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  • 4 Global Market Updates- 26 October, 2022

    4 Global Market Updates- 26 October, 2022

    In this article, we have covered the highlights of global market news about the AUD/USD, EUR/USD, USD/JPY and USD/CAD.

    AUD/USD: Near-term gain potential is still there

    According to Quek Ser Leang and Peter Chia, senior FX strategists at UOB Group, further rebound in the AUD/USD looks to be in the cards for the time being given recent price action.

    “We did not anticipate the sharp increase in AUD that drove it to a high of 0.6412 during the last 24 hours” (we were expecting sideway-trading). The strong gain in the AUD may touch 0.6420 first despite being overbought before the likelihood of a retracement rises. The significant resistance of 0.6460 is not likely to be tested by AUD. Support is located at 0.6365, although simply a break of 0.6340 would signal a reduction in the upward pressure now present.

    1-2 weeks from now: “Yesterday (25 October, spot at 0.6330), we noticed that the underlying tone for the Australian dollar appeared to have firmed. We said that before a sustained gain is conceivable, AUD must move and hold above 0.6410. The Australian dollar then increased to 0.6412 before finishing strongly at 0.6394 (+1.28%). The AUD is anticipated to increase in price to the main barrier at 0.6460 as upward momentum has increased. On the downside, a breach of the “strong support” level at 0.6305 (it was at 0.6220 yesterday) would show that the momentum has peaked.

    EUR/USD: A break of 1.00 might lead to a very severe short squeeze to 1.02, according to ING.

    The EUR/USD currency pair keeps moving up approaching the important parity level. According to ING experts, a breach over this point might lead to a severe short squeeze to 1.02.

    usd

    The Fed meeting scheduled for next week may provide the currency some further boost.

    It has taken a few weeks, but it seems that the EUR/USD is finally reacting to the lower natural gas prices and the better terms of trade situation. Since EUR/USD is now threatening to exit a bearish channel that has been holding back price activity all year, we should proceed with a little caution. Therefore, a breach of 1.00 might start a rather severe short squeeze that would push prices up to 1.02 and, at the very least, decrease the pace (5% per quarter) at which the EUR/USD is falling this year.

    The issue is undoubtedly whether the 1.00 level can underpin the EUR/USD pair until tomorrow’s ECB meeting before the Fed meeting next week might provide the dollar some more support.

    USD/JPY remains consolidative for the time being – UOB

    Senior FX Strategist Peter Chia and Markets Strategist Quek Ser Leang of UOB Group believe that the USD/JPY will likely be locked in the 144.00-152.00 area for the foreseeable future.

    “Yesterday, we had the view that US Dollar ‘may continue to move in a turbulent manner, likely between 147.40 and 150.10,’” the 24-hour outlook reads. Following that, the US Dollar traded in a smaller range (147.51/149.09) than anticipated. The USD is projected to go somewhat lower today due to the softening of the underlying tone. Nevertheless, any slide will probably stop at a test of 147.00. Resistance is found at 148.50, then 149.00.

    Within the next three weeks, “We remain committed to yesterday’s position” (25 Oct, spot at 148.80). A mixed view is the outcome of the recent erratic price movements, as was mentioned. Further volatility is possible, and for the time being, the USD might move within a broad range of 144.00/152.00.

    USD/CAD: If the Bank of Canada raises rates by 75 basis points, the Loonie will profit in the near run, according to Commerzbank.

    The rate choice and the Bank of Canada’s forecasts in its most recent monetary policy report are two things the market is likely to pay particular attention to. According to Commerzbank strategists, the loonie might see some gains in the near future if the BoC delivers the anticipated 75 basis point increase.

    usd

    The loonie is destined to lose further ground if the BoC merely increases by 50 bps.

    “We anticipate that CAD will be able to gain in the near term if the BoC increases its key rate by 75 basis points and the market perceives this move as being hawkish. However, a fly in the ointment that would lessen potential benefits would be growing recession worries.

    “The loonie is expected to lose further ground versus the US dollar if the BoC does not live up to expectations today and only raises the benchmark rate by 50 basis points. If the BoC then made a dovish announcement, the downside pressure on USD/CAD would worsen.

    Please click here for the Market News Updates from 25 October, 2022.

  • Cyclical Stocks: A Beginner’s Guide

    Cyclical Stocks: A Beginner’s Guide

    Stocks that are both cyclical and non-cyclical might assist traders in diversifying their equity holdings. The following sections of this article will cover the basics of various sorts of cyclical stocks and how to incorporate them into stock portfolios:
    • What are cyclical stocks?
    • Cyclical vs. non-cyclical stock differences
    • The definition of cyclical sectors
    • FAQs about cyclical stocks

    CYCLICAL STOCKS: WHAT ARE THEY?

    Shares of cyclical stocks are those that are predicted to change by the corresponding economic circumstances. In other words, cyclical stock values are more likely to increase in a strong economy and decline in a weak one. To put it another way, cyclical stocks may depend on consumer incomes where their “wants” rather than “needs” are met (see difference table below).

    CYCLICAL STOCKS
    Source: DailyFX

    CYCLICAL vs. NON-CYCLICAL STOCKS: DIFFERENCES

    The following are some distinctions between defensive (counter-cyclical) equities and cyclical stocks:

    CYCLICAL STOCKSNON-CYCLICAL STOCKS
    More volatile to economic conditionsRelatively less dependent on economic conditions
    Cyclical companies provide for consumer wants which vary with the economy (e.g. luxuries such as vacations)Non-cyclical companies deliver on consumer essentials (e.g. soap and toothpaste)
    More appealing for those looking to trade a strong economyCan be preferred by investors during periods of poorer economic circumstances

    Investors may often vary their outlooks by including both cyclical and non-cyclical equities in their portfolios. This makes room for protection against economic upswings and downswings. However, for the sake of this study, we will only concentrate on cyclical and non-cyclical shares. Other stock kinds may also be merged.

    Although traders may use cyclical and non-cyclical stock types, they must be aware of the present and potential future business cycles. Some risk-averse investors choose bigger proportions of non-cyclical companies, including defensive stocks, to go along with low-risk appetite. Other riskier investors would want to trade a more significant proportion of cyclical companies on both sides (long and short trades).

    Cyclical equities often carry more risk. A future decline in growth may counter the short-term benefits of an uptick in economic activity. Non-cyclical shares in a comparable period might help level out returns at the expense of higher yield.

    WHAT DO YOU MEAN BY CYCLICAL SECTORS?

    Different sectors may be used to classify various cyclical stock types. Although there isn’t a formal list of sectors, the following are typical examples:

    Construction Sector:

    Companies engaged in real estate development and construction make up this industry. Businesses often cut inventory levels, put off purchasing, and postpone expansions during economic downturns. Typically, when the building industry grows during economic expansions, the opposite is true.

    Real Estate Sector:

    This industry includes mortgage firms, property management companies, and real estate investment trusts (REITs). In a strong economy, demand for land often rises along with property prices and rental rates, depending on housing availability.

    Sector of Basic Materials:

    Some businesses produce construction supplies, paper goods, and chemicals. Businesses involved in the discovery and processing of commodities are also included in this category.

    Sector of Financial Services:

    Businesses that provide financial services are included in this sector. Banks, asset management businesses, investment trading firms, and insurance companies are often among them.

    Consumer cyclical sector:

    Retail establishments, vehicle manufacturers, businesses involved in residential development, lodging facilities, dining establishments, and entertainment are all included in this industry.

    cyclical stocks

    FAQs about cyclical stocks

    • Is the banking sector cyclical?

    As a result of their reliance on the credit market, banks are seen as cyclical. Banks often provide more loans during periods of strong economic growth and less during periods of recession.

    • Is the insurance industry defensive or cyclical?

    Most people see the insurance industry as defensive. An economic slump may only sometimes cause policyholders to renounce their insurance. In turn, this may lessen the adverse effects of a recession on insurance companies, easing the blow to their stock prices. In most circumstances, health insurance is not readily abandoned in times of financial trouble and is typically crucial to overall welfare. The opposing view is that fewer individuals may want to purchase new insurance policies when circumstances are challenging, which might lead to a decline in new transactions.

  • EUR/USD seems to be offered below 0.9900, with an eye on the US docket.

    EUR/USD seems to be offered below 0.9900, with an eye on the US docket.

    The trade remains at the 0.9900 barrier due to the EUR/USD. In October, the business climate in Germany remained unchanged. Later in the discussion, US Consumer Confidence will take center stage.
    Around the European currency, there is a lack of consensus on a direction, which causes EUR/USD to trade on Tuesday with a negative bias around 0.9860.

    EUR/USD emphasizes risk trends, and the dollar

    With the dollar again lacking a clear trend, the EUR/USD sputters once more before the critical barrier at 0.9900 and experiences some modest negative pressure.

    The German 10-year bund yields, which have been hovering around the 2.25% range so far, have dropped for the third time in a row, which coincides with the pair’s indecisive price action.

    The IFO Institute’s Business Climate Index, released in the domestic calendar and held steady at 84.3 for October, had no response in the pair.

    EUR

    On the other side of the pond, the FHFA will release its House Price Index before the Conference Board’s more pertinent Consumer Confidence print.

    What to watch for in the EUR?

    Following Tuesday’s unsuccessful effort to test or above the 0.9900 level, the EUR/USD is under pressure.

    Price movement around the currency is anticipated to closely track dollar trends, geopolitical tensions, and the Fed-ECB divergence in the interim. The latter is anticipated to continue to grow in light of recent findings from critical economic indicators, given the continued strength of the US economy.

    Additionally, the growing fears of a regional recession – which seem to be supported by declining mood indicators and an impending downturn in certain fundamentals – contribute to the pessimistic outlook for the euro.

    Important occurrences in the euro zone this week: Germany Tuesday’s IFO Business Climate: France Wednesday’s consumer confidence data for Germany Italian GfK Consumer Confidence, ECB Lagarde (Thursday) Interest Rate Decision, France/Italy/Germany Germany’s Flash Inflation Rate Q3 GDP Growth Rate, EMU, preliminary Economic sentiment and final consumer confidence.

    EUR

    The continuation of the ECB’s rate hike cycle vs. rising recession concerns are important topics simmering in the background. Impact of the conflict in Ukraine and the ongoing energy shortage on the prognosis for inflation and growth in the area.

    Watching the EUR/USD levels

    The pair is now declining by 0.02% at 0.9871, and a break of 0.9631 (the month’s low on October 13) would aim for 0.9535 (2022’s low on September 28) before reaching 0.9411. (weekly low June 17, 2002). On the other hand, the subsequent upward barrier is at 0.9899 (weekly high October 24), followed by 0.9999 (monthly high October 4), and lastly, 1.0050. (weekly high September 20).

  • 4 Global Market Updates- 25 October, 2022

    4 Global Market Updates- 25 October, 2022

    In this article, we have covered the highlights of global market news about the USD/JPY, USD/CNH, GBP/USD and USD/CAD.

    USD/JPY could hit 153 by Q1 2023, according to Wells Fargo

    According to Wells Fargo economists, the Bank of Japan’s FX intervention is unlikely to stop the yen decline, who also predict a weaker yen that will push the USD/JPY to 153.

    We don’t expect the supportive Bank of Japan monetary policy to shift very soon because of Japan’s sluggish growth and inflation.

    The USD/JPY exchange rate is predicted to hit 153.00 by Q1-2023. “We think FX intervention by Japanese authorities will have little impact in preventing additional yen depreciation,” the report said.

    USD/CNH: 7.3500 is next on the rise, followed by 7.4000 – UOB

    Additional increases in the USD/CNH now aim for the 7.3500 resistance level before 7.4000, said UOB Group economist Lee Sue Ann and markets strategist Quek Ser Leang.

    “US Dollar rocketed to a new record high of 7.3322 before finishing higher by a massive 1.37%,” according to the 24-hour perspective (7.3257). A strong rising trend is anticipated to result in greater progress. A break of 7.3500 would not be unexpected, but 7.4000 is unlikely to be in view today, given the extreme overbought circumstances. Support is located at 7.3000, then 7.2800.

    usd

    Within the next one to three weeks: “Yesterday, US Dollar broke over the key barrier of 7.3000 and soared to a brand-new record high of 7.3322. Even if the US Dollar strength that began around two weeks ago is severely overbought, the rise is still going strong. In other words, the overbought surge will probably continue. 7.4000 is the following note resistance level, followed by 7.3500. On the downside, a breach of the “strong support” level of 7.2600 would signal the end of the US Dollar’s uptrend.

    GBP/USD might go below 1.10 later this year, according to ING.

    The GBP/USD exchange rate is now below 1.13. Later in the year, according to ING economists, the pair will return to levels below the 1.10 mark.

    usd

    0.8650-0.8800 is the current trading range for EUR/GBP.

    “It is obvious that October 31 will be a significant day for the UK financial markets when Sunak/Hunt propose their fiscal fix. Although we support the dollar, we do not believe that the pair has to move beyond 1.15 to maintain beneath 1.10 goals for the rest of the year.

    For the time being, “EUR/GBP to sketch out a 0.8650-0.8800 range.”

    Citibank predicts that the USD/CAD will hit 1.40 in the following weeks.

    The pair is unchanged at 1.3700. Citibank economists predict that during the following months, the pair will move smoothly toward 1.40.

    usd

    Bank of Canada is about to stop. We update our 0-3m USD/CAD estimate to 1.40 but leave the 6-12m forecast constantly at 1.31 because of worse Canadian economic data; a Fed committed to keeping tightening into a global recession, and a BoC that is beginning to back off.

    We have already warned about the dovish risk of the recent slowdown in housing data, employment, and GDP presented to the BoC’s policy path, and we are getting closer to when the BoC will change course or at least stop.

    Please click here for the Market News Updates from 21 October, 2022.

  • Benefits of Stock Market Liquidity for Traders

    Benefits of Stock Market Liquidity for Traders

    Understanding stock market liquidity is crucial for traders. You will be in a better position to acquire and sell if you are aware of the simplest stocks to convert to cash without the price being impacted. This article will examine stock market liquidity in detail, highlight some of the most liquid equities and discuss the advantages of trading them, as well as how stock market liquidity differs from FX liquidity.

    WHAT DOES STOCK MARKET LIQUIDITY MEAN?

    Liquidity in the stock market refers to equities with enough trading volume to let traders enter and exit positions without difficulty. Stocks with insufficient volume and low liquidity cannot be purchased or sold as readily. It isn’t easy to locate buyers and sellers for such stocks.

    Share turnover, computed by dividing the total number of shares exchanged during a particular time by the typical number of shares outstanding for the period, may be used to gauge liquidity. A corporation will have liquid company shares if there is a significant share turnover.

    liquidity

    For instance, if a corporation listed on a significant index like the NASDAQ, DAX, or FTSE 100 has 100 million outstanding shares on the first day of its fiscal year and 150 million on the final day, the average number of outstanding shares for the year will be 125 million. 90 million shares were traded throughout the year; therefore, 90 million/125 million = 0.72 represents a share turnover rate of 72%.

    WHICH STOCKS ARE THE MOST LIQUID?

    Exxon, GE, and Chesapeake Energy are examples of high-liquidity stocks in the energy industry. Microsoft, Google, and Facebook are examples of high-liquidity stocks in e-commerce. The amount of shares traded on a particular day is the share volume of stocks. With equities deemed liquid at 200,000 and above, the biggest volumes will often be in the tens of millions.

    Naturally, there will be variations in the liquidity of stocks, but generally speaking, the equities with higher market capitalizations will be more liquid. The following table displays some of the most liquid equities as of April 2019 to provide an overview of the liquidity of stocks by sector.

    ENERGYFINANCIALHEALTHCAREINDUSTRIALSTECHNOLOGYTELECOMS
    Chesapeake EnergyBank of AmericaCelgeneCSX CorpAmazonAT&T
    ExxonMobilBerkshire HathawayJohnson & JohnsonDeere & CoAppleComcast
    General ElectricBlackstone GroupMerck & Co.United TechnologiesCiscoT-Mobile US
    HalliburtonKKR & CoPfizerUS EcologyGoogleVerizon
    TransoceanLloyds Banking GroupTevaWaste ManagementIntelVodafone

    ADVANTAGES OF TRADING HIGHLY LIQUID STOCKS

    Highly liquid stocks may be beneficial for day traders since they allow for quick entry and exit of positions without hitting prices, which is ideal for the fast-paced nature of day trading.

    Since liquid stocks make it easy to establish and close positions, traders may confidently stick to their risk management approach. Contrast this with trading less liquid equities, where it could take a lot longer to complete an order due to the low share volume.

    You may use a stock screener tool to identify companies with solid liquidity, just as you can find volatile stocks. This assists in locating equities based on predetermined parameters, such as trading volume.

    RELATIONSHIP BETWEEN LIQUIDITY AND TECHNICAL AND FUNDAMENTAL ANALYSIS

    Fundamental and technical considerations have a significant impact on trading volume. In the chart below, a subprime lender named Provident Financial saw intense selling in August 2017 due to a profit warning, its dividend abolition, and its CEO’s departure. This is an illustration of fundamentals in action.

    liquidity

    According to technical analysis, a hefty price gain and a noticeable volume increase might signify the continuation of a bullish trend or a positive reversal. On the other hand, a price decline accompanied by an increase in volume may indicate a continuation of the positive trend or a bullish reversal.

    Volume indicators could be helpful for traders that prioritize technical analysis. The Positive Volume Index and Negative Volume Index are important indicators of how volume influences price since they are based on the trading volume and market price from the previous day.

    DIFFERENCES BETWEEN FX LIQUIDITY AND STOCK MARKET LIQUIDITY

    There are a few crucial aspects to consider when comparing the currency market’s liquidity with the stock market. Due to the constant availability of a large amount of money for trading, all main currencies, including EUR/USD and EUR/JPY, are very liquid; nevertheless, exotic currencies, such as USD/HUF and USD/TRY, are exchanged considerably less often.

    According to the Bank for International Settlements, the forex market trades an average of $6.6 trillion daily, many times more than the volume of equities. It is open 24 hours a day. Additionally, this implies that positions may be established and terminated at any time, which is beneficial for liquidity.

    However, many equities, including the aforementioned blue-chip examples, will naturally also have significant liquidity. Despite this, smaller stocks with fewer trades may be much less liquid.

    ALTERNATIVE TRADE ROUTES

    Consider trading the most liquid major stock indexes, such as the Dow Jones, S&P 500, and FTSE 100, if you’d prefer not to trade individual equities. As an alternative, the foreign exchange market is the most liquid option.

  • WTI rises to $85.00 a barrel as the US Dollar drops.

    WTI rises to $85.00 a barrel as the US Dollar drops.

    Western Texas Intermediate (WTI) is anticipated to end the week down 0.55%. The demand from China and a weak US dollar supported oil prices. Because WTI purchasers cannot break through the 50-day EMA, the commodity is leaning down.

    WTI is poised to close Friday’s trading session practically flat, as Wall Street concluded the day with significant gains amid prospects of a Fed pivot after wires reported that Fed members were considering slowing the rate of rate rises after their meeting in November. WTI is now selling at $85.17 a barrel, up only 0.19% from earlier.

    Due to a weaker US dollar and increased demand from China, WTI reversed some of its previous losses.

    Given that the Fed would scale down its aggressiveness, the dollar declined, which benefited the commodity priced in US Dollars. US Treasury rates reversed previous advances, weakening the dollar, as seen by the US Dollar Index, which dropped 0.88% to 111.865 from a YTD high of 113.942.

    wti

    In addition, oil prices rose in tumultuous trade due to the potential for more robust demand from China. Oil prices increased after reports that the nation would reduce quarantine requirements for foreign visitors from 10 to 7 days.

    The significant economies risk entering a recession due to the Organization of Petroleum Exporting Countries (OPEC) and its allies’ decision to reduce oil output. The White House decided to draw 2 million barrels per day from OPEC+, which was heavily condemned.

    WTI Price Prediction

    Western Texas Intermediate (WTI) gained some ground over the day and is now holding onto the 20-day EMA at $85.13 PB despite little activity. Risks are negatively skewed as the US crude oil benchmark could not move above its 50-day EMA at $86.80 over the week.

    Therefore, the first support level for WTI would be the daily low of October 18 at $82.10, next the swing low of September 30 at $79,16, and finally, a retest of the YTD low at $76.28.

    WTI
  • Gold price forecast: XAU/USD increases on Fed shift rumors, US rates fall

    Gold price forecast: XAU/USD increases on Fed shift rumors, US rates fall

    The market speculates on a Fed shift as the price of gold increases by roughly 1% due to a WSJ piece. US T-bond rates decreased, which supported the gold price as it recovered from the month’s lows. Gold Price Prediction: A break over $1650 might drive gold to $1665, but the downward trend is still present.

    As US Treasury yields decline in response to a Wall Street Journal (WSJ) article stating that Fed officials are divided about December’s rate hike, as November’s increase to the Fed funds rate (FFR) of 75 bps is most certain, gold prices rebound from monthly lows around $1617 and move steadily upward towards the $1640s region.

    gold

    Gold rises as Fed policymakers discuss December’s rate increase.

    The WSJ story also said that officials are debating whether to raise rates at a slower rate in December—50 basis points—despite concerns that doing so may be seen as the Fed “pivoting,” which would lead to a rally in stocks—which, the report claims, is not the case. Instead, to reduce inflation, Fed policymakers are slowing the rate of rate rises. After the story was published, US stocks surged, and US bond rates declined, which boosted the price of gold at the start of the session as it recorded a new monthly low.

    The US 10-year T-bond yield is increasing by two basis points to 4.250%, which is still significantly below the YTD high of 4.338%, which was last reached before the 2007 global financial crisis. Additionally, according to the US 10-year Treasury Inflation-Protected Securities (TIPS) bond yield, US accurate rates decreased from 1.838% to 1.706%, providing relief to those who own yellow metal.

    gold

    Fed officials said action is needed since inflation is rising.

    Due to the lack of US economic data on Friday, market participants were more inclined to listen to more Fed remarks. Several Fed speakers, including Lisa Cook, a member of the Fed board, and Patrick Harker, president of the Philadelphia Fed, said on Thursday that the Fed would have to keep raising interest rates. In a statement, Harker said he is “disappointed by the lack of progress reducing inflation” and he anticipates rates to remain higher than 4% in 2023.

    Due to the broad trading range shown by the hourly chart and growing rumors of an intervention in the USD/JPY, the US Dollar Index is plummeting like a stone, from around 113.94 to 112.90.

    Gold Price Prediction

    The XAU/USD is still negatively skewed on the daily chart, although it is still quite near the YTD lows of $1614.92. While the Relative Strength Index (RSI), at 39.86, is going upward but still in negative territory, the daily Exponential Moving Averages (EMAs), trading far above the current price, maintain their bearish slope. Thus, sellers continue to be in control even if they enjoy a break as the yellow metal is ready to extend its losses for two consecutive weeks. The 20-day EMA will be tested if XAU/USD breaches $1650; otherwise, it will continue to be vulnerable to re-testing the YTD lows.

    gold
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