2023 Market Forecast by SolidECN

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Silver Near 38.2% Fibonacci: Signs of Market Reversal​

Silver is currently trading near the 38.2% Fibonacci support level. On the XAGUSD 4-hour chart, a hammer candlestick pattern has emerged. The Stochastic oscillator is signaling that the market is oversold. In conclusion, if the silver price manages to stay above the Fibonacci support level, it's likely that the uptrend will continue. If this happens, the bullish target could be the 61.8% Fibonacci resistance level.​

 

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EURUSD Plunges: AO Divergence & Impact​

The EURUSD currency pair experienced a sharp decline from 1.11394 in today's trading session, as previously hinted by the awesome oscillator's divergence.

Currently, the pair is testing the 23.6% Fibonacci level at 1.10403. Intriguingly, the RSI indicator is hovering near the median line and could dip below if selling pressure persists. The December 22 high at 1.1041 and the lower line of the bullish flag are jointly reinforcing the bullish trend. As long as the price stays above this level, the uptrend is likely to continue.

Conversely, a break below the bullish flag could signal further declines, with the next target being the 50% Fibonacci retracement level.​

 

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Pound Climbs to $1.28: BOE vs Fed Cuts in 2024​

Solid ECN – The British pound rose to $1.28 at the end of 2023, touching its highest level since late July and poised for a gain of near 6% for the year, as investors anticipate that the Federal Reserve will slash borrowing costs more rapidly than the Bank of England. Recent data revealing an unexpected drop in US PCE prices has significantly bolstered the probability of Fed rate reductions as early as March, with an outlook of more than 150 basis points of cuts over the upcoming year.

At the same time, the most recent UK CPI report disclosed a slowdown in inflation to 3.8% in November, marking its lowest level since September 2021 and falling below the anticipated 4.4%. This development has prompted heavy speculation among traders regarding potential interest rate cuts by the Bank of England in 2024, despite BOE Governor Andrew Bailey's insistence on maintaining higher rates for an extended period.​

 

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AUDUSD - RBA's Cautious Approach in Rate Cut Scenario​

The Australian dollar rose, reaching over $0.68. It's close to a five-and-a-half month high. This happened as people think the US Federal Reserve will lower interest rates soon, possibly in March. This expectation weakened the US dollar but helped other currencies.

Also, a report showed that China's manufacturing grew more than expected in December. This news influenced investors.

In Australia, investors are looking at what the Reserve Bank of Australia (RBA) might do next. Experts think the RBA will be slower to reduce rates compared to other countries. This is because it didn't raise rates as much as others. So, any rate cuts might be smaller or happen later.

Inflation in Australia is sticking around longer than in other places. RBA Governor Michele Bullock mentioned that the inflation problem is mainly local and due to increased demand. The market believes the RBA won't cut rates until the end of 2024.​

 

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Euro Slides Below $1.1 Amid Economic Data and Rate Cut Speculations

At the beginning of 2024, the euro fell below $1.1. This drop came after reaching a high of $1.1139 on December 28th. Investors are now focusing on upcoming European inflation data and the US jobs report due later this week. Additionally, recent PMI data showed that Eurozone factory activity shrank for the 18th month in a row in December.

As for monetary policy, there's an 80% chance the Fed will start reducing interest rates in March. Over the year, cuts could total more than 150 basis points. Meanwhile, the European Central Bank might also cut rates, but likely slower than the Fed, even as ECB policymakers aim for a tougher stance.​

 

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Kiwi Dollar Drops, RBNZ Rate Cuts Loom on Horizon​

Recently, the New Zealand dollar has been struggling, staying below $0.628. This is the lowest it's been in about two weeks. The reason behind this is the US dollar's strong recovery, which has led investors to rethink their previous expectations of significant interest rate cuts by the Federal Reserve within the year.

Additionally, there's been a shift towards a more cautious approach in the market, resulting in a drop in both stocks and commodities. Contrarily, US Treasury yields have been on the rise. Within New Zealand, the market is anticipating four rate cuts from the Reserve Bank of New Zealand (RBNZ) this year, with the first one possibly happening as early as May. The RBNZ’s head recently acknowledged the unexpected downturn in recent growth figures, increasing speculation about an earlier cash rate cut. Back in November, the RBNZ held the cash rate at 5.5%, narrowly avoiding a rate hike.​

 

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Yen Slides as Dollar Strengthens​

Solid ECN – The Japanese yen has recently fallen to around 142 against the dollar, moving away from its five-month high. This change comes as the dollar gains strength and investors reduce their expectations for major interest rate cuts by the Federal Reserve this year. However, trading activity in Japan has been thin due to ongoing holiday celebrations.

At the same time, the country is dealing with the aftermath of a significant earthquake that hit its central region on New Year’s Day. Adding to the economic landscape, recent statements from Bank of Japan Governor Kazuo Ueda have sparked discussions about a potential shift away from Japan's negative interest rates policy. Last month, Ueda noted an increasing likelihood of Japan's economy emerging from its prolonged low-inflation state and reaching its inflation target. He mentioned that if the positive cycle of wages and prices strengthens enough to sustainably achieve the 2% inflation target, the Bank of Japan might consider altering its monetary policy.​

 

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Swiss Franc's Shift: Balancing SNB and Fed Rate Outlooks​

After reaching a 12-year peak of 0.841 on the last trading day of 2023, the Swiss franc has recently weakened to 0.85 against the USD. This shift occurred amid a recovery in the DXY index. Last year, the franc saw an 8.5% appreciation against the dollar, largely due to differing interest rate policies between the Swiss National Bank (SNB) and the Federal Reserve.

Recent dovish statements from Fed officials, coupled with new data indicating a slowdown in US inflation, have put pressure on the dollar. In Switzerland, despite a slowdown in inflation, the SNB has maintained a cautious stance, suggesting that higher interest rates are still necessary. Inflation in Switzerland was 1.4% in November. The central bank anticipates it will approach their 2% target by mid-2024. This forecast leads investors to believe that the SNB might delay rate cuts, especially compared to the Fed's timeline. The persistent high-interest rate expectations for the SNB also drove the franc to unprecedented levels against the Euro, the currency of its neighboring countries.​

 

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Canadian Dollar Weakens, Awaits Key Labor Market Data​

The Canadian dollar recently fell beyond 1.33 against the USD, moving away from its five-month high of 1.32 achieved on December 26th. This decline is largely due to a resurgence of the US dollar, disappointing domestic economic indicators, and a decrease in foreign currency inflows.

Canada's manufacturing sector experienced its most significant contraction since the 2020 pandemic downturn, posing challenges for the central bank's efforts to control inflation through tighter monetary policy. Additionally, the easing concerns over global oil demand have impacted foreign exchange inflows, negatively affecting the Canadian dollar's strength. Investors are now looking forward to the upcoming labor market data, expected on Friday, to gain insights into potential future directions for monetary policy.​

 

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WTI Futures Drop Below $69.5, Market Weighs Supply and Risk​

On Wednesday, WTI crude futures experienced a notable decline, dropping over 1.5% to reach a three-week low, falling below $69.5 per barrel. This downturn came on the heels of a 1.8% loss in the previous session, influenced by a broad selloff in risk assets. This selloff occurred despite rising tensions in the Middle East, which might typically bolster oil prices. As the new year began, the market's mood was cautious, with stocks and other risky assets facing downward pressure. This sentiment was further influenced by a rebound in the dollar and Treasury yields, as investors recalibrated their expectations for significant rate cuts from major central banks.

Contributing to the oil price drop is the increase in global supplies, especially from non-OPEC countries, combined with a shaky demand forecast. Additionally, traders are keeping a watchful eye on geopolitical events, particularly Iran's recent deployment of a warship in the Red Sea, seen as a challenge to US forces in this crucial trade corridor. Over the weekend, there was a confrontation when US Navy helicopters intercepted three Houthi boats that were attempting to hijack a container ship in the Red Sea, leading to casualties.​

 

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The Balance of Gold in a Shifting Economic Landscape​

On Wednesday, gold prices stabilized above $2,060 an ounce, recovering from the previous session's fluctuating trends. This stability comes as investors eagerly await insights from the upcoming Federal Reserve policy meeting minutes, which are expected to shed light on future monetary policies. Despite reaching intraday highs, gold experienced a slight decline of 0.2% on Tuesday. This was attributed to a resurgence in the dollar's value and an increase in Treasury yields, leading investors to reconsider their expectations for interest rate reductions by major central banks within the year.

Currently, market predictions indicate about a 70% likelihood of the US central bank implementing a quarter-point rate cut in March, a decrease from the almost 90% probability previously anticipated. In addition, gold's value has found some support due to a combination of factors, including the sell-off in riskier assets and escalating geopolitical tensions in the Middle East.​

 

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Japanese Equities Dip: Nikkei 225 Hits Two-Week Low in Volatile Trade​

Solid ECN – In Thursday's post-holiday trading session, the Nikkei 225 Index experienced a significant drop, initially plunging by 2.3% and finally closing 0.53% lower at 33,288. This marked a two-week low point for the index, as it aligned with the global market trend of substantial losses. The beginning of the new year brought with it a cautious approach from investors. Many opted to secure their gains and reduce their expectations regarding the magnitude of interest rate reductions by major central banks within the current year.

Japan faced additional internal turmoil. The country was struck by a devastating earthquake, resulting in the tragic loss of at least 65 lives. Further adding to the chaos was an incident at Tokyo's Haneda airport, involving a collision with Japan Airlines. This series of events put additional pressure on the stock market.

Technology sectors bore the brunt of the downturn, with notable companies like Tokyo Electron, SoftBank Group, Disco Corp, Lasertec, and Advantest witnessing steep declines in their stock values. These companies saw their shares fall by 5%, 3.9%, 3.9%, 5.3%, and 3.8% respectively. Other prominent companies in the index, such as Fast Retailing, Sony Group, and Shin-Etsu Chemical, also experienced notable drops in their share prices.

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Technical Analysis​

The JP225 Index, also known as the Nikkei, has recently experienced a rebound from the 32,689 mark. This particular point is in close proximity to the 38.2% Fibonacci retracement level.

At present, the index is undergoing a test of the lower band of what was previously a bullish flag pattern. The pivot point in this scenario is at the 33,423 mark. For the continuation of the bullish bias, it is imperative that buyers achieve a close above this pivot point. Should there be a failure to surpass the pivot, it would likely result in a decline in the index's price.

Under such circumstances, the initial target would be set at the 38.2% Fibonacci retracement level. Following this, the next level of support would be at the 50% Fibonacci retracement level.​

 

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Crude Futures Steady Amidst Market Flux

On Friday, WTI crude futures maintained a steady position above $72 per barrel. This stability reflects a complex market situation where weakening demand in the United States contrasts with the impact of supply interruptions in Libya. Just the day before, oil prices experienced a notable drop of 2.3%, but later recovered slightly. This fluctuation was primarily influenced by recent US data revealing a surprising surge in gasoline reserves. Last week, gasoline stocks rose sharply by 10.9 million barrels, marking the most significant increase in over 30 years. Additionally, there was an unexpected rise in distillate inventories, which grew by 10.1 million barrels, far surpassing the anticipated increase of 400,000 barrels. Contrasting these increases, crude oil reserves saw a reduction of 5.5 million barrels.

At the same time, market attention remains focused on Libya, where ongoing protests have disrupted oil production at the Sharara and El-Feel fields. These fields are significant, contributing around 365,000 barrels of oil per day. In a separate development, Iran is grappling with a tragic event. Two explosions occurred during a ceremony honoring the late military leader Qassem Soleimani, resulting in almost 100 deaths and many injuries.​

 

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USDCHF Navigates Between Bullish Channel​

Solid ECN – The bull's effort to flip the price above the Ichimoku cloud continues. However, the ADX indicator hovers below the 20 level, which can be interpreted as a weak market trend. The USDCHF price should stabilize itself above the %38.2 Fibonacci level for the uptick bias to continue. If this happens, the price would rise to test the %50 level of the Fibonacci resistance as its initial target.

Conversely, the bullish scenario should be invalid if the USDCHF price exceeds the bullish channel. In this case, the downfall would extend to December 2023's low.​

 

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EURUSD Technical Analysis​

The EURUSD currency pair is trading within a bullish channel. Despite the bulls’ failure to keep the price above the pivot point, the overall trend remains bullish, with S1 supporting the current uptrend. From a technical perspective, the pair is likely to target R1, provided that the EURUSD price stays within the bullish channel.

However, if the bears push the price below the 1.08636 support, it will invalidate the bullish scenario.​

 

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GBPUSD Technical Analysis

The GBPUSD pair is currently facing challenges at the median line of the bullish channel. The RSI (Relative Strength Index) indicator remains above zero, signaling a potential uptrend continuation.

The channel's lower band supports this bullish outlook. As long as the price stays within the channel, the R1 resistance level and the channel's upper band can be the following targets for the bulls."​

 

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Analyzing EURUSD's Current Position​

The EURUSD pair couldn't break the 38.2% Fibonacci level and is now in a bearish flag pattern. Its current price is 1.093, meeting the 50% Fibonacci level. Technical indicators aren't showing significant changes. The RSI is under 50, and the Awesome Oscillator bars are small and near the signal line. The ADX line is steady but over 20, indicating a possible upcoming trend.

If the price stays in the channel, it might go down. The first target for this drop could be the 61.8% Fibonacci level. But, if it breaks out of the channel, it might challenge the Ichimoku cloud.​

 

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New Zealand Dollar Balances as Rate Cut Expectations Grow

Solid ECN – The New Zealand dollar has stabilized at $0.624 after recent ups and downs. This comes as the US dollar weakens, with many expecting the Federal Reserve to cut interest rates several times this year. US consumer inflation expectations for the short term hit a near three-year low in December, hinting at a softer approach to monetary policy.

In New Zealand, markets anticipate four rate cuts from their central bank this year, possibly starting in May. The central bank's head noted the unexpected slowdown in growth, increasing chances of an earlier rate cut. In November, New Zealand's cash rate remained at 5.5%, narrowly avoiding a hike.​

 

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GBPUSD Tests Ichimoku Cloud, Eyes Rise​

The GBPUSD currency pair has tested the Ichimoku cloud in today’s trading session. The pair is currency trading at 1.2721 while the awesome oscillator bars turned green. The RSI indicator stayed above 50, another signal for the bullish trend’s resumption.

If the bulls can maintain the price above the cloud, the price will likely rise. But the first hurdle is 1.2776. Should this level be breached, the following target can be 1.2826.

The bullish scenario is invalid if the bears close below the cloud. In this case, the lower band of the bullish flag would be the next resistance.​

 

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USDJPY Above Ichimoku Cloud, Bulls Eye Gain​

The USDJPY currency pair trades above the Ichimoku cloud, signaling a bullish trend. Various technical indicators further support this positive outlook. The ADX line, an indicator of trend strength, is above 40, indicating a solid upward trend. The awesome oscillator bars are green, and the RSI indicator is positioned above its median line, aligning with the bullish sentiment.

Bullish traders in the USDJPY market are likely setting their sights on the 61.8% Fibonacci resistance level—the lower band of the bullish flag and the Ichimoku cloud support this bullish scenario. The bullish trend remains valid and intact as long as the currency pair maintains its position above the cloud.​