retracement of 89.20 to 114.77 at 98.96. The next move will depend more on development in stocks than yield.
USD/JPY Weekly Outlook
USD/JPY retreated after recovering to 137.84 but there was no clear downside momentum. Initial bias is neutral this week first. On the upside, break of 137.84 resistance will revive the case of short term bottoming at 133.61, and turn bias back to the upside for 55 day EMA (now at 141.02). However, break of 133.61 will resume the decline form 151.93 through 133.07 fibonacci level.
In the bigger picture, price actions from 151.93 medium term could be just a corrective pattern to up trend from 102.58 (2021 low). Strong support from 38.2% retracement of 102.58 to 151.93 at 133.07 and 55 week EMA (now at 131.52) will set the range for such corrective pattern. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.
In the long term picture, rise from 102.58, as part of the up trend from 75.56 (2011 low) was put to a halt at 151.93, just ahead of 100% projection of 75.56 to 125.85 from 102.58 at 152.87. There is no clear sign of long term reversal yet. Such up trend is expected to resume at a later stage, as long as 125.85 resistance turned support holds.
