A 50bp hike by the Fed is firmly expected. With concerns over the recent steep falls in treasury yields and the dollar, we are likely to end up at a higher ultimate interest rate than the bank indicated back in September. For the ECB, we think the risk of a 75bp hike has increased – still, we expect a 50bp hike, supported by hawkish communication as a compromise. US: A hawkish Fed message will likely fall on deaf ears Markets are firmly expecting the Federal Reserve to opt for a 50bp hike at the 14 December Federal Open Market Committee (FOMC) meeting after already implementing 375bp of rate hikes, including consecutive 75bp moves at the previous four meetings. The central bank has been at pains to point out that despite smaller individual steps, we are likely to end up at a higher ultimate interest rate than the central bank indicated was likely back in September. Its forecasts are likely to show the Fed funds rate rising above 5% with potential slight upward revisions to near-term GDP and inflation and a lower unemployment rate to justify this. Officials have been suggesting they may not cut rates until 2024 and we suspect Fed Chair Jerome Powell will echo this sentiment. Nonetheless, this “hawkish” rhetoric is likely the result of concern that the recent steep falls in Treasury yields and the dollar, coupled with a narrowing of credit spreads, is loosening financial condition – the exact opposite of what the Fed wants to see as it battles to get inflation lower. In terms of our view, we continue to expect a final 50bp rate hike in February, but with recession risks mounting, which will dampen inflation pressures further, we look for rate cuts from the third quarter of next year. Ahead of that announcement, we will have consumer price inflation data. The surprisingly soft core CPI print was the catalyst for the recent moves lower in Treasury yields and the dollar, and a second consecutive low reading would reinforce the market conviction that rate cuts are going to be on the agenda for the second half of 2023. This means Powell will have to battle hard with his commentary in the post-FOMC press conference to prevent financial conditions from loosening too much before inflation is defeated. UK: Hectic data week proceeds key Bank of England decision There’s probably just about enough in the latest UK data and recent Autumn Statement for the Bank of England to pivot back to a 50bp rate hike at its meeting next Thursday. Inflation looks like it has peaked, although BoE hawks will be keeping a close eye on the data due a day prior to its announcement. Headline CPI is likely to dip, however core could be more sticky, and last month’s data saw core services inflation come in slightly higher than the bank had forecast in November. Jobs data has also hinted at persistent labour shortages, which will keep the pressure on wage growth. Still, Chancellor Jeremy Hunt probably did enough last month to lower concerns that the BoE and the Treasury are working at cross-purposes, even if the fiscal tightening announced won’t have a huge bearing on the economy, relative to the Bank’s forecasts released last month. We expect a 50bp hike next week, and another 50bp hike in February, which is likely to mark the peak of this tightening cycle. Eurozone: Another jumbo rate hike has become more likely in recent days Macro data since the European Central Bank's October meeting has shown resilience in the eurozone economy in the third quarter but also confirmed a further cooling of the economy in the last few months of the year. The drop in headline inflation, as little as it says about the impact of the rate hikes so far, could at least take away some of the urgency to continue with jumbo rate hikes. At the same time, the ECB seems to be increasingly concerned that the fiscal stimulus and support measures announced could extend the inflationary pressure. ECB Executive Board Member Isabel Schnabel has been one of the more influential voices to watch, definitely since the summer with her Jackson Hole speech. Judging from her recent comments that “incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the 'neutral' rate", 75bp is clearly still on the table. We think that the risk of a 75bp rate hike at next week’s ECB meeting has clearly increased. Next to the rate hike, the ECB is likely to set out some general principles of how it plans to reduce its bond holdings. We expect the ECB to eventually reduce its reinvestments of bond purchases but to refrain from outright selling of bonds. Besides the ECB, industrial data for the eurozone are out...

GBP/USD snapped a four-week uptrend, gearing up for the Bank of England policy decision. US Dollar recovery faded ahead of the United States inflation, Federal Reserve meeting next week. GBP/USD held fort above the critical 200-Daily Moving Average, will it sustain for longer? GBP/USD ended the week almost unchanged, snapping a fourth straight weekly advance after being unable to find acceptance above the 1.2350 threshold. A pause in the recent United States Dollar (USD) decline capped the upside in the Pound Sterling amid a relatively quiet week, as traders geared up for a critical week ahead. The US Federal Reserve (Fed) and the Bank of England (BoE) interest rate decisions will be announced next week while the Consumer Price Index (CPI) from the United States will also hold the key for a fresh direction in the GBP/USD pair. GBP/USD bulls took a breather with US Dollar bears The British Pound extended its upbeat momentum against the United States Dollar at the start of the week and refreshed its six-month highs at 1.2344. The Cable entered a phase of upside consolidation thereafter, although it managed to sustain above the critical 200-Daily Moving Average (DMA). The first two trading days of the week saw the comeback kid, the US Dollar, rejoicing the revival of the hawkish Federal Reserve tightening expectations. The latest United States Nonfarm Payrolls report and ISM Services PMI data exceeded expectations and hinted at a relatively healthy American economy, which could allow the US central bank to continue its tightening cycle.   The Institute for Supply Management said its Manufacturing Purchasing Managers Index (PMI) rose to 56.5 last month, up from November's reading of 54.4. Economists were looking for a drop to 53.1. United States Factory Orders jumped 1.0% in October after rising 0.3% in September and against expectations of 0.7%. The United States Bureau of Labor Statistics (BLS) showed Friday that the Nonfarm Payrolls increased by 263,000 in November vs. the 200,000 expected. The staggering US Dollar recovery fizzled midweek as China's relaxation of Covid restrictions lifted the broader market sentiment despite the country's narrowing trade surplus. A lack of top-tier economic news from the United States, and the United Kingdom left GBP/USD gyrating in a familiar range between the 1.2300 and 1.2100 price range in the balance of the week. The US Dollar resumed its downside momentum in tandem with the Treasury yields, as fears mounted over a probable recession in America after top US banking giants, JP Morgan and Goldman Sachs, warned of an inevitable recession in 2023. Traders also resorted to repositioning ahead of a big central banks' week, with the Federal Reserve and Bank of England both expected to hike their policy rates by 50 basis points (bps). Ahead of the weekend, the US Bureau of Labor Statistics reported that the annual Core Producer Price Index (PPI) declined to 6.2% in November from 6.7% % in October. This reading came in higher than the market expectation of 6% and helped the US Dollar gather strength. The positive impact of the PPI data on the currency, however, remain short-lived and GBP/USD managed to hold in positive territory at around mid-1.2200s. Central banks to hog the limelight Investors brace for an eventful week before a lull sets in the market, as we progress toward the Christmas and New Year holidays. The big week kicks off with the United Kingdom's monthly Gross Domestic Product (GDP) and Industrial Production data releases while the Federal Budget Balance will be reported from the United States. Next of note will be Tuesday's UK Employment and Wage inflation data, followed by the all-important United States Consumer Price Index (CPI), with the core inflation figures accelerating across the horizon. The uptick in the core inflation could reinforce expectations for a Federal Reserve terminal rate beyond 5%, triggering a fresh US Dollar rally at the expense of the Pound Sterling. Although the reaction could be short-lived, as GBP/USD traders brace for Wednesday's UK Consumer Price Index data, with the inflation hitting a new 41-year high at 11.5% in November. The US Federal Reserve interest rate decision and Chair Jerome Powell's press conference, however, will steal the show on Wednesday, as investors will eagerly await fresh cues on the central bank's policy outlook and economic projections for a new US Dollar price direction.   The focus will then shift toward Thursday's Bank of England monetary policy decision. With a 50 bps rate hike fully baked in, all eyes will be on the central bank's 2023 rate hike outlook. The language of the monetary policy statement will also hold the key for GBP/USD valuations. The United States will also report the Retail Sales data on Thursday alongside the Industrial Production and other minority data publications. The S&P Global Preliminary Manufacturing and Services PMIs from the US and...

Gold price managed to shake off the bearish pressure following Monday's slide. The technical outlook suggests a bullish bias remains intact. US CPI data and Federal Reserve's policy announcements will dominate the market action next week. Gold price started the week under bearish pressure and lost more than 1.5% on Monday before regaining its traction. XAU/USD extended its rebound toward $1,800 in the second half of the week but ended up closing the week virtually unchanged. Inflation data from the US and the Federal Reserve's policy announcements next week will help investors decide whether Gold price will be able to extend its bullish rally into the end of the year. What happened last week? Although several cities in China decided to ease coronavirus curbs over the weekend, markets turned risk-averse after the data from China showed that the business activity in the service sector continued to contract at an accelerating pace in November. In turn, the US Dollar gathered strength as a safe haven and forced XAU/USD to stay on the back foot at the beginning of the week. On Tuesday, the data from the US showed that the ISM Services PMI improved to 56.5 in November from 54.4 in October, helping the US Dollar preserve its bullish momentum, making it difficult for Gold price to stage a rebound.  China, Gold's premier importer, announced additional easing measures mid-week and Gold price started to retrace its decline on renewed optimism about an improving demand outlook for the precious metal. The Chinese government said asymptomatic positive cases or cases with wild symptoms will be allowed to quarantine at home for seven days. "Any form of mobility control should not be implemented," the National Health Commission further noted in a statement and explained that mass PCR testing will be largely abandoned and be restricted to hospitals, nursing homes and schools. In the absence of high-impact data releases, risk flows continued to dominate the financial markets on Thursday and XAU/USD benefited from the selling pressure surrounding the US Dollar.  On Friday, the data from the US showed that the Producer Price Index (PPI) declined to 7.4% on a yearly basis in November from 8.1% in October as expected. The Core PPI declined to 6.2% in the same period, surpassing analysts' estimate of 6%. With the initial reaction, the US Dollar gathered strength against its rivals but XAU/USD didn't have a difficult holding its ground ahead of the weekend. Next week The US Bureau of Labor Statistics will release November inflation data on Tuesday. On a yearly basis, the Consumer Price Index (CPI) is forecast to stay unchanged at 7.7%. The annual Core CPI, which excludes volatile food and energy prices, is expected to edge higher to 6.4% from 6.3% in October. The market reaction to the inflation report is likely to be straightforward with a lower-than-expected Core CPI reading weighing on the US Dollar and providing a boost to XAU/USD and vice versa. Ahead of the Federal Reserve's policy announcement on Wednesday, however, investors could refrain from making large bets and the impact of CPI data on Gold price could remain short-lived. According to the CME Group FedWatch Tool, markets are pricing in a high 80% probability of a 50 basis points (bps) rate hike following the December policy meeting. Considering that FOMC Chairman Jerome Powell acknowledged in his last public appearance that it would make sense to moderate the pace of interest rate hikes, a 50 bps increase should not come as a big surprise. In case the Fed opts for a 75 bps hike, which is an extremely low possibility at this point, XAU/USD is likely to come under heavy bearish pressure and fall sharply. If the Fed raises its policy rate by 50 bps as widely anticipated, the Summary of Economic Projections (SEP) - the so-called dot plot - will be scrutinized for clues on future rate hikes instead by market participants.  In September, the dot plot showed that officials' median view of the Fed's terminal (final) rate stood at 4.6%. The terminal is likely to be revised higher in December's SEP. A reading closer to 5.5% than to 5.0% could be seen as reflecting a hawkish outlook by the majority of members, and trigger a rally in the US Treasury bond yields, as well as the US Dollar. On the flip side, a terminal rate at or below 5.0% should allow markets to remain optimistic about a Fed policy pivot in the second half of 2023 and force the US Dollar to continue to weaken against its rivals. Investors will also pay close attention to Gross Domestic Product (GDP) growth forecasts in the dot plot. In September, Fed officials saw the US economy expanding by 1.2%. A significant downward revision to 2023 growth projection could hurt the US Dollar while a figure close...

US PPI Inflation and Consumer Sentiment Eyed; EUR/USD Nears Resistance The main economic highlight in Thursday’s session was the (weekly) unemployment filings out of the US for the week ending 3 December. According to the US Department of Labour, unemployment claims rose 230,000, 4,000 higher than the previous upwardly revised 226,000 reading; the release was largely in line with economists’ forecasts. The 4-week average also ended at 230,000, up 1,000 based on the previous week’s moving average value (revised). Continuing claims was higher at 1,671,000 from 1,609,000 the week prior. Overall, however, this data was largely ignored across the markets. The full release can be accessed here www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20222290.pdf.  Economic Calendar Today? YoY Chinese Inflation Rate for November at 1:30 am GMT (Expected: 1.6%; Previous: 2.1%). MoM US Producer Price Index (PPI) for November at 1:30 pm GMT (Expected: 0.2%; Previous: 0.2%). US Preliminary University of Michigan (UoM) Consumer Sentiment for December at 3:00 pm GMT (Expected: 56.9; Previous: 56.8). Technical View for Key Markets (09/12/2022) EUR/USD: Buyers at the Wheel? It has been a somewhat muted week thus far for the EUR/USD currency pair. Kicking things off with the weekly scale, price remains comfortable north of its support level from $1.0298, a barrier that was breached in early November. Overhead has resistance in view at $1.0778: a Quasimodo support-turned resistance. For this reason, and given the upward movement since bottoming at $0.9536, further outperformance could be on the table for the unit, longer term.  Meanwhile on the daily timeframe, resistance forged from $1.0602 is nearby. This comes after price climbed north of the 200-day simple moving average ($1.0353) as well as resistance coming in at $1.0377 (now a marked support). Interestingly, should price overthrow $1.0602, prime resistance can be seen at $1.0954-1.0864. You will also acknowledge that the relative strength index (RSI) remains trawling the underside of the overbought space, and nearing channel support, taken from the low 25.68. Against the backdrop of the bigger picture, the H1 timeframe has price on the verge of reaching for Quasimodo resistance at $1.0585, followed by a larger Quasimodo resistance coming in from $1.0607 (in between, of course, resides the $1.06 psychological figure).  All three timeframes, therefore, call for additional short-term buying, at least until reaching the $1.06ish region. BTC/USD: Medium-Term Technical Harmonic Formation in Play H4 Timeframe The price of bitcoin against the US dollar (BTC/USD) has been entrenched within a notable downtrend since topping in late 2021. Long term, therefore, this has opened the door for sell-on-rally scenarios. Shorter term, nevertheless, price recently touched gloves with the underside of an AB=CD bearish pattern, consisting of a 100% projection at $17,321 and a 1.618% Fibonacci extension from $17,291. The test was also accompanied by the relative strength index (RSI) forging negative (bearish) divergence.  As you can see, the AB=CD (harmonic) resistance has since enticed selling. Common downside targets derived from the AB=CD formation (legs A-D) are fixed at the 38.2% and 61.8% Fibonacci retracements from $16,630 and $16,194, respectively. Consequently, the noted support targets will likely be closely monitored going forward, with a breach perhaps unearthing additional selling.  DAX40: Inefficient Price Action? H4 Timeframe The DAX 40—Germany’s major stock market index covering the performance of 40 blue-chip companies—is offering interesting price action. The one-sided advance on 10 November formed what is known as inefficient price action (the market favours efficient price action and generally fills inefficient price moves [think of these as similar to gaps as you would see in individual stocks]).  14,077-14,141 demand is a key watch for the index, following a to-the-point reaction from Quasimodo resistance at 14,605. Below current resistance at 14,322, we can see that the area under (yellow oval) the aforementioned demand is inefficient action, meaning price may be drawn to fill this void and test support from 13,969.  Therefore, based on the above analysis, sellers may remain in the driving seat under resistance at 14,322, with short-term breakout selling perhaps unfolding south of demand at 14,077-14,141 towards support at 13,969.

Summary The pandemic and the associated macroeconomic policy response imparted some outsized imbalances to many economies. How households, businesses and policymakers respond to the trade-offs that they face will collectively determine economic performance in 2023. Surging demand in conjunction with constrained supply has caused inflation in the United States to shoot up to its highest rate in decades. The Federal Reserve now faces an unpleasant dilemma: the FOMC needs to raise rates further to ensure that inflation recedes back toward target, but excessive tightening could lead to recession. We believe the FOMC will err on the side of bringing down inflation at the expense of a U.S. economic downturn in 2023. Inflation has eroded real personal income in the United States. Yet American households have been able to maintain solid growth in spending by bringing down saving rates and incurring more credit card debt. Admittedly, these trends could potentially continue in 2023, but we look for consumer spending to begin a period of retrenchment. Some households must decide whether to buy a house, which has become less affordable due to surging mortgage rates and the skyrocketing of home prices since the pandemic began, or to rent, the cost of which has also shot up significantly. Their decisions regarding where to live will help to determine the economic outlook in many regions of the country. Businesses have struggled over the past few years to find qualified workers, and they are understandably reluctant to displace them. But we look for many firms to eventually reduce capex and cut payrolls to protect margins squeezed by elevated labor costs and flagging demand. Central banks in many foreign economies face the same dilemma as the Federal Reserve. That is, they too need to bring down inflation from multi-decade highs, but excessive tightening could lead to recession. Like their counterparts at the Fed, we look for foreign central bankers to choose inflation reduction. Consequently, we forecast that many foreign economies will be in recession in 2023. The U.S. dollar has strengthened vis-á-vis most foreign currencies in 2022, and we look for this trend to continue early next year. But as market participants begin to anticipate eventual policy easing in the United States, we believe the greenback will start to trend lower beginning in mid-2023. Download The Full Annual Economic Outlook

S&P 500 didn‘t break the3,905-3,910 zone, not even overnight. Most tellingly, USD couldn‘t catch a proper bid on yields turning sharply up, and commodities in the black merely confirm risk-on sentiment to win today. The bears fumbled during the European sessions, and the relative performance of value and tech highlights where to look for gains today (in the cyclicals). See the turn in intraday appreciation for oil (always good when the laggard wakes up – silver with copper continue to lead gold, and miners are to do very well) as it relates to the dollar, and how USD‘s intraday reversal reflects on what‘s to come today – already today, and not after tomorrow‘s PPI release: (…) The key catalyst to look for in terms of upside fuel, is Friday‘s PPI that‘s likely to show slowdown in inflation, and then Tuesday‘s CPI probably to come at 7.5 or 7.6% YoY, which would once again (in both cases) feed into the „Fed would now really go slow on tightening aka pivot“ angle that markets are way too willing to run with. Willing as in misguided, because the Fed isn‘t getting less restrictive at all – see rate hiking and balance sheet shrinking combined, effects to play out still. No better indicator of demand destruction to come than the price of oil really – sign of caution. Referring to the title, it‘s the USD-yields-commodities interplay, which will result in nice day of real asset trailed by stocks market gains. Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there, but the analyses (whether short or long format, depending on market action) over email are the bedrock. So, make sure you‘re signed up for the free newsletter and that you have my Twitter profile open with notifications on so as not to miss a thing, and to benefit from extra intraday calls. Let‘s move right into the charts. S&P 500 and Nasdaq outlook No break of the 3,905 – 3,910 support, declining volume, and crucially the above mentioned inconsistencies within the bearish push as 3,910 didn‘t break overnight regardless of a good run at it aftermarket when the bears still had the initiative that was lost during the European session only. 3,965 followed by 3,980 are the upside levels. Credit markets HYG recovered from intraday weakness into the close, and that was constructive – even if junk bonds underperformed TLT. During the European morning, the market shook this off, and will continue to add to gains.