5 Things To Watch Next Week + ChartBook

Last Fed Rate-Hike of the Cycle?

EUR/USD, 4-Hour Chart Analysis

The Federal Reserve will announce its rate decision on Wednesday, and according to the consensus on Wall Street, the central bank will deliver the fourth rate hike of the year. The huge shift of the last couple of months in the US bond market means that now, no additional tightening steps are “priced in” for 2019.

The bearish shift in global stocks and the mounting evidence regarding a global economic slowdown confirm that view, but we still have doubts about the intentions of the Fed. While it’s true that yield curve is about to invert and the global slowdown will eventually affect the US economy, for now, the numbers remain solid, and the Central Bank might use these conditions to raise rates further in order to have “firepower” in the case of a recession.

That could fuel another strong leg higher in the USD, but in any case, the foundations of the Dollar’s rally are still strong, with the record deficits only affecting the currency’s long-term outlook in our view. Even if a stronger pullback is still possible, we expect new lows in the EUR/USD and new highs in the Dollar index in 2019.

China in Focus as Economic Slowdown Accelerates

Shanghai Composite Index CFD, 4-Hour Chart Analysis

This week’s Chinese economic releases were quite scary for bulls, as both Industrial Production and Retail Sales missed by a mile, which is unusual in the history of the country. The Chinese stock market has been one of the first to enter a bear market during the broad bearish shift, and even though a trade deal with the US got closer, equities failed to rally substantially off their lows.

The Chinese Yuan is also very close to its lows, and should the slowdown further accelerate, the country’s financial system and the currency could get under heavy pressure given the extent of the credit bubble of the past years. With that in mind, the fate of the Chinese market is crucial for risk assets globally, and a break below the prior lows would be another nail in the coffin of the US bull market as well.

Another Big Week for the Pound

GBP/USD, 4-Hour Chart Analysis

The Brexit chaos pushed the Great British Pound to its lowest level since early 2017 against the USD, and from a technical perspective, we could be looking at a test of the 1.20 level in the near future. Looking at the possible outcomes of the Brexit saga, a new referendum, a no-deal Brexit, or a renegotiated deal, uncertainty is extremely high, and unless the May-government finds a quick solution, further steep losses are likely ahead for the currency.

Several key economic releases will also be coming out next week, such as the CPI and PPI indices on Wednesday, the final GDP and the Current Account balance on Friday, while Thursday’s Retail Sales report be out just before the Bank of England’s rate decision, so forex traders could be in for another very active week in the Pound-related pairs.

Financials Signaling Trouble Across the Globe

XLF, 4-Hour Chart Analysis

The month’s most interesting market trend is the plunge in financial stocks, which continued unabated even as trade war fears subsided somewhat. The pressure on the major European banks has been apparent for a while now, and as the quantitative tightening is gaining speed, their US peers also got hammered in December. Some analysts point at the excesses of the leveraged loan market and the collapsing yield curve, but most likely the funding squeeze is at the root of the problem.

The XLF ETF firmly entered bear market territory and fell to its lowest level since mid-2017 this month, and although the broad rising trend remains intact in the sector, given the global technical picture, we would only look for short-term long positions. We continue to view all rallies as selling opportunities in equities, and the fact that more and more crucial sectors confirm the downturn is another bearish sign.

A Slew of Key Economic Releases on the Last Full Week of the Year

We will have a busy regarding the global economy even besides the Fed meeting and the British releases, with the US and Canada providing the most important indicators. The German IFO index, and US Building Permits and Housing Starts will highlight Tuesday’s session, the Canadian CPI will be out on Wednesday, followed by the Australian Employment Report and the BOJ’s rate decision on Thursday.

The Canadian GDP and Retail Sales will be released on Friday, and the US Durable Goods report will also be out, and following several months of disappointments, a positive surprise could cause a jump in the Dollar, especially we will have a hawkish surprise delivered by the Fed.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

 

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.