Even though market sentiment started off 2022 on a sour note, there were clear winners and losers on Wall Street. Dow Jones futures declined about 0.1% this past week, while the tech-heavy Nasdaq 100 sank about 4.35% in the worst performance since February. Growth-linked capital clearly disproportionately suffered as those tied in value and cyclical equities fared better.
Might this spell a preview for the road ahead this year? The latest FOMC meeting minutes clearly further underscored a more hawkish Federal Reserve, with three rate hikes fully priced in by the end of this year. If inflationary pressures linger, the central bank also opened the door to quantitative tightening, or shrinking the balance sheet.
The US Dollar outperformed most of its major counterparts as Treasury yields soared across the curve. Cautious volatility in markets did not bode well for the sentiment-linked Australian and New Zealand Dollars. Elevated crude oil prices still worked to support the energy-linked Canadian Dollar. Despite recent inflationary pressures, gold prices could not find a stable footing.
Speaking of inflation, the next US CPI report is due this coming week. On Wednesday, headline inflation is expected at 7.0% y/y in December with core at 5.4%. These are some of the highest readings in about 30-40 years. A higher-than-expected outcome could further boost hawkish Fed monetary policy bets.
This risks bringing more volatility into the stock market as the rate of return in relatively safer Treasury yields climb. Chair Jerome Powell is sure to be questioned thoroughly at his confirmation hearing this week. Towards the end of the week, a slew of Fedspeak will cross the wires. Fourth-quarter earnings also kick off with key banks, such as Chase and Wells Fargo.
US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
Soft start to 2022 for equities as Fed hawks bring QT back into the equation.
The Pound Sterling continues its stellar performance and while it may be due a pullback, the outlook remains bullish.
The US Dollar Index (DXY) may reestablish an upward trend following the Federal Reserve interest rate decision as it appears to be trading within a bull flag formation.
Gold prices fell last week as Fed rate hike bets strengthened. Bullion traders expect a busy week ahead, with Fed Chair Powell set to testify before Congress and CPI inflation data set to cross the wires.
Gold prices are carving the January opening-range between key Fibonacci levels- the 618 battle lines are drawn. Levels that matter on the XAU/USD weekly chart.
Technical chart patterns dominate both weekly and daily DXY charts pointing to a bullish outlook should prices break above key levels. NFP pours old water on dollar upside.
Market attention will focus on the U.S. inflation report next week. If December CPI accelerates further, bond yields are likely to gain more ground, fueling a bullish response in USD/MXN.
Stocks are in pullback mode off record highs, looking towards support a bit lower to see if this is a minor correction or the beginning of a broader decline.