Weekly Forex Forecast – Silver, WTI Crude Oil, USD Par
Markets were quiet last week, dominated by a weak risk-averse environment, as markets expect several interest rate hikes by major central banks over the next week.
The difference between success and failure in Forex/CFD trading is likely to depend mostly on which asset you choose to trade each week and in which direction, rather than the exact methods you might use to determine trade entry and exit points.
So at the start of the week, it’s a good idea to look at the bigger picture of what’s going on in the overall market and how those movements are affected by macro fundamentals, technical factors and market sentiment. There are currently some short-term trends in the market that can be profitably exploited. Read my weekly analysis.
Fundamental analysis and market sentiment
I wrote in my previous analysis on November 27 that the best trading opportunities for this week are likely to be short-term cautious longs in GBP/USD. That was a good view.
Weekly Forex Forecast – Silver, WTI Crude Oil, USD/CAD
As the pair rose 1.91% during the week.
What is currently dominating the news is that two major central banks raised interest rates last week, with interest rate hikes expected by other major central banks over the next week. Neither of the increases by the Bank of Canada and the Reserve Bank of Australia came as a surprise, as they were expected.
The Bank of Canada raised interest rates by 0.50% last week to a total overnight rate of 4.25%, the joint highest rate of any major central bank with the RBNZ.
Earlier this week, the Reserve Bank of Australia raised the cash rate by 0.25% to a total rate of 3.10%.
Other major market news last week was Australian GDP data which came in below expectations with a quarterly growth of 0.6%, and slightly higher than expected US PPI data which showed a monthly increase of 0.3%, indicating that inflation in the United States may not be collapsing as quickly as hoped. There were also signs of stronger-than-expected US consumer demand – despite higher interest rates, consumer demand has remained strong in recent months.
Global stock markets ended the week mostly down, as did most commodity markets, particularly crude oil. The forex market witnessed the strongest strengthening of the US dollar last week. The weakest currency was the Canadian dollar.
The rates of infection with the coronavirus in the world are increasing for the fifth week in a row. However, the initial numbers have not been that low since the end of the first wave in the summer of 2021. The most significant growth in new confirmed cases of the virus in general is now occurring in Guatemala and Japan.
Next week: December 12 – December 16, 2022
Next week is likely to see a higher level of volatility in the markets, as there are many planned data releases from major central banks, some of which could have a strong impact if there are surprising elements. Planned releases are:
- US inflation data
- US Federal Funds Rate and FOMC Statement
- ECB main refinancing rate and monetary policy statement
- UK inflation data
- The Bank of England’s official summary of interest rates and monetary policy
- Swiss National Bank’s policy rate and assessment of monetary policy
- Great Britain GDP data
- US retail sales data
- Preliminary US PMI data for the services sector
- Empire State Manufacturing Index in the United States
- German/UK/French PMI data for manufacturing and services sectors
- UK unemployment data
With the world’s two biggest central banks preparing important reports, many other banks are also likely to announce interest rate hikes over the next week. We are likely to see a significantly more active market compared to last week. US inflation data is particularly relevant as it is currently the biggest driver of capital markets around the world.
US dollar index
The weekly price chart below shows that the US Dollar Index formed a bearish inside candle, which showed a very slight increase during the week. However, the previous support level at 102.94 provided resistance. The chart shows a bearish price movement without a doubt.
The long-term bullish trend in the US dollar has technically ended, as we see the current price hitting a 3-month low, while also approaching a 6-month low.
The short-term USD trend seems likely to be bearish due to the resistance level at 104.92 and bearish price action, especially if the price breaks next week to new long-term lows seen 2 weeks ago. Therefore, it may be wise to enter short positions only in the US dollar. However, keep in mind that there are major central bank announcements scheduled for this week which could cause volatility, especially if there are any surprises.
Last week, silver formed a bullish hammer candlestick, which closed above last week’s high, marking its highest price since April of this year. There is a strong bullish momentum, so all factors are showing a successful bullish breakout and a fairly strong uptrend.
While most commodities are not doing so well in the market today, silver is a notable exception. Bulls would be wise to be a bit cautious, although the price of gold has been rising recently, but its performance has not been as bullish as silver, which may be a reason to doubt that the price of silver is rising strongly in the short term.
I believe silver will continue to rise much higher, with no apparent resistance level until the big round figure of $25.
WTI oil market
Last week, WTI Crude Oil posted a relatively large bearish decline, marking the lowest weekly close of the year. An incomplete but somewhat convincing linear regression analysis shows a long-term downward trend.
The poor performance of global stock markets and a general environment of rising prices have dampened demand, as China faces its own problems related to measures against the coronavirus. This has reduced demand for crude oil which is helping lower prices.
Short trades are always risky, but there is a bearish trend here, although OPEC may take action to try to stop a significant price drop.
US dollar/Canadian dollar
The USD/CAD pair formed a bullish candle with a healthy range last week and closed near its highs. The Canadian dollar is under pressure from weak crude oil, of which Canada is one of the main exporters. However, it should be noted that from a technical standpoint, the price was still suppressed at the $1.3642 resistance level, with the price closing at this level late last week.
It might be a good idea to short the Canadian dollar only over the next week, but the US dollar is unlikely to be the best long side. Using Swiss Francs or Euros might be a better trade.
I see the best opportunity in the financial markets this week is likely to be a long position in silver against the US dollar. There may also be near-term opportunities to short WTI crude oil.
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