Weekly Forex Forecast – USD/CAD, USD/MXN, S&P 500 Index, Silver

Weekly Market Review and Forecast

The past week saw a modest recovery in risk-on sentiment, with most stock markets gaining a bit. The benchmark US S&P 500 Index is now within sight of its recent all-time high and is outperforming tech-focused indices. In this article, we will review the key events of the past week and provide a forecast for the upcoming week.

Last Week’s Trades

I wrote on the 30th of November that the best trades for the week would be:

1. Long of the USD/JPY currency pair following a daily close above ¥157.77. This did not set up.
2. Long of the S&P 500 Index following a daily close above 6,920. This did not set up.
3. Long of Silver with half the normal position size. This produced a win of 2.77%.
4. Long of Gold following a daily close above $4,356. This did not set up.
   Overall, these trades gave a gain of 0.69%, which is per asset.

Key Economic Data

A summary of last week’s most important data:

1. US Core PCE Price Index – as expected.
2. US Preliminary UoM Inflation Expectations – this dropped from 4.5% to 4.1%, suggesting a decline in the long-term inflationary outlook.
3. US Preliminary UoM Consumer Sentiment – this was somewhat higher than expected, suggesting a stronger consumer outlook.
4. US ADP Non-Farm Employment Change – just a little bit worse than expected.
5. US ISM Services PMI – just a fraction better than expected.
6. US ISM Manufacturing PMI– this was somewhat lower than expected, suggesting a weaker outlook for manufacturing.
7. Swiss CPI – this is showing stronger than expected deflation, at 0.2% month-on-month, which should be bullish for the Franc.
8. Australian GDP – this came in lower than expected at a quarterly rate of only 0.4%, which might be some dovish pressure on the Reserve Bank of Australia, although the Bank has bigger problems.
9. US Unemployment Claims – just a fraction lower than expected.
10. Canadian Unemployment Rate – this unexpectedly fell from 6.9% to 6.5%, and it had been expected to rise, suggesting much stronger than expected activity in the Canadian economy.

Market Outlook

Volatility this week is likely to be considerably higher than the volatility last week. Last week’s data had a marginal impact, but it will likely have a dovish bearish on the Australian and US Dollars and maybe the Swiss Franc. If the Swiss National Bank takes no inflationary or otherwise dovish action, the Franc will likely have a bullish tailwind as its deflation will tend to boost its relative strength, all else being equal.

Central Bank Meetings

The coming week will see four major central bank meetings, including the biggest of them all, the US Federal Reserve, as well as important economic data releases from the US and the UK. This week’s most important data points, in order of likely importance, are:

1. US Federal Funds Rate, Statement, and Projections – a rate cut of 0.25% is strongly expected.
2. Bank of Canada Overnight Rate and Rate Statement – expected to hold rates unchanged.
3. Reserve Bank of Australia Cash Rate and Rate Statement – expected to hold rates unchanged.
4. Swiss National Bank Monetary Policy Rate and Monetary Policy Assessment – expected to hold rates unchanged.

Currency Analysis

The US Dollar Index printed another bearish candlestick with only a minor lower wick. The price is still above its levels of both 13 and 26 weeks ago, so by my preferred metric, I can declare a long-term bullish trend is in force, but its continuation looks doubtful. The USD/CAD currency pair weekly chart printed a very large and bearish candlestick that closed right on its low. This is after the price made a powerful bearish breakdown from a long-term ascending price channel drawn by linear regression analysis within the price chart. The USD/MXN currency pair has been in a downwards trend for a long time, even recently while the USD was gaining.

Stock Market Analysis

The weekly price chart shows that this major US stock index continued to rise last week, albeit at a slower pace. The weekly closing price was a record high for a weekly close, and the all-time high made a few weeks ago is in sight. We remain in a bull market, but I will feel more bullish if we get a new record high daily close above 6,920 – this is what I will want to see before entering a new long trade.

Precious Metals

A few weeks / months ago, Silver was in a strong bullish trend which saw the price increase by about 50% in only two months. The rise peaked in October and saw quite a strong retracement, which is usually a sign that the price is not going to make new highs soon. However, the price has come up again and then made a very strong bullish breakout with an unusually large move. We saw a further gain last week as the bullish momentum continued.

Forecast

I see the best trades this week as:

1. Long of the S&P 500 Index following a daily close above 6,920.
2. Long of Silver with half the normal position size.

Conclusion

In conclusion, the upcoming week is expected to be highly volatile, with four major central bank meetings and important economic data releases. The US Federal Reserve is expected to cut its interest rate, which could have a significant impact on the markets. The S&P 500 Index and Silver are expected to continue their bullish trends, making them potential trading opportunities. However, it’s essential to keep a close eye on the market and adjust your trading strategy accordingly.