It is certainly not a market in the doldrums, the volatility and price action are keeping all market participants on their toes. Geopolitics and earnings season has replaced the COVID-19 headlines, but obviously, we’re still working our way through those disruptions too. Next week could get even crazier as the FOMC could potentially get very Hawkish or just simply disappoint the expectations as per the Bank of England late last year.
Geopolitics and earnings season dominated today's news feed. Lots of communication between the US and Russian foreign ministries. The two sides keep talking but it would appear to be futile as neither will want to lose face. The only way to get it sorted is if Biden and Putin talk, to which the Russian FM said is always welcome by Putin. The US is asking Russia to de-escalate its military actions on the Ukrainian border and Russia says they have no intention of invading the country.
Globally, all indices are down today, with the exception of the Hang Seng which closed above its opening price and took first place with a positive 2.39% for the week. China's Shanghai Stock Exchange also ended the week green, but only by 0.04%. All other major global indices were red this week. Nasdaq has taken the biggest hit with a weekly decline of -6.10%.
Consumer and business sentiment in the Eurozone declined in January compared to the previous month, the European Commission said in its Flash Consumer Confidence Indicator released earlier today. The ESI flash estimate for the Eurozone dropped by 0.1 points and 0.4 points respectively.
According to a preliminary estimate, consumer confidence remained little changed in the Euro Area, declining to -8.5 in January 2022 from March 2021's level. Expectations had been for a -9.0 decline.
Christine Lagarde reiterated the ECB's position that it cannot withdraw its pandemic stimulus as fast as the Federal Reserve, which is preparing to raise rates in March. As a result of the consumer confidence data, EURUSD initially fell but has since recovered. The 20-period and 50-period EMAs continue to act as resistance today, but the 1.1350 remains the magnet.
The forex heatmap points to a risk-off market as the yen and Swiss franc receive positive flows and the Aussie, Kiwi and CAD have negative flows. Unsurprisingly initial estimates indicate retail sales in Canada probably fell 2.1% month-over-month in December 2021. Compared to a month earlier, retail sales in November increased by 0.7%, down from a downwardly revised 1.5% increase in October, and falling short of preliminary estimates of a 1.2% increase.
With Brent prices recovering today after a 2-day sell-off and a test of the old highs for support, I would envisage the Canadian dollar picking up at the start of next week. Traders will have an eye on the FOMC meeting that is scheduled for next Wednesday, where the US dollar is likely to become the most traded currency on news of tapering, rate hikes and Fed balance sheets.
I’d personally like to see the 1.2620 get tested before the next sell-off assuming the US dollar has priced in the coming news from the FOMC.