27 December 2022

Weekly Outlook - Quiet week ahead between holidays

Technical Analysis

Markets had a roller-coaster through last week, starting with a major shock from a change in policy from the BOJ. Markets tried to stage a recovery mid-week, but risk-off sentiment took over, with US data suggesting the Fed had more room to hike.


The coming week is expected to be very quiet, with most markets closed for days at a time for the holidays. Tuesday has most Commonwealth markets closed for a delayed Boxing Day. Many markets will close early on Friday, including Australia, South Korea and the UK.

Top 3 events for the week ahead

●     US Pending Home Sales on Wednesday

●     EIA weekly WTI report  on Thursday

●     China Manufacturing PMI on Friday night

US pending home sales to highlight market weakness

As higher mortgage rates hammer the US housing market, the number of contracts to sell houses has been progressively falling for months. October's reading was a record drop. The figure is also expected to have declined in November, but at a slower pace, giving some hope that a bottom in the market might be near. Pending home sales are expected to have dropped at a monthly rate of 0.5% compared to -4.6% prior.


The S&P 500 fell to 3765 last week, finding short-term support on the back of momentum divergence. If bulls manage to defend the stronghold on a good print, the index could see an upward spiral towards the 4k handle but unlikely the peak of 4110. Otherwise, the descent could continue towards 3500. Since there are two opposing divergence signals, the chances of forming a range remain elevated.

EIA could see another drawdown due to weather

After a major storm affecting the Gulf Coast last week, and the Keystone Pipeline still shut for review, there is focus on the latest crude storage, which fell unexpectedly at the last measure. Two major cold spells across most of the US have recently increased fuel demand, though slowed gasoline demand.


The loonie has seen support of some sort on the back of rising demand. Aussie did experience some respite at 0.9043 against the loonie in the second half of last week, as it came about with a divergence. If a possible attempt at 0.92 receives rejection by the time of the EIA report, a head-and-shoulders pattern could form. Typically, H&Ss trigger a leg toward the golden pocket, which lies near 0.8873, but 0.9051 and 0.8962 could also act as supports if not reversal points. In the event bullish momentum increases on a bad print or else, we could see a recapturing of the round resistance at 0.93 and even a revisit of the 0.9334 top.

Chinese PMI expected to improve but remain in contraction

The official NBS measure of China's PMI is forecast to come in at 49.0, above the 48.0 registered in November. This is a key bit of data since the survey was conducted after it became clear the government was lifting covid restrictions and prioritising support for the economy.


The Honk Kong 50 index maintained an upward bias around the 20k handle despite experiencing a pullback down to 19k. A couple of weeks ago, momentum exhaustion offered a bearish divergence that was expected to send HK50 closer to the 18500 swing low, but bears failed to accelerate the trend. Without clear signals to encourage additional short bets, the index could consolidate unless the data release is upbeat and bulls find their footing above the short-term ceiling.

Top stories in review

●     BOJ surprised markets by widening the YCC corridor, allowing JGB rates to rise and supporting the yen. The move had broad-reaching effects, sapping risk appetite ahead of the holidays.

●     A series of events sapped risk appetite on Thursday, leading to a general move to safe havens as investors worried about further upside from the Fed after the final US Q3 GDP was revised upward. November PCE came in above expectations.

●     Winter storm froze refining facilities on the Gulf Coast, supporting energy prices.

 Major calendar events for Dec 27-30 (GMT)

source: investing.com

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