Errante’s The Week Ahead: 18th – 22nd November 2024

Highlights of the Week:

Canadian CPI Report: On Tuesday, Canada will release its latest inflation data, which will be pivotal for the CAD, as the market seeks clues on whether the Bank of Canada might adjust its rate stance in the coming months.

UK CPI and Retail Sales: Midweek and end-week UK data on CPI and retail sales will significantly influence GBP trading, providing insights into inflation trends and consumer activity amid economic uncertainties.

Flash PMIs in Eurozone: Friday will be marked by the release of flash manufacturing and services PMIs across the Eurozone, which could provide early insights into economic activity, affecting the EUR and broader market sentiment.

What Now?

This week’s market sentiment is marked by a heightened sense of uncertainty following hawkish comments from Fed Chair Powell, which tempered expectations for a December rate cut. US two-year Treasury yields spiked, and the dollar gained traction as Powell’s comments prompted traders to dial back the odds of a rate reduction to 55%, down from 80% the previous day. Powell’s reminder that the Fed will only ease rates if the labor market weakens underscores the current restrictive policy stance. Although a December cut is still anticipated by many, Powell’s caution highlighted the challenges of navigating the “last mile” towards price stability, signaling that the Fed is unwilling to meet market expectations for a series of aggressive cuts.

The broader equity market has shown signs of fatigue, hovering below their ATH as optimism following the Trump re-election has begun to show signs of strain. Traders are questioning how long the momentum from the election can last, with echoes of 2016 resurfacing. Back then, the Trump trade—which included a stronger dollar, higher Treasury yields, and a rally in bank and small-cap stocks—began to fade months after the election, and many of these gains were ultimately reversed by the disruptions of 2020. Now, as the S&P 500 trades at 26 times reported earnings—a 35% premium compared to 2016—the bar is significantly higher for Trump’s policy initiatives, such as tax cuts, to meaningfully boost corporate earnings and justify further rallying in equities.

Adding to market jitters is the prospect of tax cuts without equivalent spending reductions, which could lead to a revival of inflation. The see-saw movements in Treasury yields reflect these concerns, as markets grapple with the possibility that fiscal policy could once again stoke inflationary pressures, complicating the Fed’s path forward. Several Fed policymakers have also emphasized a cautious approach to rate reductions, highlighting lingering inflation concerns and broad economic uncertainty. This has placed increased importance on the upcoming economic releases, including Canadian CPI, UK CPI, and Eurozone PMIs, as traders search for fresh guidance on the direction of monetary policy and economic resilience.

Market Events and Announcements:

The times below are GMT +2.

Monday, November 18, 2024:

No high-impact events are scheduled.

Tuesday, November 19, 2024:

3:30 PM – CAD: CPI m/m, Median CPI y/y, Trimmed CPI y/y: Key inflation data that will provide insights into potential changes in BoC’s rate policy.

Wednesday, November 20, 2024:

9:00 AM – GBP: CPI y/y: A key measure of inflation that will drive expectations regarding future BoE policy decisions.

Thursday, November 21, 2024:

10:00 AM – AUD: RBA Governor Bullock Speaks: Governor Bullock’s remarks could provide important insights into the RBA’s future course of action.

3:30 PM – USD: Unemployment Claims: A weekly snapshot of the US labor market.

Friday, November 22, 2024:

9:00 AM – GBP: Retail Sales m/m: Consumer activity metric that will influence GBP sentiment.

10:15 AM – EUR: French Flash Manufacturing PMI & Flash Services PMI: Early economic activity indicators that impact EUR pairs.

10:30 AM – EUR: German Flash Manufacturing PMI & Flash Services PMI: Key indicators for Germany’s economic outlook.

11:30 AM – GBP: Flash Manufacturing PMI & Flash Services PMI: Economic activity measures that will shape GBP movements.

2:40 PM – CHF: SNB Chairman Schlegel Speaks: Potential insight into Swiss monetary policy direction.

3:30 PM – CAD: Core Retail Sales m/m & Retail Sales m/m: Indicators for consumer spending trends in Canada.

4:45 PM – USD: Flash Manufacturing PMI & Flash Services PMI: Indicators of the US economic health that could impact USD pairs.

Market Insights: Key Charts to Watch

Chart 1: AUD/USD – Weekly Chart

AUD/USD has broken below key support levels and is currently trading at 0.64457. The bearish momentum persists, as the price is trending lower, testing multiple Fibonacci extension levels within the broader mild ascending channel. If bearish sentiment continues, AUD/USD is likely to extend its decline towards the 161.8% Fibonacci extension at 0.64234. A clear break below this level would represent a break of the channel and could trigger further declines, potentially see the pair testing the next key support at 0.63009 (200% Fibonacci extension). The next move will depend significantly on RBA Governor Bullock’s speech, which may provide clues on the RBA’s monetary stance.

Alternative Scenario

If the channel holds and there is a rebound, the pair may attempt a recovery towards 0.64889 (141.40% Fibonacci extension). Further bullishness would likely target the key resistance at 0.66217, but this is contingent on dovish US economic data and/or a hawkish tone from Governor Bullock.

Impactful Events 

The primary driver for AUD/USD this week will be the RBA Governor’s speech on Thursday. Additionally, the US unemployment claims data and any developments in risk sentiment will further shape movements.

Key Levels:

Support: 0.64234, 0.63009

Resistance: 0.64889, 0.66217

Chart 2: EUR/GBP – Weekly Chart

EUR/GBP is continuing its bearish trend since early 2023, forming lower highs and lower lows. The pair is trading below both the 34 and 100-week moving averages (WMAs), currently around 0.83115, and is testing key support at 0.82825. A further decline could see the pair targeting 0.82332, which coincides with the 161.8% Fibonacci level. Although the bearish momentum is cooling down a bit, this bearish scenario aligns with persistent strength in the GBP against EUR.

Alternative Scenario

Should the pair reverse and break above the resistance at 0.83826, we could see EUR/GBP rally towards 0.84750 (61.8% Fibonacci retracement). This move would require significantly weaker-than-expected UK data or increased concerns over Eurozone economic health to drive a reversal in sentiment.

Impactful Events 

Key drivers for EUR/GBP will be the UK CPI data on Wednesday and retail sales on Friday. Any major surprise in these figures could either support the bearish momentum or lead to a sharp corrective move.

Key Levels:

Support: 0.83115, 0.82825, 0.82332

Resistance: 0.83826, 0.84750

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