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Markets kick off 2022 in style


5 January 2022 Written by Lukman Otunuga  Senior Research Analyst at FXTM Lukman Otunuga

Global investors have entered the new year in a cheerful mood. U.S futures and European stocks flashed green on Tuesday, extending a solid start to 2022 as concerns over the Omicron variant eased. Equity bulls are likely to remain in the driving seat if improving economic data fuels hopes around a steady economic recovery despite a surge in Covid-19 cases.

The next few days promise to be eventful with global markets thanks to the OPEC+ output decision later today, FOMC meeting minutes on Wednesday, and key US jobs data on Friday. On top of this, major economies will be publishing key data throughout the week, complemented with speeches from Fed policymakers. At the end of our 2021 market review, we advised you to fasten your seatbelts for another eventful year. If you have not already done so, it’s not too late.

Will the dollar remain king in 2022?

As 2022 kicked off, I found myself pondering whether the mighty dollar would rule the FX arena this year. We highlighted in our 3 major themes for 2022 how the dollar could be a potential winner. Indeed, the Fed indicating that they could raise interest rates 3 times in 2022 is a welcome development for the dollar.

We are only two days into 2022 and the dollar is flexing its muscles in the FX space, appreciating against all G10 currencies with the Dollar Index (DXY) hovering around 96.40 as of writing. From a technical perspective, the DXY has the potential to push higher if a daily close above the 96.90 resistance level is achieved.

EURUSD destined to tumble?

The monetary policy divergence between the Federal Reserve and European Central Bank will most likely influence the EURUSD’s outlook for 2022. Given how the Fed is seen tightening policy much faster than the ECB, this could weigh heavily on the EURUSD. Looking at the charts, the currency pair remains in a range with support at 1.1200 and resistance at 1.1370. A strong breakdown and daily close below 1.1200 could signal further downside with 1.1093 acting as the first point of interest.

Will gold bears dominate the scene?

A stronger dollar and prospects higher interest rates make a toxic cocktail for zero-yielding gold. The precious metal concluded last year 3.64% lower and entered 2022 on a shaky note. Gold could transform into a fierce battleground for bulls and bears this year as investors juggle with Covid-19 developments, inflation fears, and Fed hike expectations among other themes. In the meantime, the precious metal’s near term outlook could be impacted by the key US jobs data on Friday.

Looking at the technical picture, the $1800 psychological level remains a key point of interest. Should this level prove to be reliable support, a move back towards $1831 and $1845 could be on the cards. Alternatively, a decline below $1800 may open the doors towards $1786 and $1770, respectively.

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