Weekly market overview November 19 - 23

Thanksgiving day in the United States did not bring a lot of pleasure for the stock market bulls, as the risk aversion trading continued in the past week despite the low volume and thin market conditions. U.S. stock indices plunged, breaking several support levels and charting new local lows. Tech stocks suffered the most selling pressure in the middle of the trading week, however, the largest losses were seen in S&P500 benchmark which lost 4.09% of its value after the bears accelerated on Friday. Currency traders were influenced by the risk-off sentiment and the U.S. dollar gained strength versus its major peers across the board, despite the lack of significant macroeconomic data. The lowest volatility was seen for GBP/USD and USD/JPY pairs. Commodity currencies, as well as the single European currency, failed to hold the recent gains, falling back down to support technical levels. The headline story was for the oil market again as the price of the black gold lost the ground, plunging more than 11% on weekly basis. WTI Crude oil charted the year-to-date low, coming back to the levels of October 2017 at the psychological mark of $50 per barrel on growing inventories in the United States, oversupply issues and global demand cut. USD/CAD closed the trading week above 1.3200 again on that news, despite stronger-than-expected economic reports in Canada on Friday.

The key story for the European Union was the continuation in tensions with Italy due to the budget issue. European Commission started disciplinary measures against the country on the budget spending exceeding the European common rules. The term to impose Excessive Deficit Procedure is two weeks, and a response from Italy is expected on how the country is going to meet the budget requirements. However, the Italian side did not express any surprise in the procedure, underlying its readiness for such a scenario. Italian Deputy Prime Minister Matteo Salvini said “We will not take a backward step, we are not spending this money at random. The idea is for Italy to grow”. That is not the best scenario for euro bulls and the recovery of EUR/USD might be limited on the upside with current technical resistance seen at 1.1550. ECB was not supportive for the single European currency, as some rumours started about the possibility of the central bank to lower its economic projections for Eurozone. Weaker-than-expected PMI reports in Germany and France have confirmed the economy to slow down, so the quantitative easing program could be taken for a longer period. Next weeks’ inflationary reports are going to confirm that suggestions, especially in the scope of falling oil prices. If CPI and PPI report declined, EUR/USD would keep falling.

European Commission
Source: Daily Sabah

The Brexit saga continues in the UK. Despite the thin market conditions and uncertainty on the deal with the EU, British Pound managed to consolidate some of its losses in the past week. Next events are going to show how far can Theresa May go with her deal, and Sunday’s Brexit summit should confirm the strength of the current deal conditions. Spain was against the deal due to the Gibraltar issues, and the country stated to vote against the deal. However, May’s majority in the parliament is still strong and a potential vote for the deal might be successful. If that happens, the Brexit saga will stop weighing on the Sterling, and we might see a deeper recovery of GBP/USD and other pound cross-rates. Economic reports and Carney’s speech are also going to influence the cable pairs next week.

The U.S. stock indices lost all of the growth in 2018 with current rates going into the negative territory after the recent plunge last week. That’s a very negative factor for high-yield assets and risk appetite across the board. British and European indices are declining as well. With that in mind, Swiss Franc and Japanese Yen were among gainers last week as the safe-haven assets. Japanese authorities kept supporting local exporters verbally, and BoJ promised to keep the ultra-soft monetary policy in the country. USD/JPY gains were limited, however, we expect the pair to strengthen further next week. The key resistance level is currently placed at 113.50 and 114.00 in extension. Breaking through those resistances would allow USD/JPY to reach 2018 high levels around 114.55.

Australian and New Zealand dollars were hit the hardest on risk aversion trade sentiment. Recent economic achievements, as well as some additional optimism on the U.S. - China trade deal, did not help commodity currencies to hold the recent gains. The technical reversal pattern of the downtrend in 2018 remains vulnerable to next plunges, and we might see both pairs coming back to the descending channel next week. Bulls should hope for an additional fundamental support on macroeconomic data next week.

The story of USD/CAD was even more dramatic. Traders and investors were waiting for Canadian reports on Friday which are important in the light of the upcoming meeting of the Bank of Canada. Lots of analysts predict several rate hikes by the regulator in the upcoming months, however, the situation is not so clear. Despite the fact that BoC Governor announced monetary policy tightening, the pressure from falling oil price persists and economic outlook does not look so bright in Canada. The latest reports were mixed, with a more hawkish bias for the Loonie. The CPI report showed an inflation accelerated in October, which supposed to be positive for the Canadian dollar. But it declined versus the greenback and USD/CAD jumped above 1.3200 handle again on the volatile trading session. If the oil price continued losing the ground, USD/CAD would keep climbing and even stronger-than-expected gross domestic product report would not prevent the bulls from lifting the pair towards 1.3300 resistance.
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