Daily Market Analysis from ForexMart

Gold's price rises again amid the strengthening coronavirus risks

The new COVID-19 strain has left a negative imprint on Christmas this year, helping gold in post-holiday trading in Asia. On Monday morning, the metal started to rise.

Last week, which was shortened due to the celebration of Christmas, the precious metal closed with a rise of 0.4%. The quotes were mainly supported by the growing fears about the spread of the Omicron strain.

On Monday, investors remained concerned that a new variant of the coronavirus could slow the global economic recovery. The degree of panic in the market is raised by disappointing statistics.

It should be noted that the average number of new coronavirus patients in the US last week rose 45%, namely to 179,000 per day. In addition, the UK and France are reporting a new daily high of COVID-19 cases. In these countries, the figure exceeded 122 thousand and 94 thousand, respectively.

The surge in morbidity has led to additional restrictions on Christmas, when travel has traditionally been increasing. To reduce the spread of the virus, commercial airlines around the world canceled more than 4,500 flights over the holiday weekend.

In view of this, the US dollar and the yield on US Treasuries began the new trading week on a minor note. Earlier, the index of the US currency declined by 0.08%, reporting to 96.10 points. At the same time, the yield fell to 1.482%, retreating from the 2-week high reached the day before.

The weakening US dollar and falling yields allowed gold to rise to $1,812.

The tense geopolitical situation also contributed to the upward dynamics of precious metals on Monday morning.

On the other hand, analysts call optimistic data on US retail sales during the holiday shopping season as among the negative factors that are holding back gold's growth. According to the MasterCard report, the indicator increased by 8.5% from November 1 to December 24.

In addition, a current potential danger for the yellow asset is the prospect of adopting the plan of US President Joe Biden. According to experts, any comments on the approval of this bill may put downward pressure on gold quotes in the near future, while on the contrary, the demand for risky assets will grow.

In general, analysts are confident that this week's trading of gold will be weak and limited by a narrow price range because it is currently impossible to single out any particularly powerful trigger among the contradictory factors that are present in the precious metal market.

Experts suggest that a stronger price fluctuation on the current seven-day period is likely to be caused by the publication of the Federal Reserve Bank of Dallas production index for December. Economists expect an increase to 13.2 from the 11.8 achieved last month.

Trading plan for starters of EUR/USD and GBP/USD on December 28, 2021

Here are the details of the economic calendar for December 27, 2021:

The macroeconomic calendar was empty yesterday, and it was a non-working day in the UK. As a result, market activity was quite low – currencies mostly stood still.

Analysis of trading charts from December 27:

The EUR/USD pair is moving within the upper border of the side channel 1.1225/1.1355, where the wide amplitude has been replaced by a narrow one. This may signal the process of accumulation of trading forces before a new price increase.

The GBP/USD pair locally updated last week's high of 1.3436, but this did not lead to drastic changes. The quote remained in the same place. This confirms the formation of stagnation, which may become a catalyst for trade forces in the long term if new speculative surges are observed.

Despite a fairly strong price growth, there is still a downward trend relative to the daily period. The upward movement may be classified as a correction.

December 28 economic calendar:

Today is not much different from the past. It is still a non-working day in the UK due to the celebration of "Boxing Day". Among the statistical indicators, only the S&P/CaseShiller housing price index in the United States can be noted, which is expected to fall from 19.1% to 18.5%. It is unlikely that the data will affect anything in the market.

Trading plan for EUR/USD on December 28:

The stagnation within the upper border of the flat may be replaced by a decline if the rebound trading method is executed. A signal to sell the euro will appear in the market when the price is kept below the level of 1.1300. This step will lead to the quote's decrease towards the area of 1.1265 - 1.1225.

An alternative scenario of market development considers the tactics of breaking the upper border of the flat. In this case, the euro will receive a short-term signal towards the 1.1400 level. The main signal about the change of trading forces will appear in the market after the price holds above the level of 1.1400 in the daily period.

Trading plan for GBP/USD on December 28:

It is impossible to exclude price surges that will lead to the end of stagnation since there is a high speculative interest in the market. So, traders consider local buy positions above the level of 1.3450 in a four-hour period. This may lead to a prolongation of the correction course in the direction of 1.3510.

The downward trend scenario will become relevant when the price holds below the level of 1.3370. This will lead to a decline towards 1.3290.

A candlestick chart view is graphical rectangles of white and black light, with sticks on top and bottom. When analyzing each candle in detail, you will see its characteristics of a relative period: the opening price, closing price, and maximum and minimum prices.

Horizontal levels are price coordinates, relative to which a stop or a price reversal may occur. These levels are called support and resistance in the market.

Circles and rectangles are highlighted examples where the price of the story unfolded. This color selection indicates horizontal lines that may put pressure on the quote in the future.

The up/down arrows are the reference points of the possible price direction in the future.

Forecast for AUD/USD on December 29, 2021

Yesterday, the Australian dollar attempted to converge with the daily MACD line. The attempt failed and the price quickly returned below the balance indicator line. It ended the day below the balance line, which confirmed our position on the corrective nature of the aussie's entire growth since December 6th. At the moment, the price has gone below the target level 0.7272, closing the day below it will mean settling below the level and its further intention to overcome 0.7171 and head to 0.7065.

On the four-hour chart, the Marlin Oscillator has entered the negative zone - the territory of the downward trend. Confirmation and reinforcement of this signal will be the price drift under the MACD indicator line, below 0.7205.

Forecast for USD/JPY on December 29, 2021

As a result of yesterday, the USD/JPY pair dropped by 4 points, which can be taken as consolidation after the 50-point growth on Monday. This consolidation also suggests that the price is accumulating potential for further growth. The growth target is the 115.80-116.15 range. Returning under the MACD line (114.24) will reverse the downward trend, its nearest target is 113.25.

On the 4-hour chart, the signal line of the Marlin Oscillator is approaching the zero line, the crossing of which will be an early signal for a reversal. Most likely, this will happen when the price settles below yesterday's low of 114.72, that is, the pair should grow from the current levels in order not to give such an embarrassing signal. However, the correction may develop to the level of 114.24 already noted on the daily chart.

Bitcoin's indefinite direction this 2022

Bitcoin begins this year with cautious growth, wobbling on the edge of declining again. Nevertheless, many experts are optimistic about its prospects.

Most analysts are confident that the first cryptocurrency will rise this month. Crypto market experts agree that the first month of the new year will lay the foundation for Bitcoin's growth. According to preliminary calculations, it is likely to grow during the first quarter of 2022. This is facilitated by the activity on the part of institutional investors.

For the last seven years, the years 2020 and 2021 turned out to be the most favorable for the cryptocurrency industry. Bitcoin's price growth during the reporting period was 22%. It can be recalled that from 2015 to 2019, January was characterized by a decline for BTC. According to preliminary estimates, the average decline in digital assets over the years was 17%. At the same time, the average market rate of Bitcoin did not exceed $ 29,000 in early January 2021. The peak price of the leading crypto asset reached $69,000 in November 2021. Later, BTC collapsed by 53%, to $ 28,805. Fortunately, buyers regained their previous losses during the second quarter of the past year, although Bitcoin failed to retain its recovered positions after that. By the end of 2021, the yield of the first cryptocurrency was 72%.

The digital asset ended at around $47,500 during the previous year. On Monday, the BTC/USD pair was around the level of $46,921. It should be noted that at the end of December 2021, Bitcoin was trading at $ 46,300, unsuccessfully trying to rise. Over the past month, it decreased by 19%, which turned out to be one of the worst results since December 2011.

The first cryptocurrency started to fall when the Fed announced its decision to curtail the asset purchase program. The Fed's course of tightening monetary policy hit Bitcoin hard, which plunged noticeably and remained in a downward trend until the end of 2021.

It is usually cautious in the first month of the new year since traditionally, January is not considered a very positive month for this cryptocurrency. Many analysts fear the onset of the crypto winter, during which BTC will lose the major share of its value. In the event of a strong correction of risky assets, experts warn that it will decline to $ 10,000. Three factors can act as a catalyst for the crypto winter: a decrease in the activity of institutional investors, the introduction of national cryptocurrencies (CBDC) by many countries, and the struggle of regulators with the revolutionary blockchain technology sector – GameFi.

However, most experts expect an upward turn in the industry and believe in Bitcoin's prospects. This is facilitated by the high restorative power of Bitcoin and the belief in innovative means of payment as the money of the future. The short and medium-term planning horizon for Bitcoin is also encouraging. Under favorable circumstances, experts summarize that it may be in the range of $72,000 - $75,000 in the first half of 2022.

New year, same dilemma: which to choose between gold or stocks?

The beginning of the new year brought losses to the precious metal. Traders turned away from it, disappointed with how the year 2021 ended in the gold market. As a result, gold declined by 3.6%.

Last week, gold rose by 0.9%, which led to a monthly increase of almost 3% and a quarterly increase of about 4%.

However, the yellow asset ended the year with losses. It showed the sharpest annual drop in 6 years. It plunged by 3.6%, while it fell by more than 10% in 2015.

The results of 2021 disappointed investors. On Monday, the gold market was dominated by a bearish mood. During trading, the precious metal fell 1.6%, or $ 28.50, and fell to a 2-week low of $ 1,800.10.

The fading fears about a new strain of coronavirus were also a strong negative factor for gold. The low mortality rate and hospitalization of patients with Omicron give hope that COVID-19 will not paralyze the world economy in the coming year.

On the wave of optimism about the prospects for global economic growth in 2022, the US stock market was in an optimistic state on Monday. The main US indices rose – Dow Jones Industrial Average increased by 0.68%, and the S&P 500 also did so by 0.64%.

A good start to the year for the US dollar also contributed to the rise of indicators. The US currency strengthened by 0.3% due to the significant dynamics of the yield of 10-year US bonds, which reached the highest level yesterday since November.

Most likely, the US dollar and yields will continue their upward movement this week. They will be supported by the monthly report of the US Department of Labor for December.

Economists expect an increase in hourly wages by 0.4% compared to November when the indicator rose by 0.3%. The number of jobs in the non-agricultural sector of the country is also forecasted to rise by 400 thousand. This is almost twice the value recorded in the previous month.

According to strategist Chintan Karnani, it is imperative for gold to trade above the 200-day moving average of $ 1,806.40 right now in order to remain in the short-term bullish zone. Otherwise, we will see a sharper increase in market sales.

Meanwhile, most traders are cautiously optimistic about the future prospects of gold, despite the fact that historically, January is considered a seasonally favorable period for the yellow asset.

At this stage, investors prefer more risky financial instruments to the precious metal, i.e. stocks. However, experts warn that this year will be difficult for the stock market.

It is threatened by rising inflation, continued soft monetary policy by central banks, and a coronavirus that will not go away in the next 12 months. Against this background, gold will feel as comfortable as possible.

At the same time, geopolitical problems will help gold, which will become even more acute in 2022, analyst Jim Wyckoff believes. A bubble in the Chinese real estate market, which may burst, will facilitate this.

Pound sterling achieved new records

As January begins, the British currency decided to keep up with the American one and achieve new records. The pound has now succeeded in its plans, but experts warn about the temporary nature of its growth.

The pound began the new month of the new year by reaching price highs. On Tuesday, it approached two-year highs against the European currency and slightly fell amid the strengthening of the US dollar (by 0.12%, to 1.3464). This was facilitated by a prolonged rise in the cost of government bond yields amid growing expectations about the Bank of England's rate hike. According to preliminary calculations, the interest rate increase will occur next month.

The current situation gave impulse to the pound, which it successfully used. On Wednesday morning, the GBP/USD pair was trading at the level of 1.3527, regaining previous losses and heading towards new levels. However, experts are worried that the pound will not be able to hold on to the reached positions in the mid-term and will plunge again.

Many economists believe that the growth of the pound and the GBP/USD pair will be temporary if inflation in the US and UK accelerates. Currently, the British economy is growing at a slower pace than the American one. The reason for this is the Fed's decisive action on key issues related to stimulus cuts and multiple rate hikes in 2022. As for the Bank of England, it is not planning any radical changes in its monetary policy in the near future. At the moment, the key interest rate of the Fed and the Central Bank of England is at the same level – 0.25%.

If the British regulator refrains from further tightening monetary policy and raising rates, then the pound's growth will be questionable. On the other hand, the Fed's hawkish actions are helping the US dollar's growth, which will continue in 2022. The multi-directional monetary strategies of the Fed and the Bank of England create prerequisites for a decline in the GBP/USD pair in the coming year.

The current superiority of the pound is explained by several factors, including the Bank of England's sudden increase in rates recorded in December 2021, and the refusal of the British authorities from new restrictive measures. According to British Prime Minister Boris Johnson, the new mutation of the Omicron coronavirus is much milder than other strains. Market participants expect a two-fold increase in rates by the Bank of England. It is possible that the rate will be increased by 15 basis points (bp) by the March meeting of the regulator. By the end of this year, experts do not exclude an additional increase. According to economists, the Bank of England will continue this strategy in 2023.

Economic activity in the UK has remained stable for several months. According to the latest PMI reports, production in the country in December 2021 grew at a faster pace than expected. This inspires the markets with optimism and allows them to make positive forecasts. During the reporting period, the number of jobs fell slightly, but this was offset by an increase in the volume of new orders and an increase in production. Analysts' concern was caused by a significant increase in prices, increasing fears about a new round of inflation.

The current turmoil did not stop the pound's rally, which peaked at the level of 1.4212 in May last year. However, it was brought down by the unexpected decision of the Bank of England in December not to raise interest rates. Against this background, it declined to the lows of 2021 (1.3200), but later recovered. Currency strategists at DBS Bank expect the GBP/USD pair to remain in a low range of 1.2800-1.3300 this year.

The factors slowing down the rate hike by the regulator may be the problems associated with Brexit, as well as difficulties in the trade negotiations between London and Brussels. It is possible that if the negotiations fail, the British government will apply Article 16 and start a trade war with the EU. The implementation of such a scenario would jeopardize the stability of the British economy and national currency. However, analysts hope to reach a compromise in the course of mutually beneficial trade cooperation.

Dollar still dominates other major currencies

Europe's single currency cannot outperform the US dollar. This was stated by Steen Jakobsen, chief investment officer at Saxo Bank. One of the main reasons is that the European regulator is the most static central bank in the world. Thus, the European Union's benchmark interest rate has remained at zero for quite some time, i.e. has not changed since March 2016. Furthermore, ECB head Christine Lagarde sees no reason to raise interest rates in 2022.

According to Eurostat, Euro area annual inflation rose to 4.9% in November, the highest in 25 years. Jakobsen believes that the EU economy can grow faster than the economies of other countries or show a current account surplus. The surplus is falling due to obvious difficulties in the services sector. This also applies to Germany, the eurozone's largest economy.

As for the US dollar, according to the SWIFT, it was still able to hold onto its position as the main currency in the international settlement ranking in November. Thus, the US dollar gained 39.16%. That means it rose by 1.53% in 12 months. It has strengthened due to the widening interest rate gap as well as inflation dynamics in the US compared to other major markets such as Japan and Europe.

The euro was clearly underperforming. It gained 37.66%, with a year-on-year increase of only 0.22%. Among the leaders were the British pound, Japanese yen, and Chinese renminbi.

A monetary tightening by the US Federal Reserve, which is expected by analysts in March, will give the dollar the strongest support, making it extremely difficult for most currencies to rise against the US dollar in the coming months.

It is the interest rate differential, not the coronavirus, that will determine sentiment in the major currency markets in the near future. The vast majority of analysts polled by Reuters are confident that fluctuations in the currency markets will become noticeably greater over the next three months. Notably, this confidence applies not only to the currencies of the major markets but also to emerging market currencies.

After an interest rate hike already in the first month of spring, the US regulator is expected to start reducing its assets. The dollar could then feel superior to the other major currencies. By the way, financial markets expect at least three rate hikes in the US this year.

US shares mixed at close of trade; Dow Jones Industrial Average down 0.45%

At the close in New York, the Dow Jones shed 0.45%, the S&P 500 shed 0.14% and the NASDAQ Composite shed 0.05%.

In the leaders of growth among the components of the Dow Jones at the end of today's trading were shares of Intel Corporation, which rose in price by 1.77 points (3.31%), to close at 55.21. Merck & Company Inc added 2.58% or 2.07 points to end trade at 82.37. UnitedHealth Group Incorporated rose 1.40% or 6.40 points to end at 465.00.

The biggest losers were Nike Inc, which fell 4.16% or 6.53 points to end the session at 150.44. Boeing Co shares were up 2.87% or 6.19 points to end at 209.31, while Visa Inc Class A was down 2.30% or 4.99 points to 211. , 97.

The leaders of growth among the components of the S&P 500 index at the end of today's trading were shares of Moderna Inc, which rose in price by 9.28% to the level of 233.70, Humana Inc, which gained 6.06%, to close at 385.18, as well as shares Hologic Inc, which were up 4.47% to end at 73.45.

The biggest losers were Take-Two Interactive Software Inc, which fell 13.13% to close at 142.99. Cardinal Health Inc shed 5.92% to end the session at 51.03. Estee Lauder Companies Inc was down 5.36% to 335.89.

The top gainers among the components of the NASDAQ Composite index at the end of today's trading were shares of Bone Biologics Corp, which rose 57.14% to reach 5.39, Zynga Inc, which gained 40.67% to close at 8.44, and Molecular Partners AG ADR shares rose 30.22% to end at 21.50.

The biggest losers were TDH Holdings Inc, which fell 81.86% to close at 0.740. Kidpik Corp shares lost 27.47% and ended the session at 4.75. Rapid Micro Biosystems Inc was down 21.23% to 7.20.

On the New York Stock Exchange, the number of securities that fell in price (2052) exceeded the number of those that closed in positive territory (1186), while the quotes of 158 shares remained practically unchanged. On the NASDAQ stock exchange 2,493 companies fell in price, 1,368 increased, and 206 remained at the level of the previous close.

Take-Two Interactive Software Inc fell to a 52-week low, down 13.13%, 21.61 points to trade at 142.99. TDH Holdings Inc fell to a 52-week low, down 81.86%, 3.340 points to trade at 0.740. Kidpik Corp's shares fell to historic lows, down 27.47%, 1.80 points, to close at 4.75. Molecular Partners AG ADR rose to all-time highs, up 30.22%, 4.99 points, to close at 21.50. Rapid Micro Biosystems Inc fell to historic lows, down 21.23%, 1.94 points to end at 7.20.

The CBOE Volatility Index, which measures the value of S&P 500 options trading, was up 3.41% to trade at 19.40.

Gold Futures for February delivery was up 0.21% or 3.85 to $ 1.801.25 a troy ounce. Elsewhere in commodities, WTI crude for February delivery fell 0.62%, or 0.49, to $ 78.41 a barrel. Futures contracts for Brent oil for delivery in March were unchanged 0.00%, or 0.00, to trade at $ 81.02 a barrel.

Meanwhile, on the Forex market, EUR / USD was up 0.03% to hit 1.1327, while USD / JPY was flat 0.00% to hit 115.20.

The US Dollar Index Futures was up 0.23% at 95.938.

Did the Fed cause the US dollar to collapse?

The US dollar dropped after the Fed's statements about the duration of the normalization of monetary policy. During this process, the indicated currency risks losing its advantages as the main safe-haven currency.

On Wednesday, the US currency collapsed to its lowest level since November 2021. The main reason for this was the statements of Fed Chairman Jerome Powell, who allowed a gradual increase in interest rates amid the continuous high inflation in the United States. The regulator's management believes that it will take several months to make a decision to cut the central bank's balance sheet by $ 9 trillion.

In a similar situation, this currency found itself in a slight stupor state, trying to cope with the current losses. Powell's statements that the US economy "does not need aggressive monetary stimulus measures" exerted additional pressure. The central bank is ready to start normalizing monetary policy, but this process will take time. During the speech of the Fed chairman, the markets expected to find signals about the possible timing of the first rate hike. However, the situation remained unclear, as the head of the regulator stressed that the Fed did not focus on the timing of amendments to the monetary policy and did not make decisions on reducing the balance sheet.

The tension of the general background of the global financial market shocked the US dollar. On Wednesday morning, the EUR/USD pair was in the range of 1.1373-1.1374. At the same time, the Euro currency has slightly risen since the close of the previous session, in which it was trading at the level of 1.1364.

Experts believe that the key factor influencing the US dollar's dynamics is risk appetite, which currently determines its state and the market. According to analysts, the Fed's "hawkish" position affects the US dollar only if risky sentiment weakens. Against the background of risk aversion, the US dollar usually grows, and with an increase in risk appetite, it falls, which happened this week.

The fact that the US currency did not react much to Friday's US employment report surprised market participants According to current records, the US economy has nearly full employment. Experts explain the dollar's "detachment" from macro statistics by the fact that it reacts to an increase in profitability only when risk sentiment sharply decreases. The US currency rises only during a liquidity crisis when the shares of borrowed funds in the stock markets are noticeably reduced.

The main topic for market participants was the Fed's actions related to the upcoming cut of stimulus measures and an increase in interest rates. It can be recalled that the federal funds rate has been increased by 15 basis points (bp) over the past four sessions. According to preliminary forecasts, four or more Fed rate hikes are expected this year. A similar development of events is allowed if inflation accelerates.

The next steps of the regulator will be more aggressive than expected – quantitative easing (QE) or a rate hike of more than 25 bp. After the rate increase, the Fed's balance sheet will begin to shrink, which will take about two years. The regulator is expected to withdraw $ 1.5 trillion of excess liquidity from the system to keep the global financial market afloat. The current situation weakens the US dollar, which resists negativity. The US dollar is supported by the fact that the markets have considered the tightening of the Fed's policy at current prices.

US stock indicators rose on inflation data

The Dow Jones Industrial Average rose 38.3 points (0.11%) to 36,290.32 points. Standard & Poor's 500 increased by 13.28 points (0.28%) - up to 4726.35 points. The Nasdaq Composite added 34.94 points (0.23%) to 15,188.39 points.

Papers of the pharmaceutical company Biogen Inc. fell by 6.7%. The U.S. government said Medicare will only cover the cost of Alzheimer's drug Aduhelm for early-stage patients enrolled in clinical trials. The share price of Eli Lilly & Co., which is developing a similar drug, fell 2.44%.

The cost of the health insurance company Humana Inc. rose by 0.92%. The company will launch a $1 billion share buyback as part of the $3 billion buyback program announced last February.

Meta Platforms Inc. (formerly Facebook) has appointed Tony Xu, head of food delivery service DoorDash Inc., to the company's board of directors. DoorDash shed 2.1%, while Meta lost 0.3%.

The manufacturer of surgical robots and systems Intuitive Surgical reported that revenue in October-December, according to preliminary data, reached nearly $1.55 billion, which is 17% higher than the same period in 2020. However, the company's share price fell 1.5%.

Bank Jefferies Financial Group Inc. in the 4th quarter of 2021 recorded revenue of $1.81 billion, which is 3% less than in the same period last year. The indicator also turned out to be worse than analysts' forecasts, who estimated it at $1.9 billion. Quotes of the bank's papers fell by 9.3%.

Satellite provider Dish Network Corp. rose by 2.8%. The New York Post, citing informed sources, said the company is in talks to merge with DirectTV.

Cost of Caterpillar Inc. rose by 1.1%. Analysts at UBS Bank increased the target price of the company's shares to $250 from $235 per share.

Consumer prices (CPI) in the United States soared 7% last month compared to the same month in 2020, according to data from the country's Department of Labor. The pace of growth has become the highest in 40 years - since June 1982.

Inflation accelerated from 6.8% in November and was in line with analysts' forecasts.

Capitol Securities Management economist Kent Engelk noted that despite the fact that the indices ended trading below the highs of the session, the market showed signs of relief, as inflation was in line with forecasts.

According to experts from RBC Capital Markets, inflation will continue to accelerate in early 2022, stabilize and begin to slow down in the second quarter, they believe. But the Fed will most likely feel pressure from rising prices and will be forced to make a decision to raise (rates) already at a meeting in March.