2023 Market Forecast by SolidECN

[SOLIDECN]

AUDUSD - Chart of the day​

The Australian dollar is one of the worst performing G10 currencies today. AUD is underperforming following the rate decision of the People's Bank of China. PBoC announced a 10 basis point cut to 1-year lending rate, to 3.45%, and decided to keep the 5-year rate unchanged at 4.20%. This was a disappointment as economists hoped that PBoC would decide on 15 basis point cuts to both 1- and 5-year rates. These expectations were propped up further over the weekend by reports saying that officials from People's Bank of China and Chinese financial market regulator met with Chinese bank executives and asked them to boost credit action in order to support economic recovery.

Decision made Chinese equities clear underperformers during today's Asia-Pacific trading session. However, it has also had a negative impact on Antipodean currencies with AUD and NZD being clear laggards among G10 currencies during the Asian session. This should not come as a surprise, especially in case of AUD, as China is a key trading partner for Antipodean countries.

Taking a look at AUDUSD chart at F1 interval, we can see that the pair has recently broken below the lower limit of the trading range, marked with 61.8% retracement of the upward impulse launched in October 2022. AUDUSD continued to move lower until the decline was halted at the 0.6400 support zone. While sellers fail to break below this hurdle, buyers also struggle to regain control and the pair continues to trade in the 0.6400 area. However, should we finally see a break below this zone, a downward move may deepen towards the textbook range of the breakout from the aforementioned trading range, which is around 0.6250.​

 

[SOLIDECN]

US100 - Chart of the Day​

Nasdaq-100 futures (US100) are attempting to climb above the 15,000 pts mark this morning. The index has been enjoying strong gains since Friday evening and the move higher accelerated yesterday. Sentiment towards the tech sector seems to be improving as Nvidia earnings releases approaches (Wednesday after session close). Results from Nvidia are expected to be a test for the AI-related bull market in tech shares. Investors seem to be optimistic with Nvidia shares rallying over 8% yesterday. Previous earnings release from the company triggered an around 25% jump in share price and launched a strong upward impulse on the broad market.

Taking a look at US100 chart at H4 interval, we can see that the index was pulling back during the first half of August, but declines were halted at the 14,625-pts support zone last week. The ongoing rebound push the index into an area, where the downward trendline as well as the upper limit of the Overbalance structure can be found. A break above the 15,045-pts zone could hint that the correction is over, and the index will resume gains. In such a scenario, the 15,400-pts zone is the next resistance to watch.​

 

[SOLIDECN]

Silver Gains 1.7%​

Silver traders' position for a pause in rate hike cycle

Silver is trading around 1.7% higher today and almost 5% higher week-to-date. In spite of Chinese economy struggling, we have been observing gains not only on the precious metals markets recently but also on industrial metals markets. The latest rate cut from People's Bank of China was somewhat surprising with many being disappointed by a minor scale of the cut to 1-year lending rate and leaving the 5-year rate unchanged.

There has been a lot of speculation over a possible end of the rate hike cycle not only in the United States but also in euro area. While bond yields remain elevated, we can observe a small pullback in market rates today. Meanwhile, silver enjoyed a strong upward move that led to a break above the 50% retracement of the latest downward impulse. Silver bounced off the 22.20 area - a local low from June - and is now trading almost at $24 per ounce - above 50- and 200-session moving average. It should be noted that silver has been one of the best performing commodities over the 12-months but at the same time trades slightly lower year-to-date.​

 

[HubuFX]

GBPUSD Bounces from Support, But Turns Bearish Again

The GBPUSD currency pair experienced a strong bounce from the 1.2621 support level and broke through the 1.271 weekly pivot point. After testing this level, the pair once again turned bearish in today’s trading session. The presence of a doji candle and a long wick candle pattern indicates market uncertainty at this level. With the GBPUSD now back below the pivot point, we can view last day’s high as a resistance level and consider the market direction to be bearish, with 1.2621 as its first target. The RSI indicator supports this bearish bias by remaining below the 50 level.

In summary, the bearish scenario remains valid as long as the 1.2732 resistance level remains unbreeched.

Trade Idea:
The HubuFX Analysis team suggests entering a short trade at GBPUSD while limiting the risk at 1.2745 and setting a target at 1.263. This strategy is designed to minimize potential losses for short traders on GBPUSD while maximizing potential gains. It is important to carefully consider the risks and potential rewards before entering any trade.​

 

[SOLIDECN]

US 100 - Chart of the Day​

Just two days ago, we wrote that the main tech companies index, Nasdaq 100, was striving to break the 15,000-point level. After a strong nearly 8.0% correction that began at the end of July, the index rebounded with significant gains last Friday. At the beginning of this week, the mood in the tech sector started to improve, and in yesterday's session, the index gained a staggering 1.60%, returning again above the support line of the upward trend. After the close, Nvidia's results were published, further solidifying the optimistic sentiment for the Nasdaq 100. Despite the return to euphoric growth, investors should remain focused. The Jackson Hole symposium begins today, where market leaders and bankers are expected to signal the end of the interest rate hike cycle. Reality might again prove different. Recent comments from Federal Reserve members and the Fed's stance suggest that the Fed might not give in so easily, especially since the job market remains strong, and the latest inflation readings were higher than the previous ones, 3.2% year-on-year versus 3.0% year-on-year.

Nasdaq 100 (US100), after four days of gains, continues to rise today, gaining 0.40% before the Wall Street opening. The index has returned above the support line of the rising trend marked on the chart with a navy line. Currently, the bulls are battling resistance at the 15,400-point level. If the momentum isn't halted, it's conceivable the index might aim to retest the peaks at 15,900-16,000 points. However, if hawkish remarks are made during Jerome Powell's speech at Jackson Hole tomorrow, the market might once again retreat below the support line currently at around 15,100 points.​

 

[SOLIDECN]

USDTRY Surges After Massive Interest Hike​

Central Bank of Republic of Turkey (CBRT) announced its latest monetary policy decision today at 12:00 pm BST. CBRT was expected to deliver a 250 basis points rate hike, bring the 1-week repo rate to 20.00%. However, the actual hike turned out to be much bigger than expected with 1-week repo rate being hiked to 25%!

Turkish lira surged following the decision as it looks like new Turkish monetary authorities are indeed taking inflation fight seriously. Increase in underlying inflation trend was given as a reason behind such a massive hike. USDTRY and EURTRY plunged more than 2% following the decision.

USDTRY plunged after a bigger-than-expected CBRT rate hike and is attempting to break below the 50-session moving average (green line).​

 

[SOLIDECN]

Germany Consumer Sentiments - Lower GFK Reading​

A recent report shows that German consumers are feeling less confident about the economy. The GfK, a market research company, found that consumer sentiment in Germany is lower than expected and has decreased from the previous reading. This has caused a slight drop in the value of futures contracts on the DAX, a stock market index in Germany.

This decrease in consumer confidence could be a sign that the German economy is weakening. The European Central Bank (ECB) has been tightening its monetary policy, but with this new information, there may be pressure to keep interest rates unchanged at their next meeting in September.

According to the GfK, the chances of a strong economic recovery before the end of the year are decreasing. It is unlikely that private consumption in Germany will have a positive impact on the economy in 2023. This means that people may not be spending as much money, which could slow down economic growth.​

 

[SOLIDECN]

Euro’s Recovery Hinges on Inflation Data and US PCE Price Index​

The Euro is trying to recover against the US Dollar and British Pound before the release of Euro area inflation data and US core PCE price index data. The Euro area economy has had some recent positive surprises, while the US economy has been less overwhelming. However, there is a risk that activity in the Euro area could contract again due to a drop in services PMI.

The key focus is on Euro area inflation data and US core PCE price index data. If the data meets expectations, the Euro's rebound could struggle. However, if the US core PCE figure is lower than expected and the drop in Euro area inflation is smaller than expected, it could be a bonus for the Euro.

There is still resistance for the Euro to clear before its short-term outlook turns positive again. The immediate hurdle is at last week's high of 1.0930, followed by a stronger barrier at the early-August high of 1.1065. A break below 1.0500-1.0600 area is needed to pose a threat to the multi-month uptrend.​

 

[SOLIDECN]

CPI in France Significantly Higher​

France inflation data for August was published at 7:45 am BST time today:​

• CPI: actual 4,8% y/y; expected 4,6% y/y; previously 4,3% y/y​
• HICP: actual 5,7% y/y; expected 5,4% y/y; previously 5,1% y/y​

Inflation data came in worse than expected. France is the only country among major EU members today that was expected to publish higher CPI data. Later today, investors will be presented with HICP and HICP core inflation data from the EU. EUR is clearly appreciating after the publication and EURUSD is trading higher.

 

[SOLIDECN]

Chart of the Day - USDCAD​

This week, there have been several important reports about the economy of the United States, and more are expected. One report showed that the number of new job openings is decreasing, which means the job market is not as strong as it was. Another report showed that the growth of the US economy was lower than expected. If future reports show that the job market and economy are getting weaker, the value of the US dollar could decrease. This could also mean that the Federal Reserve will stop increasing interest rates. On the other hand, the Canadian dollar is doing well because of high oil prices and good economic data. The Canadian economy is strong, and inflation has decreased to 3.3%.

From a technical standpoint, USDCAD reacted to the key resistance zone around 1.365. This level has repeatedly thwarted growth in this currency pair in the past, and it was the same this time. If USDCAD returns to growth and breaks this level, we may see a sharp rise, at least in the short term—historically, USDCAD hasn't stayed above this level for long. Otherwise, if the current trend continues, the next support zones worth noting are 1.335 and 1.308, marked on the chart with a green line.​

 

[SOLIDECN]

WTI is testing $83 per barrel area amid expectations of further supply cuts.​

WTI (West Texas Intermediate) is a type of crude oil that is used as a benchmark for oil prices. It is currently trading at around $83 per barrel, which is higher than usual. This is happening even though the US dollar has become stronger, which usually causes oil prices to go down.

The main reason for the increase in WTI price is that people are worried that OPEC+ countries will reduce the amount of oil they produce. Saudi Arabia has already said that it might continue to produce 1 million fewer barrels of oil per day until October. Russia might also continue to produce 0.5 million fewer barrels of oil per day until October.

Another thing that could affect oil production is the hurricane season in the Gulf of Mexico. This area produces around 2 million barrels of oil per day, but if there are hurricanes, production could be reduced. The Gulf of Mexico also has many natural gas drilling rigs, so the price of natural gas (NATGAS) could also be affected.

Barclays thinks that the reduction in oil production by OPEC+ countries is more important than any changes in demand for oil in China. They expect the price of Brent (another type of crude oil) to go up to $97 per barrel next year.

Finally, it’s worth noting that a recent report from the US showed that there are 10.5 million fewer barrels of crude oil in storage than there were before. This means that there is less oil available, which could also cause prices to go up.​

 

[SOLIDECN]

Chart of the Day - USDCAD​

The value of the US dollar compared to the Canadian dollar (USDCAD) might change a lot today in the early afternoon. This is because two important reports will be released at 1:30 pm BST. One report is about jobs in the US for August and the other is about Canada's economy for April-June 2023. People will pay more attention to the US jobs report.

The US jobs report for August is one of the last two important reports before a meeting on September 20, 2023. The other report is about US prices for August and will be released on September 13, 2023. The jobs report today is expected to show that 170,000 more people have jobs, and that the unemployment rate and how much people earn did not change (3.5% and 4.4% more than last year). If the report shows fewer new jobs, it would mean that the job market in the US is not doing well.

For Canada, people expect that the economy grew less from April-June 2023 (1.2%) than from January-March 2023 (3.1%).

If we look at a chart of USDCAD, we can see that it is close to an important value of 1.3500. If it goes below this value, it could mean that the value of the US dollar will keep going down compared to the Canadian dollar. We will know more around 1:30 pm BST when the reports are released.​

 

[SOLIDECN]

EURUSD​

PMI indexes in Europe mostly performed weaker than preliminary readings. In countries that reported data for the first time today, the readings were also worse than expected. Those are services PMI readings from European countries:​

• Spain: 49.3 (expected 51.5; previous: 52.8)​
• Italy: 49.8 (expected: 50.3; previous: 51.5)​
• France (fin.): 46 (expected: 46.7; previous: 47.1)​
• Germany (fin.): 47.3 (expected: 47.3; previous: 52.3)​
• EMU (fin.: 47.9 (expected: 48.3; previous: 50.9)​
• Eurozone composite drops to 46.7 with 47 points expected.​

We have the lowest reading since 2020. HCOB writes in a commentary that the eurozone did not fall into recession in the first half of the year, but the second half of the year comes into big question. The services sector, which had been a stabilizing force for the economy for many months, now appears to be a strong drag, and the industrial sector is likely to decline further. HCOB forecasts -0.1% change in GDP for Q3 in EMU.

EURUSD continues its declines and is currently testing the 1.0750 levels.​

 

[SOLIDECN]

EURUSD​

Christopher J. Waller, a voting member of the Fed's Governing Council, delivered some comments on monetary policy and economy this afternoon. Comments can be seen as dovish with Waller hinting that the September meeting may see rates being kept unchanged.

Key takeaways from Waller today​

• Data released last week allows Fed to proceed carefully​
• Data doesn't say we need to do anything imminent​
• Data is looking 'pretty good' for no recession​
• Whether more rate hikes are needed depends on data​
• Want to be careful on saying inflation job done​
• Don't think one more hike would trigger recession​
• Not obvious one more rate hike would damage job market​
• Need to keep rates up until inflation eases​
• Treasury yields are about where they should be​
• Fed takes fiscal policy as a given​
• Trillion dollar deficits sustained don't look good for the US fiscal position​
• We are keeping a close eye on the commercial real estate sector​
• I'm not seeing anything in commercial estate that will threaten the economy​

Markets saw dovish reactions to Waller's comments, especially to bolded lines. EURUSD bounced off the daily lows and attempted to climb back above 1.0750 mark while European and US index futures revisited daily highs.

EURUSD bounced off the daily lows following dovish comments from Fed Waller.​

 

[SOLIDECN]

Bank of Canada Expected to Keep rates unchanged tomorrow​

USDCAD enjoyed strong gains between June 2021 and October 2022, gaining over 15% over the period. However, the advance was halted in the final quarter of 2022 and the pair has traded largely sideways since. Recent USD strengthening allowed the pair to bounce off 10-month lows in the 1.3100 area and climb towards the upper limit of the trading range at 1.3650. An attempt to break above this zone was made today but so far, bulls failed to deliver a breakout. Decision from Bank of Canada tomorrow could be crucial for whether the pair breaks above this zone or pulls back from it. Should we see a strong hint that incoming data doesn't support rate hikes at future meetings, CAD may find itself under pressure with USDCAD potentially breaking above 1.3650 area.

 

[SOLIDECN]

Japanese Government Considers Intervention as Yen Volatility Continues

The yen in Japan has been quite unpredictable lately, which is causing worry for the country’s leaders. Masato Kanda, the Vice Minister of Finance for International Affairs, and other officials have hinted that they might step in to keep the yen stable and control speculative trading. They believe that activities not aligned with basic economic indicators are causing this unpredictability.

Last year in October, the government took similar steps, showing that they are serious and ready to act firmly. However, when the USDJPY fell below 145 in August, the government softened its warnings. This left traders unsure about what the government might do next. Recently, the yen fell to its lowest point in ten months, getting close to levels that have led to government intervention in the past. Market experts have noted that if USDJPY falls to 150, the government might be forced to intervene in the market again.​

 

[SOLIDECN]

Apple Sanctions Shake Wall Street

Wall Street is down today. This is due to a strong reading of US claims, a sell-off in China, and sanctions against Apple. The strong claims reading shows that the labor market is doing well. This fits with the higher-than-expected ISM services report from yesterday.

The dollar is up because people are avoiding risk. Yields are also up, and the chances of the Fed raising interest rates have increased. In China, both imports and exports fell in August compared to last year. This shows that the economy is still weak. The rising dollar is also adding to people’s worries. It is being supported by strong labor market data, which is causing people to sell stocks. Unemployment claims fell again, and productivity and labor costs were revised up more than expected. Markets think there is a 7% chance that the Fed will raise interest rates in September.

Investors are worried about China’s decision to ban state employees from using iPhones. They say this is because of spying concerns. Apple is losing the most out of all the big tech companies today. Its stock is down 3.2% as people wait for the release of the iPhone 15. Investors are worried that China’s decision about iPhones could be part of a bigger plan. They think it could lead to more tension between China and the US, which are still very dependent on each other economically.

The background to today’s decline in the US stock market is the loss of momentum in China. This has happened many times this year, despite efforts to stimulate the economy and help the banking and real estate sectors. Chinese index futures are down nearly 3%. Imports fell 7.2% compared to last year, and exports fell more than 9%.

The US100 index is trying to recover from earlier losses, but sentiment is still down in the short term. The key resistance level on the M15 chart is 15317 points.​

 

[SOLIDECN]

China Inflation to Rebound on Economic Recovery​

China’s consumer price inflation, which measures the average change in prices over time that consumers pay for a basket of goods, is expected to increase in the coming months. This is due to the economy’s moderate recovery, which is being driven by various policy measures.

In August, consumer prices rose by 0.1% compared to the previous year. This was a reversal from July, when prices fell by 0.3%. This was the first decrease since February 2021.

The Chinese government has set an inflation target of around 3% for this year. The rise in prices was mainly due to a 0.5% increase in non-food prices, while food prices fell by 1.7%.

Core inflation, which excludes food and energy prices, remained steady at 0.8% in August. This was the highest level since January.

Meanwhile, the annual decrease in producer prices (the prices that producers get for their products) slowed to 3.0% in August from 4.4% in July.

Economists Zichun Huang and Julian Evans-Pritchard predict that producer prices will stop falling by the end of the year and consumer prices will continue to rise over the coming months. They expect an average inflation rate of around 1.0% in 2024 and 2025.

They also believe that core inflation will increase in the coming months as excess stock from the pandemic export boom is sold off and policy support leads to a partial recovery in domestic demand.

Despite a slump in the property market, Beijing expects to achieve a growth target of around 5% this year. The Chinese government has introduced several measures to combat the economic downturn following the reopening related bounce back at the start of the year.

The People’s Bank of China has also relaxed its borrowing rules and reduced mortgage rates for first-time home buyers.

In August, bank lending increased sharply to CNY 1.36 trillion from CNY 345.9 billion in July, exceeding the expected level of CNY 1.2 trillion. Total social financing (a broad measure of credit and liquidity in the economy) increased to CNY 3.12 trillion in August from CNY 528.2 billion in July.​

 

[SOLIDECN]

UK GDP Below Expectations, GBPUSD Ticks Lower!​

The UK's Gross Domestic Product (GDP) data, which measures the size of the economy, didn't grow at all over the past year (0.0%), which was less than what was predicted (0.4%). It was also less than the growth seen in the previous period (0.9%). Over a three-month period, the GDP grew by 0.2%, which was also less than the forecasted 0.3% but equal to the previous period's growth. In July, the economy actually shrank by 0.5%, which was more than the predicted shrinkage of 0.2% and a reversal from the previous month's growth of 0.5%.

This shrinkage in July is attributed to poor weather affecting spending and strikes in the public sector. This makes it increasingly likely that the UK might experience a recession this year.

As for Industrial Production, specifically manufacturing, there was a decrease of 0.8% in a month, which is actually better than the predicted decrease of 1%. However, it's a significant drop from the previous month's increase of 2.4%. Over a year, manufacturing grew by 3.0%, slightly less than the previous year's growth of 3.1%. The overall industrial production over a year grew by 0.4%, which was as predicted but less than the previous year's growth of 0.7%.

In summary, the UK's economic activity is weaker than expected based on GDP readings, and while manufacturing production was slightly better than anticipated, it still shows a downward trend. This resulted in a sudden drop in the value of GBPUSD (British Pound to US Dollar exchange rate) after this data was published.​

 

[SOLIDECN]

BOS's Dilemma: Balancing Economy and Inflation​

The UK's currency, the British Pound, is falling against the US dollar today. This is due to weaker than expected economic growth data for July and a drop in industrial production. The economy shrank by 0.5% in July, the biggest fall since December 2022. All parts of the economy were affected, with the service sector seeing the biggest drop. This was unexpected, especially as this is usually a time when tourism boosts the economy.

The Bank of England (BoE) is in a tough spot right now. The economy is showing signs of slowing down because of high interest rates. At the same time, average earnings, including bonuses, have gone up from 8.4% to 8.5%. This increase in wages adds to inflationary pressure. Despite already high inflation, this could lead to further interest rate hikes. Experts are predicting another increase of 0.25% at the BoE meeting next week on September 21st.​