Weekly market overview November 26 - 30.

The last trading week of November was rather volatile compared to the whole month, as it has been expected by many analysts. Geopolitics played a huge role in the equities’ U-turn on the weekly timeframe. Despite all of the major macroeconomic data published in red in the United States, major stock indices gained strength, performing the strongest week in seven years. Optimistic expectations of the market players for the trade deal between the U.S. and China turned into reality on Friday after Trump, Xi meeting. That fact influenced the stock indices to accelerate gains after the impact from Powell’s dovish comments and Fed minutes was limited on Thursday’s flat close. If the positive achievements of holding the tariffs at the same level and postponing (or even cancelling as the best option) the escalation in the trade war tensions confirmed in Argentine G20 summit, then we would see the risk appetite growing not only for the global equities investors but also in several currency pairs, especially AUD/USD and NZD/USD. Commodity currencies were pressured by the trade war concerns in 2018, and the recent rebound could accelerate the recovery of the Kiwi and Aussie. Both currencies gained strength not only versus the greenback but also versus other majors such as Euro and Japanese Yen.

 Currency pair
Source: Investment-School.ru

The U.S. dollar, however, traded with a mixed bias last week due to several divergences in the fundamental outlook. So, EUR/USD fell on a weekly basis, GBP/USD and USD/CAD finished the week almost flat, USD/JPY appreciated slightly, but the greenback was weaker versus the Kiwi and Aussie. The correlation between equities and currencies did not work this past week at the same level as it used to happen in the previous periods. There are several factors for such a change and the events have to be analysed one-by-one, as the calendar has been rather busy. The greenback’s weakness on Wednesday and Thursday can be easily explained by the impact of Powell’s speech and the release of the FOMC meeting minutes. The Federal Reserve Chairman Jerome Powell stated clearly that the interest rates are reaching the neutral level. In simple words, that means the regulator’s readiness for a pause in the tightening cycle. The FOMC latest statement was not so hawkish as it has been recently with several voting members underlying the need for a slowdown in hikes. The market players have already priced in the interest rate hike in December and one more in 2019 with a more data-dependant future outlook in the expectations for the financial conditions in the United States.

One more factor, influencing traders to sell dollars in the middle of the week, was the macroeconomic data. So, CB Consumer Confidence failed to meet the market expectations on Tuesday; October’s new home sales were lower-than-expected, PCE Prices were negative, the Goods trade balance was negative. But the worst impact was noticed from the U.S. GDP report which missed the consensus for the third quarter of 2018. All of those reports are signs of the leading worldwide economy slowing down its growth pace and it would be hard to see the Federal Reserve keeping the tightening of the monetary policy in such an environment. This is why the greenback lost some of its bullish achievements during the sell-off on Wednesday and Thursday. EUR/USD had an impressive bullish run those days, testing 1.1400 resistance level. It’s not so long time ago we’ve seen the pair at the year-lows around 1.1200, and some of the analysts were predicting further upside momentum. But it all changed on Friday.

The first negative sign came in for the single European currency on Thursday when the German inflation figures were published, missing the expectations. EUR/USD finished the day flat despite the greenback’s weakness. The Euro bulls failed to close the day above the important psychological round figure of 1.1400 and the market comprehended that fact as the weakness. The real reversal in the trader’s sentiment was noticed after the Eurozone published the Consumer Price Index slowing down in November. Lots of traders can even imagine Mario Draghi’s happy face after the report. Now he has a real justification to prolong the quantitative easing programme, keeping the interest rates at historically low levels. All the rest of the macroeconomic data is nothing compared to the inflationary pressure which is the key factor for the European Central Bank’s monetary policy. The lack of inflation’s growth means no interest rate hikes in the foreseeable future, and this is exactly the scenario for the bears to push EUR/USD to the lowest rates in 2018. We suggest that the downside price action was limited on Friday due to the month-end and seasonal factors, and the upcoming week should bring new achievements for the bears with the pair breaching 1.1200 and below.

The British pound is also under a huge threat to plunge as investors lose patience with the lack of progress in the Brexit deal. Despite the greenback’s sell-off and positive data from the UK in the financial front, the Sterling finished the trading week almost flat with a slightly bearish bias. No news is bad news for the cable bulls. Moreover, the weekend's updates showed another official resigning from the British government, opposing May’s deal conditions. Even Donald Trump sent a strong message, twitting his sceptic view on the Brexit deal. EU also did not add any optimism with Spanish and German officials expressing concerns. All of that fundamental outlook will weigh on GBP/USD next week, while several pound cross-rates already started sliding. A test of important technical levels was seen at GBP/AUD and GBP/NZD currency pairs with a more room to go South.

In contrast to many analysts’ forecasts, the Japanese Yen did not appreciate against the U.S. dollar. USD/JPY gained 0.5% on weekly basis despite the negative economic data and dovish Powell. The pair is a traditional indicator of investor’s risk appetite and it’s hard to imagine USD/JPY losing the ground at the time when U.S. stock indices rally. The overall fundamental outlook was mixed with softer Japanese reports. Trader’s should not forget about the month-end repatriation flows which forced many hedge funds to take profits from speculative positions. We suggest that if the trade war tensions eased, Trump finalized the deal with Xi and equities continued the rally next week, we would see USD/JPY testing the year-highs around 114.50 sooner rather than later. Japanese yen cross-rates already accelerated the bullish run with many technical indicators pointing to the bullish trend continuation, so there are no changes in that tendency to expect for the week ahead.

Commodity markets had a mixed trading week as well. Precious metals finished November almost flat. WTI Crude Oil had a volatile price action with some recovery on tap, however, the Friday’s sell-off (-1.5%) reminded traders about the bears’ power. The technical weekly outlook suggests preliminary signs of a bottom, as oil charted a Doji candlestick, underlining the market’s uncertainty. Russian comments to cut the output and month-end profit-taking flows did not help bears to break through the important psychological mark of $50 per barrel. However, the market is too far from the reversal and the price action will be determined by OPEC, Saudi Arabia, Russian and U.S. officials’ comments about the oversupply issue. Further sell-off is possible if leading worldwide producers would fail to send a strong common signal to the market.

The impact of the oil price was traditional for the USD/CAD currency pair which ended the past week flat. A huge doubt about the BoC to tighten appeared after the Canadian GDP report was released on Friday. The Loonie was sold off after the gross domestic product declined in September, slowing down the quarterly growth pace in Q3 2018. The resistance level at 1.3350 is an important defence line for the Loonie, as once it’s breached, USD/CAD might fly sky-high. On the opposite, there is no fundamental reason for the bears to stop the recent slide of the Canadian dollar. AUD/CAD and NZD/CAD cross rates would be lucrative for aggressive intraday speculators, as there is a huge divergence in commodity currencies fundamental and technical outlook.

 Precious Metal
Source: Chamber of Mines of Zimbabwe
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