What to watch this week? (US500, USDJPY, NATGAS)

The final trading week begins and markets are set to wrap up this rather disappointing year. In 2022, the main drivers of market volatility were central banks and their response to inflation, and there are many indications that the situation will not change next year. The economic calendar for next week is rather empty but end-year changes in positioning may play a crucial role. US500, USDJPY and NATGAS are the instruments to follow in the coming week.

US500

End of the year period, just like end of the quarter periods, are marked with big positioning changes among investment funds. Managers often engage in the so-called "window dressing" - an action of buying well-known shares with the intent of highlighting them among funds' top10 holding list. Underperforming stocks also tend to be sold at the year's end as investors seek to optimize their taxes. This is a key thing stock investors should take into consideration while trading in the final week of the year.

Santa is probably not coming on the stock market this year. US500 is down more than 6% this month but the bulls try to push the price above 3900 points. If they fail, an engulfing pattern will indicate further pain at the beginning of 2023. Source: xStation5

USDJPY

USDJPY has been one of the most interesting currency pairs to trade in 2022. Japanese yen dropped almost over 30.0% against US dollar with USDJPY exchange rate jumping to the highest level since 1998 in October. However market sentiment shifted swiftly in November, following BoJ intervention and recent unexpected yield curve control adjustment. Christmas is not as celebrated in Asia as it is in Europe or the United States and Japanese markets will be open on each day of the current week. This may help keep JPY on the move.

At one point, the yen had lost almost a third of its value this year. However, some changes in monetary prospects in the US and Japan caused that USDJPY has decreased by around 12% from its peak. The yen should continue to recover losses but US yields are in the rally again as the Fed showed that it is not pivoting yet. Source: xStation5

NATGAS

Fresh weather forecasts for the end of December point out that a massive arctic storm could potentially disrupt exports of LNG from the US Gulf Coast, thus exacerbating the global energy crisis. As such above-average natural gas consumption, due to increased heating needs could exert upward pressure on NATGAS. US natural gas prices fell sharply last week to the lowest level since March 2022, however potential supply problems coupled with higher heating needs could provide some respite for the market bulls.

Natgas was heavily sold in the third week of December due to better weather forecasts in the US. On the other hand, the current weather condition is not very good and natgas consumption is rather high. The price ended above crucial support of 4.9 USD/MMBTU and above the long-term upward trend line, so bulls should try to make up some recent losses. Source: xSation5