Markets Week Ahead: Dow Jones, USD/JPY, BTC/USD, China Crypto Crackdown, Evergrande
The Dow Jones, S&P 500 and Nasdaq 100 wrapped up a rosy week, rising about 0.75%, 0.64% and 0.14% respectively. This is considering that all 3 Wall Street benchmark stock indices erased prominent downside gaps at the beginning of the week. Most regional stock indices in Europe also finished higher, with Asia-Pacific markets falling slightly behind.
Evergrande contagion woes were brushed aside as the highly indebted company made an onshore coupon payment. Offshore bondholders reportedly did not receive payments by the end of the trading week. The situation remains fluid as China told local governments to prepare for a default. The risk is that a growth slowdown in the world’s second-largest economy reverberates outwards.
Markets seemed to focus more on the Federal Reserve as Chair Jerome Powell hinted at completing asset purchase tapering by the middle of next year. The 10-year Treasury yield rallied to its highest since early March amid the central bank’s rosy outlook on the economy. A rise in front-end bond yields sent the US Dollar outperforming against the Japanese Yen. Anti-fiat gold prices weakened.
The Canadian Dollar also performed well, perhaps supported by improving market sentiment as crude oil prices continued recovering. Oil is a key Canadian export, thus having potentially consequential impacts on inflation and monetary policy. Meanwhile, Bitcoin suffered as China declared all cryptocurrency transactions illegal, extending crackdowns on parts of the economy.
There will be a plethora of central bank speeches in the week ahead. The most notable will come from Capitol Hill, where both Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will testify before Congress. Given rising inflationary pressures, policymakers may focus their attention on that front, perhaps reveling further insight into the central bank’s view on the topic.
Fed presidents from the New York, Atlanta and St. Louis branches will also be speaking for US Dollar traders. ECB President Christine Lagarde and BoE Governor Andrew Bailey are also on tap for those watching EUR/USD and GBP/USD respectively. The next round of US PCE data is due later in the week, which is the Fed’s preferred gauge of inflation. This could meaningfully impact monetary policy bets. What else is in store for markets in the week ahead?
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US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
The update to the US Consumer Price Index (CPI) is likely to sway the US Dollar during the Federal Reserve’s blackout period as the central bank braces for a transitory rise in inflation.
Short-term uncertainties to keep the pressure on equity markets.
Bitcoin (BTC) started the day on the front foot on the Twitter news before the latest China crypto ban hammered the market lower.
Crude oil prices may rise as global Covid case growth continues to slow, raising demand expectations. Eyes are on OPEC’s annual world oil outlook report. China’s Evergrande situation remains fluid.
Gold prices fell after a hawkish FOMC statement sent yields higher into the weekend, hurting the non-interest-bearing asset. PCE figures are in focus for gold traders this week.
Global stocks bounce back from recent pullback as key resistance levels lie ahead.
The USD could still rally a bit from here, but has resistance not far ahead that it will need to overcome if it is to extend to a larger degree.
Gold could suffer further near-term losses due to rising U.S. Treasury yields and a weak technical picture for price action.
Sterling continues to contract into trend extremes and the focus is on a pending breakout in the weeks ahead. Here are the levels that matter on the GBP/USD weekly chart.
The Japanese Yen remains in focus with strength potential on risk aversion themes to go along with weakness on themes around higher rates.
The Canadian Dollar rebounded temporarily. Evergrande, commodity prices and US economic data remain key catalysts for USD/CAD in the week ahead.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.