2023 Market Forecast by SolidECN

[SOLIDECN]

GBPUSD​

GBPUSD is testing the monthly support at (1.2442).

If the daily candle closes above the (1.2423 - 1.2441) area the price will likely grow to retest recent highs around the (1.2520 - 1.2547) areas, and the bullish trend continues. The next major support is located in the area of 37 pips between (1.2386 to 1.2343). These zones provide opportunities for long positions.

 

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Oil​

US Energy Information Administration (EIA) released a weekly report on change in US oil and oil-derivative inventories at 3:30 pm BST today. API data released yesterday in the evening suggested a quite significant build of 3.69 million barrels during the previous week as well as a drop in gasoline and distillate inventories.

Official data released by EIA today showed an even bigger build in US crude oil inventories and a deeper draw in gasoline inventories. Distillate inventories were barely changed compared to a week ago.



Report can be seen as bearish for prices and the market saw it exactly as that. Oil moved lower following the release of EIA report and is now attempting to break below 50% retracement of the downward move launched on May 10, 2023.​

 

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AUDUSD​

AUDUSD keeps its stability below 0.6668 level. Breaking 0.6630.level will provide strong negative motive that will push the price to achieve negative targets (0.6585 - 0.6560) area.

Therefore, the bearish trend will remain valid and active conditioned by the price stability below 0.6665 and 0.6705 levels.​

 

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EURUSD​

Philadelphia FED Manufacturing Index for May:
Actual: -10.4 Expected: -19.8, Previously: -31.3

Weekly Jobless Claims Data
Actual: 242k, Expected: 255k, Previously: 264k

US Dollar appreciates right after the publication of jobless claims data and the release of the FED Philly Index. EURUSD downward trend indicates growing strengths of the US currency.

 

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Economic Calendar for Today​

• European indices set to open higher​
• Powell to speak on the economy in the evening​
• Canadian retail sales data for March​

Futures markets point to a higher opening of the European cash session. DAX futures (DE30) painted a fresh all-time high above 16,300 pts earlier today but has pulled back a bit since. Moods on the markets are upbeat as traders are being constantly reminded that debt ceiling negotiations are progressing with House Speaker McCarthy saying yesterday that the debt ceiling deal could be put to a vote on the House floor as soon as next week.

Economic calendar for the final trading day of the week is light. Traders were offered German PPI data for April this morning and it showed a smaller year-over-year drop than expected - from 6.7 to 4.1% YoY while the market expected 4.0% YoY. Nevertheless, the release did not have a major impact on the market. CAD may see some moves in the early afternoon when Canadian retail sales data for April is released at 1:30 pm BST. However, central bankers' speeches may be the biggest source of FX volatility in the afternoon as there is a number of them scheduled, including speeches from Fed Chair Powell and ECB President Lagarde.​

 

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NATGAS​

NATGAS drops 1.5% today but weather forecasts suggest potential for more gains

NATGAS rallied yesterday, supported by:​

• Smaller-than-expected natural gas inventory build reported by EIA. Inventories rose 99 bcf while the market expected 110 bcf increase. Gain, however, was in-line with 5-year average​
• New weather forecast for summer period from NOAA was released and it show potential for a very high temperatures in key states in terms of demand for air conditioning​
• Moreover, some factors that could also trigger upward pressure surfaced recently:​

• Gas output in Canada is dropping hard. Drilling activity in Canada started to decline much earlier than in the United States. This suggests that US output may also drop significantly in coming weeks given recent declines in the number of active gas rigs​
• Comparative inventories are at cyclical highs, what may be seen as a contrarian signal​
• Freeport LNG terminal exports up to 2.3 billion cubic feet of gas per day, reaching new record levels​
• Of course, one should keep in mind that contract rollover will occur next week (currently around +$0.12 per MMBTu). Given current NATGAS prices, it would result in a test of the $2.70 per MMBTu area. Prices jumped around $0.15 per MMBTu following the latest rollover but launched another downward impulse later on. One cannot rule out the situation of sellers returning to the market after the contract rolls over and prices at near-term contract are once again attractive for bears. On the other hand, seasonal patterns suggest that NATGAS may be set to rebound after reaching local low in mid-June.​

Natural gas inventories increase in line with seasonal patterns. Comparative inventories are at extremely high levels (inverted axis), signaling a potential local low on natural gas prices. Nevertheless, prices traded sideways for as much as 6 months after similar situations back in 2017 and 2020.

NATGAS pulls back from the $2.6 per MMBTu area. Range of the largest correction in the current upward impulse suggests a possibility of price dropping to around $2.4 per MMBTu. On the other hand, such a correction may not occur ahead of contract rollover (May 23, 2023). Seasonal patterns suggest a potential for range trading until June 3, followed by small correction and significant gains starting from around June 18 when demand for air conditioning increases due to the beginning of summer period.​

 

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Oil​

WTI (OIL.WTI) launched a new week's trade lower as failure to make progress on the US debt ceiling over the weekend brings us closer to the US default. On top of that, the Chinese decision to ban Micron chips is also risking reigniting tensions between the US and China.

 

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META.US​

The European Union, on behalf of the Irish Data Protection Commission, has imposed a record €1.2bn ($1.3bn) fine on Meta Platforms (META.US), managed by Mark Zuckerberg, for data privacy breaches. The European body also set a categorical ban on sending user data. Within the next five months, the company is to suspend all future transfers of personal data to the US and US security services and six months to stop unlawful processing, including storage, of EU users' personal data.

The decision itself, however, does not directly cover the Instagram and WhatsApp platforms. The move by the control authorities in this case was itself foreseeable, however, in view of the fact that Meta, the US and the European Union have already had disputes in the past on the data line. The current decision and, in particular, the implemented preparatory period for the cessation of data transfer to the US, gives space for the US and the Union to modify their policies regarding the sharing of user data. Discussions on this matter are already underway and are expected to be implemented operationally in the coming months.

Meta Platforms is expected to appeal the fine.

Following the fine, Meta's shares are losing more than 1.2% before the open.​

 

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EURUSD​

The EURUSD pair has been under pressure over the past few weeks; however, last Friday, bulls showed signs of strength once again.

EURUSD - 4 hours time frame chart

However, on the 4-hour chart, we can see that buyers regained control of the price near an important support zone marked by 1.0757. Currently, the price is approaching a significant obstacle - the downtrend line. If buyers manage to break above this zone, the upward movement may resume.

On the 4 hours time chart of the US Dollar Index, we can also see signs that the bearish scenario for the USD may indeed manifest. From a technical standpoint, we observe that sellers managed to break below the lower boundary of the rising wedge pattern, which could bring new selling pressures to the price.​

 

[Solid ECN]

EURUSD​

Flash PMI indices for May from France and Germany were released at 8:15 am BST and 8:30 am BST, respectively. Data was expected to show a small improvement in the manufacturing sector as well as deterioration in the services sector.

Indeed, it was the case with French data with manufacturing index climbing in-line with expectations and services index dropping more than expected. However, things looked different in case of German data as manufacturing index there disappointed and dropped instead of improving while services gauge unexpectedly jumped. In both countries manufacturing sector remained below 50 points threshold, indicating a recession, while services sector remain above 50 points threshold, indicating an expansion.

EUR and European indices dropped in a knee-jerk move after the French release, with EURUSD dropping deeper below 1.08 mark. While equity indices managed to recover from those losses later on, they faced another wave of selling following German data. Meanwhile, EUR attempted to recover after German data and moved back towards the 1.08 mark.​

 

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USDTRY​

Recep Tayyip Erdogan won the second round of the Turkish presidential elections this weekend, securing a decent lead over opposition candidate Kemal Kilicdaroglu (52~% vs 48~%). There were expectations that the run-off will be a close call with some even projecting Kilicdaroglu winning. Nevertheless, Erdogan managed to secure another term in power. Market participants have warned a number of times that continuation of Erdogan's rule may put Turkey on the brink of bankruptcy. Turkish President asked domestic banks shortly before the elections to buy Turkish USD-denominated bonds in order to improve solvency ratings and pricing.

Spread for 5-year credit default swaps has even dropped recently and currently sits significantly below record levels (around 900 points). Currently, 5-year CDS spread is 665 points and implies around 11% default risk with 40% recovery rate.

CDS do not point to any increased default risk following Erdogan's win in second round of presidential elections. Nevertheless, Turkish CDS spread remains significantly higher than for other countries. Source: Bloomberg

Erdogan's win would likely mean continuation of capital flight from Turkey, although this has been made much harder following the central bank's actions. According to Morgan Stanley, lira may drop around 30% in value, what would suggest USDTRY jumping to around 26.00 by the end of this year. Central Bank of the Republic of Turkey may have around $25 billion left to defend TRY. This is a very limited amount of funds given that CBRT is said to have spent around $177 billion to defend the currency over the past 16 months. Having said that, it looks like chance for a trend reversal on the TRY market is very slim.

Turkish lira is weakening against USD and EUR this morning. Some financial institution expect around 30% drop in TRY value by the end of the year.​

 

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USDJPY​

USDJPY quotes started the new week with a correction. Looking technically at the D1 interval, before the weekend the price reached the upper limit of the wide upward channel, where sellers appeared. For now it is far too early to think about a change in sentiment, nevertheless the last upward wave was made in one go, so there is a risk of a deeper downward correction. Should the discount actually gain momentum, the 137.30 - 137.90 zone should be regarded as key support. Resistance remains around the 141.00 level, which is the area of the upper limit of the aforementioned upward channel.

Looking at the lower time frame - H1, we can see the very strong uptrend. The key short-term support is the level of 139.60, which is derived from the lower limit of the 1:1 structure and the EMA100 average. According to the overbalance methodology, only a break of this support could lead to a deeper discount.

 

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Crude Oil​

Brent crude is losing 4% today, which can be linked to several factors. The US media is talking about uncertainty regarding the debt ceiling agreement, as several Republicans have made it clear that they will not support the bill. In addition, there are increasing question marks over China and further demand growth.

Nonetheless, the key factor that is likely to support price declines at this point is the disagreement within the enlarged OPEC+ cartel. Recently, Saudi Arabia's oil minister warned contract sellers about the possibility of OPEC+ action, which could suggest another potential production cut. On the other hand, Russia's energy minister says Russia is happy with the current course of events and prices. However, there have been signs that Russia may also be producing and exporting more than the internal arrangements in the cartel. This threatens a potential 'break-up' of the entire agreement, which could lead to a return of supply of as much as 2 million barrels per day, although of course one has to bear in mind the limited capacity for such a rapid increase in production. Nevertheless, recently, Iraq or the UAE were said to have hinted that they would like to produce more.

Strong declines in Brent crude were triggered by uncertainty about the sustainability of the OPEC+ agreement and uncertainty about demand from China or globally if the US were to eventually go bankrupt. The nearest support is around USD 68 per barrel, where the 23.6 retracement is located.​

 

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Oil​

Oil prices have made an almost complete U-turn, recovering the majority of losses made earlier today. While there was no specific news driving the rebound, Reuters survey based on secondary sources suggested that OPEC countries were over complying with pledged output cuts. While countries like Saudi Arabia, Kuwait and United Arab Emirates were mostly in-line with pledged cuts, there were a number of countries that have cut more than pledged. Iraq and Nigeria are of note here as they are significant oil producers and their compliance with pledged cuts stood at 151% and 448% respectively. Combined output of 13 OPEC countries was 460k bpd lower in May than in April. Moreover, output data for April was revised lower by 150k bpd.

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Taking a look at OIL.WTI chart at H1 interval, we can see that price plunged to $67.00 area earlier today, where early-May lows are located. However, buyers took over control afterwards and a strong upward move was launched. While OIL.WTI is still trading around 1% lower on the day, it has been dropping as much as 4% earlier. Continuation of the upward move will, however, depend on whether buyers manage to push the price above the $69.45-69.65 area, where the upper limit of a local market geometry can be found.​

 

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Gold

Gold prices experienced some interesting price moves yesterday. The moves were interesting as they stood in contrast to what incoming data implied in terms on next Fed moves. A very disappointing Chicago PMI reading that should be seen as dovish from Fed's point of view, led to an increase in gold prices as would be expected but release of a higher-than-expected JOLTS data that triggered a jump in Fed rate hike pricing failed to reverse those moves. Gold held firm following hawkish JOLTS data. Gains on the gold market started to be erased later on after… dovish comments from Fed Harker and Jefferson, that led to a drop in Fed rate hike pricing. Harker and Jefferson suggested that Fed may skip a rate hike at June meeting to better assess incoming data.

Taking a look at GOLD chart at H1 interval, we can see that price of the precious metal attempted to break above the $1,973 resistance zone and started to pull back later on. GOLD dropped below 50- and 200-hour moving average this morning and an attempt to break below $1,955 support can be observed at press time. While Fed members hinted that US central bank may keep rates unchanged at the June meeting, there is still a lot of data to be released until the meeting. Traders will be offered US jobs market data this week (ADP - today at 1:15 pm BST, NFP - Friday at 1:30 pm BST) and should it come in strong, Fed rate hike odds may jump again and potentially exert pressure on gold prices. US CPI inflation data for May will be released on June 13, 2023 - one day ahead of FOMC June decision.​

 

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US30

US indices launched this week's trading on the back foot and moved lower on Tuesday and Wednesday. However, tides turned yesterday as it became more and more likely that Fed will keep rates unchanged at June meeting (13-14 June, 2023). Comments from Fed Harker and Jefferson signaling that FOMC is in position to skip a rate hike at the June meeting led to a slump in rate hike bets on money markets. Currently, markets price in just a 25% chance of 25 basis point rate hike at June meeting while those odds were as high as 70% following release of JOLTS data on Wednesday. NFP report for May, which is scheduled to be released at 1:30 pm BST today, will be watched closely but it seems that Fed members have already made up their minds when it comes to the June decision and therefore jobs data may not have too much of an impact.

Taking a look at Dow Jones futures (US30) at D1 interval, we can see that the index made another test of the 32,900 pts support zone and has once again failed to break below. The aforementioned support zone is marked with previous price reactions, 200-session moving average (purple line), upward trendline and the 50% retracement of the downward move launched at the beginning of 2022. Positive demand-side reaction to this hurdle suggests that the index may be set for a bigger recovery move. The first resistance zone to watch should current gains extend can be found in the 33,700 pts area, marked with 61.8% retracement.​

 

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EURUSD​

Final services PMI readings for May from European countries were released this morning. Revised data from France and Germany, as well as whole euro area, showed lower PMI readings than flash releases. Releases from Spain and Italy also missed expectations and came in lower compared to a month ago. Nevertheless, services sector in all major European economies is still in expansion with PMI readings above 50 pts threshold.

EUR moved slightly lower on those releases with EURUSD looking back towards daily lows in the 1.0682 area. Equity indices did not saw any major reaction to PMIs today.​

 

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USDCNH​

The USDCNH pair and the CHNComp contract reacted with rises in the face of the announcement of the Chinese authorities' order to cut deposit interest rates to stimulate the economy. Yields on Chinese debt securities lost following the above announcement.

State-owned banks, including Bank of China Ltd, Industrial & Commercial Bank of China Ltd and Bank of Communications Co, were ordered to cut interest rates on a range of products, including by 5 basis points on demand deposits and by at least 10 basis points on three-year and five-year time deposits, anonymous sources said.​

 

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Bitcoin​

According to Bloomberg, the U.S. Securities and Exchange Commission has sued the largest U.S. cryptocurrency exchange Coinbase in a New York court. Bitcoin is slipping below yesterday's lows. Shares of Coinbase (COIN.US) are losing nearly 11% before the open. The market is gaining confidence that a coordinated action by US regulators is taking place. Sizable pre-opening sell-offs are also noted in the stocks of other cryptocurrency companies like Microstrategy (MSTR.US) and HIVE Blockchain (HIVE.US).

Berenberg analysts estimates that SEC moves may cost at least 37% of Coinbase net revenues. The key for the company may be to change business model and relocate from the US.​

 

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USDTRY​

Turkish lira is taking a massive hit this morning. Turkey's currency is dropping over 5% against the US dollar and euro. TRY slump was puzzling at first as its size was abnormal even for such a volatile asset as lira and there was no news that accompanied it. However, news justifying the move began to surface later on.

Bloomberg reported that Turkish state banks have given up on defending lira. Traders are reporting that Turkish banks halted dollar sales that were aimed at supporting TRY. As a result, an important source of TRY demand vanished and the currency began to freefall.

However, those news may not be as bad as they look at first glance. Turkish President Erdogan appointed a Wall Street veteran as a new treasury and finance minister - Mehmet Simsek, who is a former Merrill Lynch strategist. Given that FX interventions are costly and they do not bear fruit if there is no confidence in the currency (like it was the case with TRY), the decision to abandon them could be a wise move. Of course, this is only true if Turkish authorities take some other actions instead that could help stem capital outflow. Abandoning interventions and not engaging in any new actions could doom TRY to plunge further.​