Weekly Outlook Report - Week 4

Big week for the currencies market with a bunch of market-moving economic figure releases.

The dollar index closed near its price open level last week showing signs of a potential reversal to the upside, while EUR/USD edged higher, closing at 1.08543 witnessing an increase of 0.27%.

On the other hand, GBP/USD rallied increasing by 1.5%, amid meeting expectations of inflation figures in the UK.

USD/JPY edged higher in Friday’s session, retracing towards the 130 level, with the JPY taking a breath after the sell-off due to the BOJ’s decision to leave interest rates as is.

What’s ahead for this week?

With the U.S. GDP in the loop, the dollar index will witness high volatility on Thursday. The market is expecting a decrease in growth from 3.2% to a possible 2.6% increase in GDP for the 4^th quarter of 2023.

 If expectations are to be met this might lead to even lower demand for the greenback, which might create a strong demand for other opposing currencies, such as the Euro, pound, or even Japanese Yen.
Technically speaking, the dollar index (Figure 1) broke below the 50% Fibonacci retracement level, pushing the greenback further downwards, supported by the breakout of the 50SMA that occurred in the 4^th quarter of 2022.

Figure 1: Dollar Index 2021-2022, TradingView.com

If the dollar is able to close this week around these levels or below, this might lead to further drops targeting the 61.8% Fibonacci and the 100SMA on the weekly timeframe. Consequently, this might lead to further demand for the other major currencies.

Gold rose for the fifth week in a row following recent economic data that increased expectations that inflation in the United States will continue to decline, as the producer price index and retail sales declined during the month of December, indicating that the US Federal Reserve may shift to a less stringent monetary policy during the coming period.

Technically (Figure 2): Gold continues to trade within an upward trend in the short term, and managed to achieve stability and continuation in trading above the important technical and psychological levels close to $1900 an ounce, and now the levels close to 1963 are considered important resistance to gold's movements, and we will monitor its ability to target it.

As for silver (Figure 3): it is still moving horizontally between the support area near $23.1 an ounce and the resistance near $24.5 an ounce, waiting to break or breach any of these levels.

)Figure 2): XAUUSD, MetaTrader5, CFI Brokerage

Markets have grown increasingly confident that the Federal Reserve will be able to end the cycle of aggressive interest-rate hikes soon. Federal Reserve Governor Christopher Waller said on Friday that policy looked pretty close to sufficiently restrictive and he backed moderation in the size of rate increases. Philadelphia Fed President Patrick Harker repeated his view for more incremental steps in rate hikes and Kansas City Fed chief Esther George said the economy can avoid a sharp downturn. US financial conditions have become less restrictive, raising another potential challenge to efforts to tame inflation that may give policymakers reason to rethink their views.

Last week the S&P 500 dropped 0.7%, snapping a two-week winning streak, though the index rallied 1.9% Friday, thanks to a surge in tech stocks as Fed officials dialed back fears of overly aggressive policy moves. The tech-heavy Nasdaq 100 Index had its best day since Nov. 30 with a 0.7% gain for the week and the Dow Jones index declined 2%.

Last Week, Earnings for Q4 showed to be relatively positive in which 11% of the S&P500 firms reported their earnings with 67% beating market expectations. 4 sectors led by the energy sectors reported net profit margins in Q4’2022 higher than their five years averages, while 7 sectors reported net profit margins less than their 5-years averages led by the communication services.

Earning expectations for the first half of 2023 were revised from expected growth to expected decline in which earnings are expected to decline y 0.6% during Q1’2023 and by 0.7% during Q2’2023.

This week the market will be busy with earnings from giant firms including Microsoft, Johnson & Johnson, Tesla, Verizon, Visa, and Mastercard.

Some of the Upcoming Earnings during the upcoming week (23-27^h Jan)

OIL:

Brent and WTI were modestly in the green zone – 2.29% & 2% respectively compared to the week before as Brent (fig.1) and WTI (fig2) sustained trading at their upper boundary. Both have been in a trading range since December 2022 to date, trading between support zone at $75 for brent and $70 for WTI and resistance zone $90 for brent and $83 for WTI with the 100-week exponential moving average imposing an important resistance level of which both are pivoting around.

As stated by Reuters and refinery intelligence firm: At least 15 US refineries are planning to undergo repair and maintenance ranging from 2 to 11 weeks through May. By Mid-February accordingly US refineries will drop on average 1.4 million barrels per day. The planned outage projects that gasoline and diesel supplies will tighten accompanied by rising margins as the repair timing is in parallel with the EU’s February imports ban of Russian petroleum products which will increase demand on US fuels.

Figure 4 Brent Weekly Chart , Tradingview

 Figure 5 WTI Weekly Chart , Tradingview

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