Markets deny Christmas rally as widely predicted by weekly dynamics.
The current week has been full of macroeconomic data and important decisions regarding the monetary policies of the major global central banks, the ECB and the Fed above all. In this week we have also seen the decisions regarding interest rates in Switzerland and in the UK, both central banks have raised the cost of money by 0.5% bringing their respective rates to 1% for the SNB and to 3.5% % for the BoE. The market will therefore have to face a further squeeze on liquidity and consequently a lower propensity for risk over the next few months.
In this regard, the markets continue to be very technical with the risk sector which this time proceeds with the technical sell-off on the highs and resistances, thus proceeding with an interesting retracement in a short-term perspective, we are talking about a 5/7% retracement from the highs as we predicted in our previous analyses, such as the one on the Dax that you find below. In this regard, let’s see what is happening on Forex which, unlike the stock market, seems to keep the dollar on its toes close to very important long-term technical levels
Market dynamics after the ECB
The ECB is the last central bank of the week to have to raise rates, having the last word on the current condition of the interbank interest rate market and in fact the central bank that has kicked off an interesting move on the stock market. What we saw starting yesterday was an interesting downward movement that technically started with the squeeze seen a few days ago on the release of US inflation data. Squeeze moves usually anticipate short directionality and in fact this dynamic has been largely respected.
We can say that in the short term the equity markets have already done what they had to do, i.e. make a retracement that would not have totally invalidated the dynamics of the period expected from now until the beginning of 2023, a dynamics of recovery awaiting sales still stronger on the market that we could expect in 2023. For the time being the stock market has done what it had to do unlike Forex which at the moment is still trapped on the highs of the majors against the dollar, probably waiting for a data that can kick off an interesting movement also on forex and which could be the PMI data in the USA at 3.45 pm today.
In addition to this, we have seen the release of data on European inflation, a figure better than the previous one but below expectations given that the consensus was 10% against 10.1% of the actual figure. The previous figure stood at 10.6%, so the current drop is in any case interesting if compared with what happened in the US from June to today with a continuous drop in inflation at a rate that becomes progressively more sustained. The market is probably already appreciating and pricing in a long-term decrease in inflation and we may start looking at other data as market movers in the coming weeks/months, such as the unemployment rate for example.
What to expect from today
What the market had to do it has already done. The stock made the negative retracement move of Christmas rally between Tuesday and yesterday, a move that had been expected for several weeks. Forex, on the other hand, still remains caged on the dollar lows, therefore we do not exclude the possibility of seeing movements in favor of the dollar today on all the majors. Probably close to the opening of US cash we could see some interesting movements, perhaps with EurUsd and GbpUsd falling and UsdJpy recovering upwards.
At the moment therefore the situation is relatively static given that the markets have already done what they had to do but basically the market could do everything and therefore Forex is currently the market that seems to have remained relatively behind compared to what occurred on the stock. Therefore, hypothesizing interesting movements on Forex is absolutely reasonable, therefore we are awaiting the opening of the US cash and the release of the American PMI data at 15:45.
Original article published on Money.it Italy 2022-12-16 13:14:57. Original title: Mercati negano il rally di Natale dopo Fed e Bce
