Investors Start 2022 on Upbeat Mode, OPEC+ Meets

The US dollar traded higher against all the other major currencies on Monday and Tuesday, Asian session, at a time when EU and US shares climbed higher. Perhaps investors remained optimistic that full-scale lockdowns can be averted, despite record COVID infections. As for the dollar, it may have rebounded on Fed hike expectations. As for today, major OPEC and non-OPEC members meet to decide on oil production.

USD Gains, Equities March North, OPEC+ to Decide on Oil Production

The US dollar traded higher against all the other major currencies on Monday and during the Asian session Tuesday. It gained the most ground versus AUD, NZD, and JPY in that order.

The strengthening of the dollar and the weakening of the risk-linked Aussie and Kiwi suggest that markets may have traded in a risk-off fashion yesterday and today in Asia. However, the weakening of the yen points otherwise. Therefore, in order to clear things up, we prefer to turn our gaze to the equity world. There, major EU and US indices were a sea of green, with risk-appetite softening today in Asia.

Monday was the first working day of 2022 for many traders around the globe, who may have decided to resume their activity by increasing their risk exposure. Why? Perhaps, for the same reasons they led equities higher during the end of 2021. While the surge in Omicron covid cases continues to impact travel and public services around the globe, its milder nature keeps market participants optimistic that full-scale lockdowns could be averted. The fact that Tesla rallied 10% on record quarterly deliveries may have also helped Wall Street, especially Nasdaq.

So, why is the dollar up in a risk-on environment? In our view, the US dollar is strengthening as market participants maintain expectations of several interest rate increases by the Fed this year. According to its latest “dot plot”, the Committee itself anticipates three quarter-point lift-offs by the end of 2022. US Treasury yields also moved higher, adding to the view that the US dollar is supported by rate-hike expectations. But if market expectations on interest rates remain high, why equities continue to march north? Interest rate hikes negatively affect profitability of firms. Maybe because equity traders have already digested the idea of a higher-rate trading environment this year, or because they prefer to focus on the fact that economies around the globe wills stay open, despite record coronavirus infections.

As for today, market participants may turn their attention to the energy market, as we have a meeting between major OPEC and non-OPEC oil producing nations. Despite the fast-surging covid cases lately, the group is not expected to alter its existing policy, as most governments around the globe dismissed the chance of a full-scale lockdown due to the new variant being less deadly than the previous ones. Indeed, on Sunday, the group said that it expects the impact on the oil market from the Omicron strain to be mild and temporary, keeping the door open for a further increase in output. Therefore, we expect the alliance to continue raising output targets by 400k bpd each month, as previously agreed. Oil prices could gain somewhat if indeed the group officially confirms the view that demand will probably not be affected. The Loonie could gain as well, but its traders may also wait for Canada’s employment data, due out on Friday, before deciding on bigger positions.

USD/JPY – Technical Outlook

USD/JPY traded higher yesterday, breaking the peak of November 24^th, at 115.52, and entering territories last tested in the beginning of 2017. Overall, the pair continues to trade above the upside support line drawn from the low of December 3^rd, but also above another steeper line, taken from the low of December 20^th. So, with that in mind, we will consider the short-term picture to be positive.

We believe that the break above the 115.52 may have opened the way towards the high of January 10^th, 2017, at 116.33. The bulls may decide to take a break after testing that zone, thereby allowing a corrective setback. However, as long as that setback remains above the upside line taken from the low of December 20^th, we will see decent chances for another rebound and a break above 116.33. This could pave the way towards the high of January 11^th, 2017, at 116.92.

We will start examining the case of a decent correction lower if we see a clear break below the 114.95 zone, marked by the low of January 3^rd. This could initially pave the way towards the low of December 29^th, at 114.65, the break of which could aim for the 114.50 barrier, or the upside line taken from the low of December 3^rd.

WTI Crude Oil – Technical Outlook

WTI crude oil trade higher yesterday, after hitting support at 74.27. In the bigger picture, the price remains between that level and the 77.45 barrier, marked by the highs of December 29^th and 30^th, but also above a prior downside resistance line taken from the high of November 1^st. In our view, this paints a cautiously positive picture.

We will get more confident with regards to the upside if we see a break above 78.05, marked by the high of November 22^nd. This could initially pave the way towards the round figure of 80.00, which is also marked as a resistance by the high of November 24^th, the break of which could carry extensions towards the high of November 16^th, at 81.75. If that barrier is not able to stop the advance either, we could see the bulls climbing towards the high of November 9^th, at 85.00.

On the downside, we would like to see a clear dip below 69.35 before examining whether the bears are back in control. This could confirm the liquid’s return back below the downside line taken from the high of November 1^st and may see scope for declines towards the low of December 3^rd, at 66.05. Another break, below 66.05, could extend the fall towards the low of December 2^nd, at 62.90.

As for the Rest of Today’s Events

We get the UK final manufacturing PMI for December, which is expected to confirm its preliminary estimate, and the US ISM manufacturing index, which is expected to have slid somewhat.

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68.02% of retail investor accounts lose money when trading CFDs with the Company. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.

Copyright 2022 JFD Group Ltd.