5 Things To Watch Next Week + ChartBook

An Extraordinary December and an Extraordinary Holiday Season?

US Volatility Index (VIX), 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.

The Last Bullish Domino Falls as Nasdaq Enters Bear Market

Nasdaq 100 futures, 4-Hour Chart Analysis

With the Fed’s rate decision on tap, it was no surprise that we saw volatility across markets this, week, but the fact, that the strongly seasonal trends weren’t enough even for a bounce in risk assets might be scary for bulls here. With US stocks closing one of their worst December’s ever, the global bearish shift is now complete, even though a pattern of lower highs and lower lows hasn’t been established on all of the long-term charts.

With the US tech sector officially in a bear market, the undoubted leader of the bull market fell, and given the continued weakness in the most bearish stock markets, such as China and the European majors, bulls are now in for an uphill battle.

A global slowdown never in history started with interest rates as low as today, so with no conventional monetary “weapons” central bank’s will likely have to resort to Quantitative Easing again, in order to try to support growth. For now, the only thing certain for financial markets is volatility, and that the period of stability in bond markets is gone for good.

Dollar Index to Break Out or Trump Shakes Up Things?

Dollar Index (DXY), 4-Hour Chart Analysis

The Dollar’s rally has been one of the main forces behind the liquidity squeeze and the global bearish shift, and the broader bullish trend has remained strong in the Greenback, and we only saw a protracted consolidation phase following the strong run-up this year. As the period of bearish seasonality for the Dollar will soon pass, risk-on currencies could be in deep trouble next year, with most likely new highs in the Dollar Index.

Given this week’s turmoil, a break-out is now out of the cards even during the illiquid holiday weeks, but there are political threats to the Dollar which could even trigger a meaningful sell-off in the reserve currency. Donald Trump reportedly looked into the possibility of firing Fed Chair Jerome Powell, and while the legal background if such a move is dubious at best, that hasn’t stopped the President before, so we wouldn’t rule out an all-out war against the Fed.

That could bring a situation where the Dollar’s falls together with risk assets, which would likely cause heavy buying in the Yen and Gold. We could see the seeds of such a trend next week, while although we think that the Dollar’s broad trend is not in danger, the short-term outlook is uncertain for the Greenback.

Aussie Poised to Break Down as China Struggles and Oil Still Weak

AUD/USD, 4-Hour Chart Analysis

The Australian Dollar remains among the weakest major as we expected and the currency’s key pairs are all on the verge of breaking down, even in light of the oversold short-term momentum readings. The AUD/USD pair could among the more active pairs in the holiday season, especially should it violate the recent multi-year lows and the 0.70 level.

A lot of fundamentals deteriorated for the Aussie, and as the economy is showing signs of slowing down, a new low seems inevitable in 2019. The decline in the price of some of the crucial commodities, the deep problems in China and the crisis in global trade, and now, the global bearish shift in risk assets likely mean that the bearish trend will continue in earnest.

A Week Short On Economic Releases

With most of the markets closing early on Monday and staying closed on Tuesday, key economic releases will only come out in the second half of the week, even though the BOJ’s meeting minutes and the Japanese Core CPI will be released on Tuesday and Wednesday respectively.

On Wednesday, the US Case-Shiller Housing Price Index and the Richmond Manufacturing Index will be out, while on Thursday the week’s most awaited release, the CB Consumer Confidence will be released. Friday will be the busiest day for economic indicators, with Japanese Retail Sales and Industrial Production, the German Prelim CPI, and the US Goods Trade Balance and Pending Home Sales all coming out.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 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

Shanghai Composite Index CFD, 4-Hour Chart Analysis

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

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 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.