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WEEKLY ANALYSIS

ECONOMIC CALENDAR

PIVOT

EUR/USD

European Central Bank surprised absolutely no one at its final rate decision of 2022. ECB likewise announced that it would begin increasing bond buying under the Asset Purchase Program (APP). Furthermore, the Governing Council determined that monetary accommodation is still needed for inflation to stabilise at the 2% inflation target over the medium term. In other words, for the ECB, the inflation rise is still very much ‘transitory.’

Market pricing around the projected path of ECB rates may still be too hawkish. Rates markets are now pricing in a 66% chance of the first ECB rate hike to arrive in October 2022, odds that may evaporate further over the coming months.

GBP/USD

Bank of England surprised markets with a 15-bps rate hike in its final meeting of the year. Ahead of the meeting, rates markets were pricing in roughly a 50% chance of a hike, effectively leaving half of market participants wrong-footed. But with UK inflation rates at 10-year highs and evidence that the labor market is healing more rapidly, markets think that more rate hikes may be ahead.

Following the BOE’s surprise, rates markets are discounting February 2022 as the most likely period for when rates will rise next, with a 66% chance of a 25-bps rate hike. There is still some room for rate hike pricing to rise further in the near-term, though it should be noted that there are over three 25-bps rate hikes priced-in through the end of 2022.

USD/JPY

USD/JPY is holding lower ground, pressured towards 113.50 on BOJ's status-quo. BOJ said it will scale back the pandemic emergency stimulus after its deadline in March 2022. Omicron variant has been sighted as a risk to upside inflation pressures. 

USD/JPY is a touch softer on the Bank of Japan announcements, although sticking to near flat for the day around 113.60. The BoJ has kept the policy balance rate unchanged at -0.1%, as expected and left the 10-year yield target unchanged at 0.0%, as expected as well. Covid loans will be extended to September. 

AUD/USD

AUD/USD struggles to keep the previous two-day advances as coronavirus woes challenge the bulls around 0.7170, down 0.07% intraday, during Friday’s Asian session.

Although Australia marks the covid vaccination milestone of 80%, the recent jump in virus variant pushes authorities to introduce tougher activity restrictions in Queensland. That said, the all-time high in coronavirus daily cases from the New South Wales (NSW) pushes the national count to 3,743 at the latest, per data from ABC News.

USD/CAD

The USD/CAD continues to pullback from a fresh monthly high (1.2938) following the kneejerk reaction to the Federal Reserve interest rate decision, and the exchange rate may face a larger correction over the coming days amid the failed attempt to test the yearly high (1.2949).

USD/CAD snaps the series of higher highs and lows carried over from the previous week as it tracks the broad range from the second half of the year, and the exchange rate may continue to give back the advance from the monthly low (1.2667) as the adjustment in the Fed’s forward guidance does little to fuel bets for an imminent rate hike.

XAU/USD

Gold, XAU/USD, remains in the hands of the bulls. At the time of writing, spot gold is trading at the highs of the day so far and between a range of $1,797.35 and $1,803.34

Gold is trading above the $1,800 psychological round number for the first time this month following a series of central banks that have, in some cases, surprised on the hawkish side. The various changes to monetary policy and guidance have been justified by the strength of global inflation. However, while there is some optimism in growth accompanying some of these central bank decisions, the risks to a downturn are starkly worrisome which is weighing on real yields.

WTI

WTI bulls attack a short-term key resistance around $71.90, up 0.10% intraday, during early Friday. OPEC’s outlook sees the world consuming 99.13 million barrels per day of crude in the first quarter of 2022, an increase of 1.1 million barrels per day from its last forecast a month ago, showing a more relaxed outlook on Covid-19 risks.

The omicron variant’s impact is projected to be mild and short-lived, OPEC’s latest monthly report said, adding that the world is better equipped to manage the pandemic. However, the market is still feeling the weight of bearish sentiment.

NASDAQ

The Nasdaq fell hard on Thursday, dragged down by a sell-off in big-name tech stocks poised to suffer from the Fed’s hawkish shift on potential interest rate hikes in 2022. The Nasdaq shed 2.47%.

First-time unemployment filings totaled 206,000 up from last week’s half-century low but down overall from the highs of their pandemic peak, reflecting labor market tightness brought on by a lingering shortage of workers. Housing starts rose 11.8% on a month-over-month basis in November, and activity in the U.S. services and manufacturing sectors decelerated in early December but still held in expansionary territory

#BABA

Alibaba (BABA) closed at $120.25 in the latest trading session, marking a -1.81% move from the prior day. This change lagged the S&P 500's 0.87% loss on the day.

Investors will be hoping for strength from Alibaba as it approaches its next earnings release. The company is expected to report EPS of $2.60, down 23.08% from the prior-year quarter. Meanwhile, our latest consensus estimate is calling for revenue of $39.37 billion, up 16.19% from the prior-year quarter.

#AXP

In the latest trading session, American Express (AXP) closed at $162.85, marking a -0.28% move from the previous day. This change was narrower than the S&P 500's 0.75% loss on the day. Prior to today's trading, shares of the credit card issuer and global payments company had lost 10.83% over the past month.

Wall Street will be looking for positivity from American Express as it approaches its next earnings report date. In that report, analysts expect American Express to post earnings of $1.75 per share. This would mark a year-over-year decline of 0.57%. Our most recent consensus estimate is calling for quarterly revenue of $11.38 billion, up 21.67% from the year-ago period.

#KO

Coca-Cola (KO) closed the most recent trading day at $58.65, moving +1.02% from the previous trading session. Shares of the world's largest beverage maker had gained 3.85% in the past month.

Coca-Cola will be looking to display strength as it nears its next earnings release. The company is expected to report EPS of $0.41, down 12.77% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $8.94 billion, up 3.77% from the year-ago period.

#DIS

Disney has been a popular stock for years as many parents have bought it for their children’s portfolios over the years. Despite being a pandemic winner thanks to its streaming service, the shares have now fallen about 18% year-to-date.

Disney is trading with a forward P/E of 34.8. It’s not exactly cheap on a P/E basis. However, Disney’s earnings are expected to be up 86.9% this fiscal year, with the Zacks Consensus calling for $4.28 up from $2.29 last year.

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