Q1 2022 Fundamental and Technical Forecasts
Q1 Fundamental Forecasts:
The US central bank announced a significant shift in its monetary policy stance to end 2021, but the ultimate impact of the more hawkish bearing seemed to barely register for the Dollar and risk assets in general.
As we close out the year, risks surrounding Fed policy have increased amid Washington's concerns over inflation, which in turn has prompted the Fed to taper asset purchases at a quicker pace and project three rate hikes in 2022.
The path forward has been anything but smooth as bitcoin investors have consistently weathered periods of gut-wrenching volatility. For some traders, this is an attractive feature of the asset, they eat volatility for breakfast. For others, it's enough to keep their capital away entirely.
While posting a modest positive performance in the final quarter of 2021, the shift by several central banks to begin withdrawing pandemic-era stimulus efforts had begun to weigh on longer-term inflation expectations, pushing up real yields at various points in time, undercutting gold's appeal.
After dropping almost continuously for more than six months, you might think that EUR/USD is overdue a substantial rally. The problem is that it remains almost impossible to imagine a catalyst for such a sustained move higher.
The Australian Dollar made a new low for the year in the fourth quarter, stopping short of the November 2020 low of 0.6991. It appears that the impact of commodity prices and long-term interest rates on the currency took a back seat to short-term interest rates and the strength of the US Dollar.
The anti-risk Japanese Yen had a mixed performance against its major peers throughout the fourth quarter of 2021. It weakened against haven-oriented currencies, such as the US Dollar and Swiss Franc. On the other hand, it found some strength against growth and cyclical-sensitive currencies.
The price of oil may face a bear market in the first quarter of 2022 as it falls nearly 20% from the 2021 high ($85.41).
The Bank of England (BoE) started the cycle of tightening monetary policy by hiking the UK Base Rate by 15 basis points to 0.25%, the first-rate hike in over three years, at the last Monetary Policy Committee (MPC) meeting of 2021.
Q1 Technical Forecasts:
For a year in which the USD spent much of the outing in a range, it was a great year for US Dollar volatility.
The U.S. stock market, and most of the world for that matter, remains pointed higher until it indicates otherwise through price action that suggests a broad correction or worse is unfolding.
Gold ended a two-year uptrend in August 2020. A modest pullback from there gave way to sideways drift in March 2021. Prices are now idling near the mid-point of the choppy range that has been carved out since.
Bitcoin came off quite a bit in Q4, and could continue to pressure its uptrend in the early part of Q1. This is starting to shape up as another long-term trend test, of which most often BTC has passed.
The Euro suffered significant losses against the U.S. dollar in 2021. Although trading was wobbly and largely directionless for the first five months of the year, the journey lower was relentless from June onwards.
The downward trajectory pertaining to the British Pound has recently developed against the greenback which currently holds firm at technical support and resistance levels which may persist into the new year.
The Japanese Yen saw significant weakness against the US Dollar in 2021. USD/JPY gained in all but three months last year, with the currency pair hitting the highest level since January 2017 in November.
In the absence of a sizeable bullish catalyst, it would seem that the current long term trendline will soon come under threat. This wouldn't necessarily be as a result of a strong bearish bias, but rather because of a slowing rate of price appreciation previously experienced as the global economy came out of lockdown and international travel resumed.
AUD/USD was weak for almost all of 2021, with the yearly high developing in February. The trend lower wasn’t the cleanest overall, but there were certainly periods where one-way momentum was strong. More periodic momentum is anticipated as we head into a new year.
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