Risk Is Back on the Menu Boys!

Last week brought us many answers. It also brought us legitimate long and mid-term trading signals. The reason for those were Thursday’s CPI reading which came in lower than expected. This ushered in some hope that US inflation had peaked, which may be a hint that the cycle of interest rate hikes is nearing an end.

Rising rates have been good for the USD and rather negative for stocks, so you can conclude that a slowing down of inflation would be negative for the dollar and positive for stocks. That’s exactly what we observed on Thursday and Friday.

Indices have been surging but this vertical take-off raises concerns about a potential bearish correction. The Dow Jones managed to break a crucial long-term downtrend line, which has been connecting lower tops since the beginning of the year. From a technical point of view, that ends the bear market there.

The DAX is surging even more aggressively. I guess that the cause of that here could be the surprisingly warm October and November in Europe, which has positive impacts on the old continent’s potential energy crisis. The DAX is currently eyeing the 14800 resistance which was absolutely crucial throughout the whole of 2021.

Commodities are mixed. Precious metals are on the run with gold climbing over 150 USD/oz since the beginning of November. One of the factors to blame for this is the weaker dollar but that doesn’t, for example, help oil, where the price is moving sideways. Here we have a battle of the weak dollar (bullish) and weak demand (bearish) and that’s probably why the price can’t find a proper direction.

On the currency market we see EURUSD saying goodbye to parity and welcoming 1 on front, possibly for quite some time.  Currently, the main pair stopped on the 1.035 resistance, which was crucial in May, June and August of this year.

Quietly the yen is strengthening and on USDJPY this is very significant. The price managed to break the up trendline, which hints that its not over in the mid-term. GBPJPY and EURJPY have also managed to break important supports. In both those cases, horizontal ones – 165 and 144.3 respectively.

On another front, over the weekend we received comments from the Fed’s Waller, who said that the CPI report is “just one data point” and that markets are “way out in front”. It’s believed that he’s looking at potentially hiking 50bps at the next meeting or after.

Today’s calendar is empty. We only have speeches from two central bankers after the close of the European session: SNB Chairman Jordan and FOMC Member Brainard, will comment on the current situation on the market.