Next Week » OPEC+, RBA, Bank of Canada and China CPI
While this may be an easy week for economic data, there are many events that could cause volatility in the currency and financial markets.
The forex market saw high volatility last week after Powell’s less hawkish (dove?) speech at the Brookings Institution on Wednesday and the US nonfarm payrolls report on Friday. Will the excitement continue this week? News for the coming week will kick off before markets open on Monday, with OPEC+ holding a virtual meeting to discuss whether to increase, decrease or remain unchanged Sunday’s oil supply. It is also the start of major central bank meetings as the Reserve Bank of Australia meets on Tuesday and the Bank of Canada meets on Wednesday. Markets don’t know how much central banks will raise rates, if at all. China is to release its CPI data on Friday as it gradually begins to move away from its zero-spread Covid policy. Will the data show that China’s inflation is rising?
OPEC+
OPEC+ is meeting on Sunday to discuss what to do with oil supplies. Whether they should increase the offer, decrease the offer, or leave the offer unchanged. While we have already seen OPEC+ surprise the markets, it looks like the group will do nothing, leaving the oil supply unchanged. First, the situation in China is very volatile right now as it moves away from its zero-spread Covid policy. How fast will the country reopen? Will the virus spread quickly? When will production return to pre-Covid levels? All these problems will affect the demand for oil. So OPEC+ may be willing to sit back and wait until China’s demand clears up. In addition, OPEC+ may want to wait and see how the price cap in the EU will affect Russian offshore oil. The price cap is expected to start on Monday, but the EU has not been able to reach an agreement on this issue. The last price discussed was $60 a barrel with the goal of revising the cap every few months to keep it about 5% below market value. However, some countries are seeking to further punish Russia for its invasion of Ukraine and therefore have not agreed on a cap. For these reasons, OPEC+ seems to be on hold.
Reserve Bank of Australia
The Reserve Bank of Australia is due to meet on Tuesday this week. However, there are questions about whether the RBA will raise rates by 25 basis points or leave them unchanged. At the last meeting, the board said that further rate hikes would be required because inflation is too high. He also said he expects inflation to peak this year at around 8%, compared to the previous forecast of 7.75%. However, last week Australia published its first monthly CPI report (previously only quarterly CPI was published). October results showed that the consumer price index fell to 6.9% y/y against expectations of 7.4% y/y and September’s value of 7.3% y/y. The main reason for the failure was the fall in food prices. Was this fall in inflation sufficient for the Board to put a hold on rate hikes? Probably no. The committee said it would do whatever it takes to bring inflation down, and 6.9% still looks too high to break the rate hike cycle.
Bank of Canada
The Bank of Canada is in a similar situation with the RBA. Markets appear to be divided on whether the central bank raises rates by 25 basis points or by 50 basis points. At its most recent meeting, the BOC surprised the markets by raising rates by just 50 basis points versus expectations of a 75 basis point increase, bringing the overnight rate to 3.75%. Employment data released on Friday is still strong, showing that the Canadian economy added 10,100 jobs in November. (Remember, the October value was +108,300!). However, the number of full-time jobs added in November was +50,700 and the number of part-time jobs was -40,600. In addition, the unemployment rate fell to 5.1% from 5.3% in October. At its last meeting, the committee said it would have to raise rates even further because its preferred measure of inflation, core inflation, is still too high. The core consumer price index in October amounted to 5.8% y/y against the expected value of 5.6% y/y and the September value of 6% y/y. In addition, this week Canada will release Ivey PMI data for November. The print should be 50.1, just above the expansion/compression level. The Bank of Canada may eventually have to balance the slowdown in the manufacturing sector (below 50) with a strong labor market and high inflation. Ouch! So, will the Bank of Canada increase 25 basis points or 50 basis points? (The United States is also seeing weaker growth amid a strong labor market and high inflation. Rates are expected to rise by 50 basis points next week.)
Business Results
There are not many companies left that can report the results of the third quarter. However, COST, AVGO and SNOW are worth watching this week.
Economic Data
The economic calendar tends to be short in the week following the non-farm payrolls, and this month is no different. China’s CPI for November is expected to remain unchanged from October at 2.1% yoy. China’s PPI is expected to be -1.6% in November against -1.3% earlier. Other important economic data this week include Australia’s third-quarter GDP, Canada’s Ivy PMI and the Michigan Preliminary US Consumer Sentiment Survey. Additional economic data:
Sunday - December 4, 2022
OPEC+ meeting
China: Caixin Services PMI (November)
Monday - December 5, 2022
World: Global Services PMI Final Report (NOVEMBER)
EU: Retail sales (October)
USA: ISM PMI in non-manufacturing (NOV)
USA: Factory Orders (OCT)
Australia: RBA decision on interest rates
Tuesday - December 6, 2022
Germany: direct orders (OCT)
Canada: Balance of Trade (OCT)
USA: balance of trade (OCT)
Canada: Ivey PMI sa (November)
Japan: Tankan Reuters Index (DEC)
Australia: GDP Growth Rate (Q3)
Australia: Final Building Permits (OCT)
Australia: RBA Card Set
China: trade balance (November)
Wednesday - December 7, 2022
Germany: Industrial production (OCT)
United Kingdom: Halifax House Price Index (November)
EU: GDP Growth Rate 3rd East (Q3)
USA: End unit labor costs (T3)
US: Total Non-Farm Productivity (Q3)
Canada: Bank of Canada Interest Rate Decision
Poland: Interest rate decision
Crude oil reserves
Japan: Final GDP Growth Rate (Q3)
Australia: RBA Bulletin
Australia: balance of trade (OCT)
Thursday - December 8, 2022
Mexico: CPI (November)
China: CPI (November)
Friday - December 9, 2022
USA: Producer Price Index (November)
United States: Michigan Preliminary Consumer Sentiment Survey (DEC)
See » Economic calendar
Forex chart of the week » Monthly EUR/USD rate
Source: TradingView, StoneX.
In November, the price of the EUR/USD pair rose from 0.98776 to 1.05261, an increase of 648.5 points (+6.57%)! This is the pair’s biggest rise in forex in a month since April 2011, when the pair rose from 1.41576 to 1.48145, gaining 656.9 points (but only 4.64%). EUR/USD ended November near resistance at the 38.2% Fibonacci retracement from May 2021 highs to September 2022 lows near 1.0611. The March 2020 lows at 1.0636 are also in this area. If the EUR/USD price breaks this resistance, the next level will be a 50% retracement of the same time frame at 1.0942. This area also merges with the July 2008 descending trend line. Just above it is the rising trend line from October 2020 around 1.1110. If the resistance zone holds and EUR/USD pulls back, the September high at 1.0198 will be the first support. Below this level, the price could fall to the November lows of 0.9878 and then to the September lows of 0.9536.
While this week may be a light one for economic data, there are many events going on that could cause volatility in the currency and financial markets. Even before the markets open on Monday, we should know the outcome of the OPEC+ meeting. Also, watch out for surprises from the Reserve Bank of Australia and the Bank of Canada when they meet this week.
2022 is only a few weeks away. Keep an eye out for the possibility of “Santa’s rally” in promotions. Besides, the closer we get to the end of the year, the calmer it will be. Manage risk properly.
Joe Perry, CMT, FOREX.com » Official site
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.