empty
30.12.2022 12:28 AM
Euro, gold, S&P 500 - financial markets before and after Christmas

Hello, dear colleagues!

Just over a week has passed after the key meetings of central banks, which means it is time to look at how markets have perceived their decisions and what consequences it may lead to. The series of meetings in mid-December included both expected and very unexpected decisions, which will have an impact not only on the first quarter, but for the entire next year in 2023.

In turn, take note that the current situation is very favorable for the global, i.e. US financial system, which managed to avoid negative events in 2022. Back in October of the outgoing year, people expected the global economy to slide into recession but it didn't turn out so bad, and now GDP is forecast to fall next year. This happened due to fairly strong data on consumer activity, due to a decrease in inflation and, most importantly, a decrease in energy prices in the second half of 2022.

The key meeting of central banks was the meeting of the U.S. Federal Open Market Committee that was held last week. The decision to raise the target federal funds rate by 50 basis points was quite expected, but traders were highly disappointed in the comments which followed the announcement, after which the US stock indices started to decline actively. However, the decline was quite predicted by the technical analysis (Fig.1) and statements of the Federal Reserve officials.

This image is no longer relevant

Fig.1: Technical diagram of the S&P 500 #SPX index. Daytime.

As Figure 1 shows, the S&P 500 #SPX index has been in a declining trend since early 2022, and its rise from 3,491 to 4,100 in October and November 2022, according to the rules of technical analysis, was merely a correction to the descending momentum. Fundamentally, there was virtually no basis for such a growth. It is assumed that markets have overestimated the Fed's desire to start cutting rates next year. As a result of panic closure of positions at the end of the year, the market lost half of its autumn growth.

The current technical picture allows us to conclude that the stock markets' negative dynamics will continue in the future, around one to three months. The first target will be the #SPX 3,700 low, and the next target for the #SPX decline will be 3,500. There is one more detail that you should pay attention to: if the U.S. stock market declines next year, it will most likely fall more than it did in 2022. So the stock market may not stop at these targets and there is a high probability that it will not stop.

The second most important meeting in December was the European Central Bank meeting, which, as well as the Fed, had raised the rate by 50 basis points, which was quite unexpected, because earlier the rate was raised by 75 bps, and inflation in the euro area isn't even slowing down. Such a decision has one practical application in terms of trading. The fact is that a slowdown in rate hikes raises the possibility that the euro will depreciate against the U.S. dollar in the short-term, which will happen as the potential of rates between the dollar and the euro remains unchanged. Earlier the markets were counting on another ECB rate hike of 75 bps in December and considered that in the exchange rate, which allowed the euro to reach 1.0735.

By the way, this conclusion is confirmed by the technical picture of the EURUSD exchange rate (Fig.2). From mid-November to mid-December, the euro exchange rate formed a "rising wedge" pattern, which in most cases breaks down. Short-term targets for such decrease can be 1.03 and 1.01. Such a possible decrease has another reason: the fact that the EURUSD rate grew quickly enough, during one and a half months the rate rose from 0.973 to 1.0735, which is more than 10%, and this is a lot, considering that such changes are rare in the currency market. The markets were hoping too much for an active rate hike by the ECB, and now comes the disappointment, leading to sales of the European currency.

This image is no longer relevant

Fig.2: Technical picture of the EURUSD exchange rate, daily chart

EURUSD may take up to a month to realize its short-term targets for corrections. So we can say that the EUR exchange rate may enter a bearish correction in January.

In the future, a lot will depend on the dynamics of interest rates in dollars and euros. If the Fed slows down the pace of rate hikes and the ECB continues to raise rates in increments of 50 bps, it may lead to further growth of the euro. In the medium-term daily dynamics, from one to three months ahead, the EURUSD remains in an upward phase, so after a short-term decline in the zone from 1.03 to 1.01, it may well resume growth.

One more tool, which can be indirectly influenced by central banks' interest rates through exchange rates, is gold. Fundamentally, gold, like any other commodity, is quoted in dollars and is very dependent on demand in the United States. God forbid we see the relationship between gold and the dollar as a rigid correlation, but in short-term periods such a relationship can be seen, and it may well be the case now.

Take note that gold, as well as the euro, formed a "rising wedge" in its dynamics and was unable to keep the resistance level above $1,825 (Fig.3). Also, take note that gold's low in October at 1,622 coincided with the euro low at 0.9538.

This image is no longer relevant

Fig.3: Technical picture of the gold price, daily chart

I assume that if the euro starts to fall and the U.S. dollar strengthens in the short term, then gold prices will also begin to fall. The bearish target for gold might be $1,720.

But in case gold closes the year behind the resistance of $1,825, it has a good chance to rise further, which can occur despite the dynamics of the U.S. dollar and the currency market in general. Moreover, as I said before, the dollar will stay in a downtrend for one to three months, which is a good thing for gold in this case.

In general, we cannot rule out a paradigm shift in gold, when the dollar-euro-gold link might change into a dollar-yen-gold link, where gold begins to correlate with the yen instead of the dollar. Such a correlation has already been observed for quite a long time in the last decade. Also, keep in mind that in the long run, gold appreciates against the U.S. dollar and has risen in value more than 60 times over the past 50 years. Be careful, be cautious, and follow the rules of money management.

Recommended Stories

Análisis del par GBP/USD. El 2 de mayo. La divisa estadounidense subió por poco tiempo

El par de divisas GBP/USD continuó cayendo durante el jueves. El dólar fortaleció sus posiciones durante tres días consecutivos, para lo cual objetivamente no había ninguna razón. El contexto macroeconómico

Paolo Greco 07:32 2025-05-02 UTC+2

Análisis del par EUR/USD. El 2 de mayo. Al dólar le espera un nuevo colapso. Y no será el último.

El par de divisas EUR/USD volvió a negociarse el jueves con bastante calma, pero esta vez la divisa estadounidense ya no logró mostrar un fuerte crecimiento. Lo bueno, en pequeñas

Paolo Greco 07:32 2025-05-02 UTC+2

Análisis del par EUR/USD. El 30 de abril. El mayor misterio de 2025 ha sido revelado.

El par EUR/USD continuó negociándose el martes dentro de un rango limitado con una volatilidad bastante baja. En realidad, 80 puntos por día para el euro es un valor

Paolo Greco 07:32 2025-04-30 UTC+2

Análisis del par GBP/USD. El 30 de abril. La democracia ficticia de EE.UU. y el impeachment a Trump.

El par GBP/USD se corrigió ligeramente a la baja después de subir el lunes sin motivo aparente. Sin embargo, llamar a este movimiento mínimo hacia abajo un «crecimiento del dólar»

Paolo Greco 07:32 2025-04-30 UTC+2

EUR/USD. Negociación en rango a la espera de informes importantes

El par EUR/USD lleva ya dos semanas consecutivas operando dentro de la figura 13 (con avances puntuales hacia la figura 14), reaccionando a todos los eventos fundamentales dentro del rango

Irina Manzenko 13:09 2025-04-29 UTC+2

Análisis del par GBP/USD. El 29 de abril. ¿Son importantes los datos de desempleo y del mercado laboral?

El par de divisas GBP/USD también se negoció el lunes con baja volatilidad y prácticamente en una dirección lateral, aunque la libra esterlina mantiene una ligera inclinación alcista. A pesar

Paolo Greco 07:40 2025-04-29 UTC+2

Análisis del par EUR/USD. El 29 de abril. Los débiles se rinden, los fuertes resisten.

El par de divisas EUR/USD el lunes permaneció inmóvil. No hubo noticias de Donald Trump sobre disputas comerciales durante el fin de semana, y para el propio lunes

Paolo Greco 07:40 2025-04-29 UTC+2

Análisis del par GBP/USD. El 28 de abril. A la libra solo le queda no estropear su celebración.

El par de divisas GBP/USD el viernes también se negoció con baja volatilidad y sin ningún entusiasmo. Sin embargo, la libra esterlina todavía mantiene una ligera inclinación alcista

Paolo Greco 07:28 2025-04-28 UTC+2

Análisis del par EUR/USD. 28 de abril. Trump en espera, el mercado en espera.

El par de divisas EUR/USD el viernes prácticamente no se movió. En la ilustración de abajo se puede ver que la volatilidad en las últimas semanas no puede calificarse

Paolo Greco 07:28 2025-04-28 UTC+2

Análisis del par GBP/USD. 25 de abril. En la Fed empiezan a preocuparse de verdad.

El par GBP/USD el jueves se negoció al alza, manteniéndose cerca de sus máximos de los últimos tres años. A pesar del fuerte crecimiento de la libra esterlina

Paolo Greco 07:28 2025-04-25 UTC+2
¿No puede hablar ahora mismo?
Ingrese su pregunta en el chat.
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaTrade anyway.

We are sorry for any inconvenience caused by this message.