2023 Market Forecast by SolidECN

[Solid ECN]

USDCAD​

The Bank of Canada (BoC) has raised its target for the overnight rate to 4.75%, in line with its ongoing policy of quantitative tightening. This decision comes amid global economic shifts, with major central banks signaling potential further rate hikes to maintain price stability.

Canada's economy showed stronger than expected performance in Q1 2023, with a GDP growth of 3.1%. Despite lower energy costs, goods price inflation increased, and CPI inflation rose to 4.4% in April. The BoC anticipates a decrease in CPI inflation to around 3% in the summer, but concerns persist about it remaining above the 2% target.

BoC note: "In response to these factors, the BoC increased the policy interest rate, reflecting the need for a more restrictive monetary policy to balance supply and demand and return inflation sustainably to the 2% target. The Bank remains committed to restoring price stability for Canadians."​

 

[SOLIDECN]

Gold and Big Tech Stocks in Retreat​

Precious metals quotes under pressure, gold loses more than 1%, profit taking on Big Tech stock

The second half of today's session brings increased volatility on the dollar, which also translates into clear movements on precious metals. Gold and silver fared quite well today and were trading on the upside until 3pm BST. However, sentiment changed after the publication of the Bank of Canada's surprise interest rate decision. The EURUSD pair turned back from its daily highs and precious metals moved lower.

It is worth noting that this is the second unexpected hike this week. The Bank of Australia also decided to raise interest rates at yesterday's RBA meeting. These decisions were prompted by the latest macroeconomic data, which points to the need to further cool inflation.

In the US stock markets, we have seen a reduction in the recent upward momentum, primarily in the technology stocks that make up the NASDAQ. The sizable declines are mainly recorded by the largest companies. Alphabet (GOOGL.US) loses 3.3%, Microsoft (MSFT.US) over 2.7% and Amazon (AMZN.US) close to 3.4%.

On the other hand, investors' attention is attracted by the huge disparity between the quotations of indices such as the S&P 500 (US500) and NASDAQ (US100) and the Russell 2000 (US2000) small-cap benchmark. As reported by Goldman Sachs bank's trading desk, the record jump in call option ETF's volume on the Russell index may indicate, a gaining 'soft landing' narrative, which may indicate a return of interest around previously underperforming smaller companies.

Looking technically at the chart of gold, the price has been moving in a downtrend since 4 May. At the beginning of June, the price reacted at the resistance height at $1981, but sellers failed to push the price to new lows and a correction was generated. The corrective movement was stopped today, however, at the height of the 100-period average at $1968, from where a dynamic retracement took place. If the current sentiment does not change, an attack on the recent minima at $1932 is not excluded.​

 

[SOLIDECN]

US2000​

The Russell 2000 Index of U.S. smaller-cap companies (US2000) has been on an upward surge for several days. In yesterday's session, it rose nearly 1.8% against a 1.7% decline in the Nasdaq, weakness in the S&P500 and the Dow index. Driven by oversold regional bank stocks in recent weeks, the benchmark has risen less than 7% since the beginning of the year, a weak performance against the major indexes. By comparison, it has gained nearly 8% in the past five days alone. Today's claims reading at 2:30 pm could mean additional volatility for the index.

For now, the market is reassuring itself that the US economy remains quite strong (although industry is sending signals of weakness) with a strong labor market, and in view of consumer strength, revenues of listed companies are not in danger of collapsing at least in the foreseeable period. The increases in the major indexes are thus 'spilling over' slowly to smaller companies that have been bypassed for months, which is also helped by the Fed's rate hike cycle coming to an end. The Russell sub-index, which includes energy companies and banks, has recently lagged behind the sub-index linked to growth stocks (the largest disparity in more than 20 years) - primarily due to the frenzy related to AI and the strength of the largest BigTech companies (a situation reversed in comparison to 2022). In recent days, value companies from the Russell especially bank shares, have closed the gap somewhat by driving the benchmark.

US2000 broke out above the 38.2 Fibonacci retracement of the March 2020 upward wave and a rise above 1900 points could open the way for the bulls to reach the psychological resistance of 2000 and 2100 points, where the 23.6 Fibonacci retracement is visible. The index has formed a strong base near 1750 points, the strength of which has been 'tested' by the price several times - each time the bulls have managed to bounce higher. In the bearish scenario 1750 - 1800 points zone may be tested again.​

 

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US100​

Unemployment claims in the US surprised with an increase. In the first reaction, US100 is rising after the reading.​

• Unemployment claims: 261k Expected: 235k Previously: 232k.​
• Continuing claims: 1757k Expected: 1802k Previously: 1795k.​

The very large surprise in the increase in applications for benefits may mean that the unemployed in the economy are increasing rapidly, but the drop in continuing applications reflects still strong employment in the economy. After the reading, the market reassured itself that Fed rates are unlikely to be raised in June.

The market is pricing a Fed pause in June with a 72.5% probability after the claims reading. The odds of a 25 bp hike fell about 6%, to 27.5%, compared to yesterday's forecasts.​

 

[SOLIDECN]

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JAP225​

After a two-day decline from a 33-year peak, Japan's Nikkei share average rebounded on Friday. The Nikkei index surged 1.61% to 32,149.76 by midday, recovering nearly 4% from Wednesday's 33-year high. Index is on track to complete a nine-week advance, marking its longest winning streak in over five years. Since June 2, it has climbed nearly 2%, extending its advance since April 7 to 17%.

From the fundamental perspective, Nikkei performance is boosted by Japanese GDP data, which showed a growth at an annualized rate of 2.7% in the first quarter of the year, surpassing the earlier estimates of 1.6% made last month.

The two consecutive days of decline were likely just profit-taking from investors after a solid period of index appreciation. Now, with the indexes rebounding, it is a positive sign that bulls are still in power and set the stage for a continuation in the next week. Today, significant contributors to the Nikkei's performance included Uniqlo brand owner Fast Retailing, which jumped 3.85%, and air-conditioning maker Daikin Industries, which rose 3.09%.

The Nikkei 225 (JAP225) index is currently showing a strong bullish momentum, with its price standing at 32,159 points. This comes after the index rebounded from a significant support level at 31,500 points, which indicates a bullish sentiment in the market. If the bullish momentum maintains its strength, we could see the index aiming to test the recent peak at 32,770 points. However, it's important to consider potential downside risks as well. If the bullish momentum weakens, we could see a correction towards the next lower level of 30,600 points.​

 

[SOLIDECN]

Palladium​

Palladium prices have been falling for quite some time - the main reason being an expected oversupply of the metal next year. One of the world's largest producers of the metal, Russian giant Nornickel estimates that the palladium market will reach a surplus of up to 300,000 ounces in 2024 against an estimated 200,000 ounce deficit in 2023. The company accounts for 40% of global palladium production. Among other things, palladium is used to reduce exhaust fumes in automobiles.

According to Nornickel, 80% of the world's palladium supply is absorbed by the automotive industry, where demand for palladium is expected to grow by 1% y/y in 2023. On the other hand, however, electric cars where palladium is not used because they do not emit exhaust fumes are growing in popularity. In addition, manufacturers are increasingly replacing palladium with cheaper substitutes. Increased consumption of palladium in 2022 and 2023 has resulted in the sale of accumulated stocks by automotive companies, but these sales are expected to end in the second half of the year as companies potentially empty their inventories. Nornickel also expects 180,000 tons of surplus nickel in 2024.

PALLADIUM is slipping towards $1,300 per ounce and has fallen below the 71.6 Fibonacci retracement of the upward wave from January 2016. From this level, declines may deepen even to $1100 per ounce where previous price reactions are located.​

 

[SOLIDECN]

Quadruple Bottom on Oil?​

Crude oil continues its declines in another week of June. In addition, new Goldman Sachs forecasts for crude have emerged. GS is now pointing to a level of $86 per barrel for Brent at the end of 2023, against a previous forecast of $95 per barrel. Why the forecast cut?​

• Higher production from Russia and Iran offsets the impact of an additional cut from Saudi Arabia​
• The market should be balanced after the AS cut, but there will not be a deficit​
• GS expects higher production growth this year and next year from countries outside of key OPEC members​
• Uncertainty about China​

Technically, however, there is a potential signal of a quadruple bottom. The price would still have to fall a few tens of cents, but this is a very important test for oil. Usually the fourth test of support leads to a breakout, so the emergence of very negative news on, for example, demand from China or the continuation of hikes by the Fed could lead to a breakout from the consolidation. On the other hand, if oil survives this test, it seems that the trend should eventually reverse and lead to a breakout to price ranges, probably to levels of $80-90 per barrel.

The recent lows associated with the triple/quadruple bottom formation are near $71.5 per barrel. If a rebound from this area were successful, then, with a breakout of the neckline near $78 per barrel, the range of the formation would point to around $85 per barrel, where the retracement of 23.6 currently holds.​

 

[SOLIDECN]

GBPUSD - Chart of the Day​

Economic outlook

The robust labor data suggest that the UK economy is doing better than predicted despite high inflation and rising central bank interest rates. The job report indicates that workers are demanding and receiving pay awards, which, coupled with businesses' higher pricing intentions, risk of a wage-price spiral. As such, the Bank of England may decide to continue raising interest rates to fight inflation.

Post-publication of the labor data, GBPUSD has seen a modest rise. The pair is currently hovering near the highs, although the jump only roughly halves the losses from the previous day. Given that markets have already priced in about 100 bps worth of future rate hikes, this report doesn't significantly change that. Therefore, the gains for the pound may be more limited if solely reacting to the labor data. Additionally, GBPUSD performance will be highly reactive to the upcoming US CPI inflation report and the tone set by the Federal Reserve. The possibility of a future rate hike in July by the Federal Reserve may support dollar and could put a downward pressure on GBPUSD currency pair.​

 

[SOLIDECN]

OPEC maintains demand growth forecast for 2023​

The OPEC report remains relatively unchanged compared to the May report:​

• The OPEC report indicates maintaining oil demand growth forecast for the year 2023 roughly unchanged for the fourth consecutive time. The demand growth is expected to reach 2.35 million barrels per day (bpd) for this year. Demand is projected to reach 101.91 million bpd in entire 2023​
• The demand growth in China for this year is expected to be 0.84 million bpd, which is a slight increase compared to the previous forecast of 0.8 million bpd​
• Most of the demand growth is expected to occur in the second half of the year, which still creates uncertainty regarding the balance for this year​
• According to OPEC, the demand for oil from the cartel this year will be 29.3 million bpd, which is significantly higher than the May production level of 28.07 million bpd​
• Production in May declined by 464 thousand bpd due to voluntary production cuts​
• However, the impact of the cuts was mitigated by the increase in production by Nigeria and Iraq​

The OPEC report doesn't change much but reflects relatively weak sentiment regarding the demand for this year. Nevertheless, OPEC still sees the potential for a significant deficit in the oil market this year, which theoretically should support prices.

WTI bounced off the 23.6% retracement of the latest downward impulse.​

 

[SOLIDECN]

Gold - Chart of the Day​

Gold traded lower yesterday after the publication of CPI data, with its price falling to $1941 per ounce. Today, gold traded calmly as investors await the Fed's interest rate decision later today. While many expect the rates to remain unchanged, some anticipate a more hawkish stance given the high core CPI, prompting some to exit the gold market. This has added to the caution in the market, causing a slide in gold prices.

From a technical standpoint, gold is still viewed as being in a bullish uptrend channel, suggesting also a potential upward movement in the medium time frame. However, recent price action has been rejected several times from a short-term descending trend line, suggesting that gold might be at a crucial turning point. Support is around the 1920 - 1940 area, where the 100-day SMA currently lies. A break below these levels could unfold further bearish momentum. On the upside, if gold can manage to move above the 2000 level, it could suggest a resumption of bullish momentum.​

 

[SOLIDECN]

USDJPY​

USDJPY is on the move today with Japanese yen being the worst performing G10 currency while US dollar is one of the top performers. USDJPY is up almost 1% on the day. USD strengthening is driven by yesterday's FOMC meeting, which in spite of a pause in rate hikes, turned out to be very hawkish. This is because the new dot-plot showed a median rate expectation at 5.6% for end-2023, an increase from 5.1% in March dot-plot. This also means that FOMC members see two more 25 basis point rate hikes this year while market expectations prior to the meeting were for one more hike yesterday or at the July meeting before ending the cycle. Hawkish message sent by Fed led to a major repricing in market expectations with swap market no longer pricing in Fed rate cuts this year.

This hawkish turn from Fed is not only supporting USD but also putting pressure on JPY. This is because it signals that divergence between Fed and BoJ policies will continue to grow. Bank of Japan will announce its next monetary policy decision on Friday but no change to the level of rates or other monetary policy settings is expected.

Taking a look at the USDJPY chart at D1 interval, we can see that the pair is trading in an upward channel. Pair broke above a local high from late-May 2023 and is now trading at the highest level since late-November 2022. USDJPY is approaching a mid-term resistance zone in the 142.00 area. Note that the upper limit of the channel can be found slightly above this resistance.​

 

[SOLIDECN]

AUDUSD​

The Australian dollar is one of the worst performing G10 currencies at the beginning of a new week. While there was no major news coming out from Australia over the weekend, there was some worrisome news relating to China - Australia's largest trading partner. A number of large financial institutions - including Goldman Sachs, UBS and Nomura - decided to cut their 2023 GDP growth forecasts for China. Goldman Sachs explained its decision saying that fiscal and monetary stimulus in China will not be enough to generate a strong growth impulse.
​

China, 2023 GDP growth forecasts​

• Goldman Sachs: 5.4% vs 6.0% previously​
• Nomura: 5.1% vs 5.5% previously​
• UBS: 5.2% vs 5.7% previously​

RBA minutes are scheduled for release tomorrow at 2:30 am BST and will be a potential mover for AUD. RBA delivered an unexpected rate hike at its latest meeting and traders will look for a hints on whether this means that more rate hikes are coming. There is a feeling that recent upbeat data as well as the more hawkish stance of other central banks will encourage RBA to deliver another rate hike at July meeting as well.

Taking a look at AUDUSD at D1 interval, we can see that the pair halted an advance after reaching the 0.6885 resistance zone recently. Pair experienced a massive, almost-7% rally in the first half of June and given how steep those gains were, a correction or a period of profit taking cannot be ruled out. However, should the ongoing pullback deepen, the first support level to watch will be zone marked with 38.2% retracement of the upward impulse launched in October 2022.​

 

[SOLIDECN]

Will ECB end rate hikes in July?​

EURUSD is pulling back today, following a steep rally that took place last week. Last week's advance was driven by ECB rate hike on Thursday. ECB President said at a post-meeting press conference that further tightening will likely be needed.

According to Gediminas Simkus, chief of Lithuanian central bank and ECB member, a rate hike in July should be delivered and it is not a matter of discussion. However, Simkus also said that ECB is nearing rate peak and it is too early to declare what decision will the Bank make at a meeting in September.

Money markets are almost fully pricing-in a July rate hike and an over-60% chance of a similar move in September.

EURUSD is pulling back noticeably today and is looking towards an important support zone, marked with 61.8% retracement of the last major downward impulse. This area was tested on Friday already but bears failed to break below. Moreover, a lower limit of the Overbalance structure can be found slightly below and further strengthens a support in the area.​

 

[SOLIDECN]

AUDUSD​

• The Reserve Bank of Australia (RBA) considered its last interest rate hike as a finely balanced decision.​
• There is increasing frustration due to the lack of stimulus in China.​

The Australian dollar (AUD) has become more volatile following the release of RBA minutes and the People's Bank of China (PBoC) interest rate decision. The RBA's minutes revealed a balanced stance in votes regarding interest rates, which dampened expectations of further tightening in the near future. However, the RBA remains committed to achieving its target range for inflation. Furthermore, the AUD's performance has been influenced by concerns about the Chinese economy's recovery after the COVID-19 pandemic. As investors worry about China's economic outlook, the Australian dollar, often seen as a liquid proxy for the Chinese yuan, has declined. The absence of new policy stimulus from Beijing has led to frustration in the markets, affecting the AUD's performance alongside a drop in the Chinese yuan.

From the technical perspective, AUDUSD price is 0.6% lower at 0.6810. The price attempted to break above a resistance level at 0.6887 but faced rejection, resulting in a retracement towards the support zone around 0.6793. Currently, the price consolidates and if it fails to hold above this 0.6793 level, the next support zone can be found around 0.6707. On the other hand, if the price manages to bounce back, it can potentially come back towards 0.6887.​

 

[SOLIDECN]

Silver​

USD strengthening and ETF outflows pressure silver prices

Silver is trading over 2% lower today, with the move being driven by significant strengthening of the US dollar triggered by better-than-expected US housing market data for May. Solid data makes the market think that another rate hike may be looming in July, given recent hawkishness of the Federal Reserve.

Apart from the strong US dollar and high US yields, we are also observing ETFs selling out their gold holdings. Silver ETFs sold more than 650 thousand ounces of silver yesterday while gold ETFs sold almost 30 thousand gold ounces, what was the fifteenth consecutive day of ETF sales. ETF sold almost 1% of their total silver holdings since the beginning of the year.

From a technical point of view, we can see that silver price has been pulling back since June 9, 2023 when price tested 50% retracement and 50-session moving average. Local lows from June 5 and June 15, which can be found slightly below 23.6% retracement, are being tested today. Next important supports in-line can be found in the $22.60 area, or local lows from May 25, 2023, as well as in $22.20 area, marked with 200-session moving average. Divergence with EURUSD points to silver being excessively oversold but it should be said that silver tends to be an underperformer at times precious metals struggle.​

 

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USDCHF Technical Analysis​

USDCHF pair is currently rising and is expected to breach the 0.8996 (50 SMA in Yellow) level and attack 0.9093. However, caution is advised for upcoming trading as breaching the last level will cancel the negative effect of the double top pattern and lead the price to start a new bullish wave. The targets for this wave begin at 0.9032.

Therefore, due to the contradiction between the technical indicators, it is recommended to stay aside until the price confirms breaching 0.8996 resistance or breaking 0.8956 (25 SMA in Blue) support. It should be noted that breaking this support will push the price to resume the bearish trend and head towards 0.89071 followed by 0.88869 areas mainly.


Price action signal​

• Sell with SL above the LUW (long upper wick) candle at 0.9007​
• TP 1: 0.8956​
• TP 2: 0.8901​

 

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EURGBP​

The UK inflation report for May released this morning turned out to be a hawkish surprise. Headline CPI stayed unchanged at 8.7% YoY while the market expected a deceleration to 8.4% YoY. Moreover, core CPI was expected to stay unchanged at 6.8% YoY but instead accelerated to 7.1% YoY - the highest level in 30 years. GBP surged following the release with GBPUSD painted a daily high near the 1.28 mark and EURGBP painting a daily low in the 0.8525 area.

A higher-than-expected CPI reading, and especially failure of headline CPI to slow, saw hawkish BoE bets rise. Bank of England is set to announce its next monetary policy decision tomorrow at 12:00 pm BST. Economists expect that a 25 basis point rate hike will be delivered. Money markets currently price in a 72% chance of a 25 basis point rate hike and a 28% chance of a 50 basis point rate hike. However, it should be noted that markets almost fully price in 75 basis points of cumulative tightening over the next two meetings (tomorrow and August 3, 2023). This means that a 50 basis point rate hike is expected at one of those meetings and a hawkish CPI surprise today boost odds that 50 bp rate hike will be delivered tomorrow.

Taking a look at EURGBP chart at D1 interval, we can see that the pair has been trading lower since a downside breakout from the trading range in early-May. Pair dived this morning after release of hawkish UK CPI report but has recovered all of those losses since and now trades at daily highs. Two key levels to watch in near-term are 0.8500 support zone and 0.8600 resistance zone. However, we will likely have to wait until tomorrow's BoE decision and resulting volatility spike to see EURGBP testing either of these levels.​

 

[SOLIDECN]

EURUSD Confirms the Breach​

EURUSD pair confirmed breaching 1.0966 after ending yesterday above it, starting today with more positivity to reach 1.1000 barrier, which supports the continuation of the expected bullish trend on the intraday and short term basis, and the way is open to achieve our next main target at 1.1072.

The positive effect of the inverted head and shoulders’ pattern still active, and supports the continuation of the bullish wave, which gets continuous support by the EMA 25 and EMA50, noting that the continuation of the bullish wave requires holding above 1.0940.​

 

[SOLIDECN]

UK100​

Britain's main benchmark UK100 is the weakest European index today, losing more than 1%. The upcoming - likely hawkish - decision by the Bank of England by no means signals the end of tightening in the British economy. While it is uncertain whether rates will rise by 25 or 50 bps, the market will almost certainly have to swallow a higher 50 bps BoE hike - today or in August. Yesterday's reading indicated that UK inflation in May appears to have stabilized at excessively high levels. Core CPI was unchanged at 8.7% y/y - the market had expected 8.4% y/y. Also, the core CPI , which was expected to remain unchanged at 6.8% y/y, accelerated to 7.1% y/y - the highest level in 30 years.

The difficult situation could prompt the Bank of England to an extremely restrictive cycle if the BoE prioritizes the fight against inflation. In such a situation, the baseline scenario seems to be economic damage, which is generally not good for the performance of firms and consequently the stock market. With inflation anchored too high and a period of below-trend growth, a stagflationary scenario is a sizable threat to the British economy. As long as the labor market remains relatively strong, the market has no reason to be overly concerned, however, macro uncertainty has been reflected in the quotations of British indices recently.

Looking at the chart of FTSE (UK100) contracts, however, we see that the upward trend line is maintained although the index has dropped below the SMA200 (red line) indicating a possible further weakening of momentum. In addition, looking at the index's quotations since February, this year, we can juxtapose them with the technical formation of a rising wedge from which a breakout usually takes place at the bottom. RSI indicators near oversold and MACD confirm considerable weakness in the bulls - further decline without an upward correction would therefore have to be outright 'capitulation'. The market's reaction to the BoE minutes and decision may prove crucial.​

 

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DE30​

Release of flash PMIs for June from France and Germany turned out to be a disappointment. French data showed a slump in service gauge from 52.0 to 48.0, meaning that the sector was contracting. Meanwhile, German data showed a plunge in the manufacturing index from 43.2 to 41.0 - the lowest level since May 2020 when sentiment in the industry was slumping amid Covid-19 pandemic and resulting lockdowns. While DE30 saw a positive reaction to French data and moved slightly higher, the index took a hit following release of German data as it hinted at continued struggles of the German economy's main motor - manufacturing.

Taking a look at the DE30 chart at the H4 interval, we can see that the index is currently trading near a psychological 16,000 pts level. A point to note is that the index plunged back into the recently broken 15,810-16,085 trading range. Nevertheless, the ongoing pullback has not yet exceeded the range of the correction that occurred in the second half of May 2023 and, according to the Overbalance methodology, remains in an uptrend. Should declines deepen traders should watch the 15,850 pts area, where the lower limit of the Overbalance structure can be found.​