EUR/GBP Looking at EURGBP’s chart, we can see that the FX pair is traded 20 pips below its resistance level at around £0.8580. Today, if failed to break though the rate of £0.86, then we could expect it to drop further towards its next support level at around £0.8550 otherwise it should continue rising towards its next resistance level at around £0.8640-0.8650.

Gold recently corrected a large part of its previous move, but later traded above an important resistance level. Will it be able to sustain this move? The above chart features gold price in terms of weekly candlesticks. As you can see, it just approached its August high. The resistance is provided by the weekly closing prices, and since the current week ends today (Dec. 2), it’s likely that gold’s rally was just stopped or that it will be stopped today. Gold, just like many other markets, recently corrected ~38.2% of its previous move. Yesterday, however, gold rallied above this important resistance level. Now, the question is: will gold be able to hold this move, or will it invalidate the breakdown shortly? The RSI just moved above 70, and it’s a classic sell signal, which had worked many times before. The weekly resistance that I wrote about earlier is an important factor as well. Silver moved higher to a much bigger extent than gold did in today’s pre-market trading, and while the size of both moves is not huge, it’s something that confirmed the previous indications, and it’s a bearish sign. The reason is that the silver market is much smaller than the gold market is, and in addition to the above (and in relation to it), silver is much more popular with the investment public. The latter tends to buy close to the tops and sell close to the bottoms. Consequently, the particularly strong performance of the white metal indicates that the investment public is “buying like crazy,” and this, in turn, is a sign that a top is being formed. The reaction (rally) to jobless claims yesterday is consistent with the preceding. Market participants are doing the opposite of what makes sense (so, it seems that it is the general public that is making the purchases). Weaker jobless claims mean the Fed has more leeway to raise interest rates, and higher real interest rates are one (the other is the USD Index) of the key fundamental drivers pointing to lower gold prices.

Given the events of 2011 and 2012 in the Eurozone, the rapid rise in interest rates over the course of this year fueled concerns that some countries could come under pressure again. The European sovereign debt crisis was triggered by misreporting of public budgets (Greece), high foreign debt and bank distress, mainly due to burst real estate bubbles, which all resulted in an acute need for financing. This is a crucial difference from the current situation. The increase in financing costs will be a continuous process for public budgets. Only those parts of the public debt that will expire and thus have to be refinanced, as well as new debt, will be affected. The European Commission expects interest payments to rise by an average of just twotenths of economic output in the Eurozone next year. A considerable part of this is attributable to France alone. In Italy, by contrast, interest payments should remain stable relative to economic output in 2023 compared with 2022. The European Commission also expects interest payments to increase only very slowly in 2024. While higher inflation due to higher interest rates has a slow negative impact on government budgets, immediate positive effects come from revenues. Inflation led to an immediate strong increase in government revenues in 2021 and 2022, which was also significantly higher than the increase in spending (excluding interest) in 2022, despite the aid packages against energy inflation. This made up a lot of ground from 2020, when COVID led to a massive increase in spending and a decline in revenues. Even though inflation will fall next year, it will remain high on average for the year and will thus continue to boost public sector revenues. Expenditures will rise by roughly the same percentage. Overall, this means that government budget deficits in 2023 should remain virtually unchanged from 2022. The European Commission also expects little change for 2024. Thus, no significant deterioration in public budgets can be seen for the next two years. The sudden change in monetary policy, and with it the prospect of rapid interest rate hikes, led to a massive sell-off on the bond markets from the spring. In the process, the yield premiums of virtually all European government bonds against Germany rose. The elections in Italy in September then caused further uncertainty. Since October, however, yield spreads have narrowed significantly, which was probably also due to the course taken by the new Italian government. More crucially, however, there was a slight easing on the bond markets and yields generally fell. We expect this latest narrowing of yield spreads to at least hold. The stabilization of the European bond market that we expect after a very turbulent 2022, together with the outlook for public budgets, speaks in favor of this. The foreseeable withdrawal of liquidity by the ECB poses risks. We expect the ECB to reduce its portfolio from the APP program from April. Based on the expected redemption payments, we assume a maximum amount of EUR 25bn per month that could be withdrawn from the market in this way in terms of liquidity. However, with a total APP portfolio size of more than EUR 3,400bn, this means only a slow reduction. In addition, the PEPP portfolio, which is about half the size, but allows flexibility in reinvestment, will remain in place and support individual markets as needed. In the event of more severe market turmoil, the ECB may intervene through its TPI program. Repayments of banks' TLTRO loans to the ECB will almost certainly be much faster. We estimate that close to EUR 1,200bn will be repaid by the summer. To what extent this will affect the bond market is uncertain. Based on the development of the bank’s holdings of government bonds, we assume that most of the TLTRO loans have been re-deposited with the ECB and not invested in the bond market. The unwinding of these positions should therefore not have a noticeable impact on the bond market. Download The Full Week Ahead

This week, we published our latest global economic forecasts for 2023 and 2024 in The Big Picture - Recession with different undercurrents, 28 November. We expect the western economies to fall into a recession next year, but the drivers and length of the weakness vary between different areas. The euro area is on the brink of a recession already now, as the high inflation from energy supply shortages weighs on real incomes. Furthermore, we expect a ‘double-dip’ recession also on the H2 of 2023, as the impact from tighter financial conditions and the slowdown in the US weigh on growth. Colder weather has once again lifted natural gas and electricity prices from mid-November, highlighting how the energy supply situation still remains tight. While we forecast a modest recovery in 2024, limited energy supply will remain a structural hurdle constraining growth for years to come. The near-term outlook for US remains somewhat more upbeat although some of the leading indicators, including Chicago PMIs released this week, have already fallen to recessionary levels as well. We expect US economy the fall into a recession starting from Q2 next year, but compared to the euro area, the US recession will be more traditional policy-driven slowdown. After aggregate demand has cooled down into equilibrium with supply, the economy can start to recover towards its potential growth pace by H2 2024. We expect both ECB and Fed to maintain financial conditions restrictive well into 2023. In contrast however, Fed’s chair Powell appeared more confident in Fed’s ability to eventually cool down inflation back to target in his speech this week. Powell highlighted not just inflation risks, but also that Fed wants to avoid overtightening the economy into a recession, sparking a rally in the risk markets. As FOMC’s December meeting is less than two weeks away and the blackout period begins on Saturday, consensus and markets seem well aligned for a 50bp hike. That said, we discuss some of the reasons and data releases which could still tilt the balance towards a larger hike in Research US - 50 or 75bp? Fed's December Checklist, 30 November. The ECB also received some preliminary positive news this week, as euro area flash HICP eased from the October peak to 10.0%. That said, past rises in especially energy prices are still feeding into consumer prices. We also expect core inflation to only return to ECB’s target by H2 2024 (see details from Euro inflation notes - A 'sticky' problem, 30 November). The expectation of persistent inflation and further tightening in financial conditions is also reflected in our FX Top Trades 2023 - Our guide on how to position for the year ahead, 2 December, where we expect the broad USD strength to continue. Next week will be quiet in terms of key data releases as markets await the final ECB and Fed meetings of the year 14th and 15th of December. In euro area, October Retail Sales will be released on Monday, but focus will mostly remain on final ECB comments ahead of blackout starting on Thursday. In the US, ISM services index will be key to gauging if private consumption has truly cracked in November after PMIs signalled clearly weakening growth earlier. In China, Caixin Services PMI will be released on Monday, but focus remains on any new signals around the Covid and economic policies. The Reserve Bank of Australia will have a monetary policy meeting, we expect a 25bp hike. Download The Full Weekly Focus

The Bank of Canada's policy meeting will be the highlight of next week, and it's a very close call on whether to expect a 25bp or 50bp hike. For now, we favour the latter given robust third-quarter GDP data, ongoing elevated inflation readings and a tight jobs market. US: Recession fears remain elevated We are rapidly heading towards the 14 December FOMC meeting where a 50bp interest rate hike looks likely after four consecutive 75bp moves. Nonetheless, the Federal Reserve will not be pleased with the recent sharp falls in Treasury yields and the dollar, which are loosening financial conditions and undermining the Fed’s efforts to beat inflation down. Consequently, we are likely to see strong messaging in the press conference and the accompanying forecast update that the rate rises are not finished and that the policy rate is set to stay high for a prolonged period of time. Markets are likely to remain sceptical given that recession fears remain elevated. Softening consumer confidence, weaker ISM services and a relatively subdued PPI report are unlikely to do the Fed many favours next week in this regard. Canada: Favour 50bp however a very close call In Canada, the highlight will be the central bank policy meeting for which both markets and economists are split down the middle on whether it will be a 25bp or 50bp hike. We favour the latter given a robust 3Q GDP outcome, the tight jobs market and the ongoing elevated inflation readings. But we acknowledge there are signs of softening in the economy. The housing market is looking vulnerable and Canadian households are more exposed to higher rates than elsewhere due to high borrowing levels so we recognise this is a very close call. We are getting very close to the peak though, which we think will be 4.5% in 1Q 2023. Key events in developed markets next week Source: Refinitiv, ING' Read the original analysis: Key events in developed markets next week

Summary United States: Payrolls Beat Expectations, but Signs of Moderation on the Horizon Total payrolls rose by 263K in November, with the unemployment rate holding steady at 3.7% and average hourly earning rising by 0.6%. Personal income and spending increased 0.7% and 0.8%, respectively, in October, while the core PCE deflator increased 0.2% (MoM) and 5.0% (YoY). The ISM manufacturing index fell to 49 in November, while construction spending slipped 0.3% in October. Next week: ISM Services Index (Mon), Trade Balance (Tue) International: Is This the Peak? There have been recent signs that inflation might have peaked in some countries. In November, Eurozone price pressures cooled for the first time in over a year, as headline CPI slowed to a 10% year-over-year rate, from 10.6% in October. In addition to the Eurozone, Australian inflation data also showed an unexpected softening in price pressures. In October, headline CPI receded to 6.9% year-over-year. Next week: Reserve Bank of Australia (Tue), Bank of Canada (Wed), Mexico CPI (Thu) Interest Rate Watch: FOMC Set to Hike by 50 bps on December 14 Fed Chair Powell indicated in a speech this week that the FOMC likely will hike rates by 50 bps, instead of its recent pace of 75 bps, on December 14. But Powell also suggested that rates need to go even higher and remain in restrictive territory for quite some time. Credit Market Insights: The Beige Book Brings A Mixed Bag Economic activity was slightly up on balance. Employment continued to grow and prices continued to disinflate across most regions. Topic of the Week: China Inching Toward a Reopening? While our base case scenario remains unchanged in that we continue to believe Zero-COVID will remain the overarching policy in China, we do recognize that authorities have started to ease restrictions and further action toward reopening could be taken going forward. Read the full report here