Fundamental updates by Solid ECN

[SOLIDECN]

Euro maintains gains near four-month highs against dollar

Euro rose in European trade against dollar for the fourth straight session, almost hitting four-month highs amid fading concerns about the policy gap between Europe and the US. The greenback is trading near three-month lows under pressure from Fed's minutes, which bolstered the case for a 0.5% rate hike in December. EURUSD rose 0.2% to 1.0428, after closing up 0.15% yesterday, the third profit in a row as risk appetite improves in the market.

• Euro is up over 1% so far this week against dollar on track for the second weekly profit in three weeks.​
• Euro hit four-month highs at 1.0481 earlier this month before entering a wave of losses on active profit-taking.​
• Current gains come amid fading concerns about the policy gap between the US and Europe, with the ECB expected to raise rates by 75 basis points in December.​

The Dollar

The dollar index last traded near three-month lows at 105.34 against a basket of major rivals. Latest Federal Reserve minutes showed US policymakers are content about their ability to move forward and raise interest rates in a slower place.​

 

[SOLIDECN]

EURUSD - Euro recovers after decline​

The European currency is recovering after the ambiguous dynamics on Monday, when quotes showed a confident upward trend in the first half of the day and managed to update local highs from June 29, almost reaching 1.0500. Nevertheless, the "bulls" failed to consolidate on new highs, and by the close of the day session the EUR/USD pair returned to the "red" zone.

The driver of the upward dynamics is still the corrective weakening of the US dollar, which is under pressure after the publication of the minutes of the November meeting of the US Federal Reserve last week. The regulator confirmed its readiness to reduce the pace of interest rate hikes already in December, and at the moment more than 70% of analysts expect that the agency will decide to adjust the value by 50 basis points, after which it may move to a step of 25 basis points in 2023.

In turn, the euro reacted positively to the comments of the President of the European Central Bank (ECB), Christine Lagarde. The day before, the official said that the Bank will continue to raise the interest rate, despite the threat of an economic downturn and a weakening of business activity in the region. As before, the ECB is aiming for a target inflation rate of 2.0%.

Today, investors are evaluating a block of macroeconomic statistics from the eurozone on the level of Consumer Confidence and Economic Sentiment. In the middle of the day there will be data on inflation dynamics in Germany for November. Current forecasts suggest a slowdown in annual Consumer Price Index from 10.4% to 10.3%, while the Harmonized CPI may decrease from 11.6% to 11.3%.

Meanwhile, representatives of European states continue to discuss the maximum level of prices for Russian oil. It is necessary to reach a consensus before December 5, the date when the restrictions provided for by the eighth package of sanctions, which include an embargo on the supply of "black gold" from the Russian Federation by sea to the EU countries, will come into force. The European Commission insists on a peak value of 65.0 dollars per barrel, but Polish diplomats oppose this decision, considering it ineffective, since the limit is close to current quotations. In addition, Poland initiates restrictions on the operation of the Polish-German section of the Druzhba oil pipeline so that official Warsaw can terminate the existing agreements of the Polish oil refiner Orlen on the purchase of Russian oil in 2023 without paying penalties.

Resistance levels: 1.04, 1.045, 1.05, 1.055 | Support levels: 1.035, 1.03, 1.0253, 1.02​

 

[SOLIDECN]

EURUSD - Downside surprise in German inflation data Coming?​

German CPI inflation data for November is a key European macro reading of the day. Data for the whole of Germany will be released at 1:00 pm GMT and median consensus point to headline price growth remaining unchanged at 10.4% YoY. However, those expectations may be outdated following the release of state-level CPI data from Europe's largest economy. All 6 state-level readings that were already released showed a deceleration in consumer price growth in November. This is a strong hint that German reading at 1:00 pm GMT will not show inflation remaining unchanged and will instead surprise to the downside.
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German state-level CPI readings for November​

• North Rhine Westphalia: 10.4% YoY vs 11.0% YoY previously​
• Hesse: 9.7% YoY vs 9.9% YoY previously​
• Baden Wuerttemberg: 9.6% YoY vs 9.8% YoY previously​
• Bavaria: 10.9% YoY vs 11.0% YoY previously​
• Brandenburg: 10.5% YoY vs 10.8% YoY previously​
• Saxony: 9.9% YoY vs 10.1% YoY previously​

It should be also noted that Spain CPI reading for November, released today at 8:00 am GMT, also surprised to the downside and decelerated from 7.3% to 6.6% YoY (exp. 7.5% YoY). If inflation in Germany slows as well, ECB could have more reasons to slow the pace of tightening to 50 bp rate hike in December, down from 75 bp rate hikes delivered at two previous meetings.

EURUSD is rather unimpressed by deceleration in German state-level inflation data. The pair continues to trade in between 50- and 200-hour moving averages, awaiting a catalyst for a break.​

 

[SOLIDECN]

EURUSD - Downside surprise in German inflation data Coming?​

German CPI inflation data for November is a key European macro reading of the day. Data for the whole of Germany will be released at 1:00 pm GMT and median consensus point to headline price growth remaining unchanged at 10.4% YoY. However, those expectations may be outdated following the release of state-level CPI data from Europe's largest economy. All 6 state-level readings that were already released showed a deceleration in consumer price growth in November. This is a strong hint that German reading at 1:00 pm GMT will not show inflation remaining unchanged and will instead surprise to the downside.

German state-level CPI readings for November​

• North Rhine Westphalia: 10.4% YoY vs 11.0% YoY previously
• Hesse: 9.7% YoY vs 9.9% YoY previously
• Baden Wuerttemberg: 9.6% YoY vs 9.8% YoY previously​
• Bavaria: 10.9% YoY vs 11.0% YoY previously​
• Brandenburg: 10.5% YoY vs 10.8% YoY previously​
• Saxony: 9.9% YoY vs 10.1% YoY previously​

It should be also noted that Spain CPI reading for November, released today at 8:00 am GMT, also surprised to the downside and decelerated from 7.3% to 6.6% YoY (exp. 7.5% YoY). If inflation in Germany slows as well, ECB could have more reasons to slow the pace of tightening to 50 bp rate hike in December, down from 75 bp rate hikes delivered at two previous meetings.

EURUSD is rather unimpressed by deceleration in German state-level inflation data. The pair continues to trade in between 50- and 200-hour moving averages, awaiting a catalyst for a break.​

 

[SOLIDECN]

Economic Calendar: ADP Employment report, speech from Fed Chair Powell​

• European indices set for higher opening​
• Powell to speak on the economy and inflation in the evening​
• ADP report expected to show 200k jobs gain in November​

Economic calendar for the day ahead is packed with interesting releases. While GDP data from Europe and US that is scheduled for release will be revisions, other reports may trigger some market moves. European CPI reading will be released at 10:00 am GMT and is expected to show deceleration. Note that major European economies saw price growth decelerate in November so there is a scope for a downside surprise. Apart from that, traders will closely watch ADP jobs report for November (1:15 pm GMT) as it will be a final hint ahead of Friday's NFP release. Last but not least, Fed Chair Powell is scheduled to speak at 6:30 pm GMT today with the topic of a speech being "Economic Outlook, Inflation and the Labor Market".​

 

[SOLIDECN]

EURUSD​

The European currency shows moderate growth, developing a strong "bullish" momentum, formed on November 30. The EURUSD pair is testing the level of 1.0580 for a breakout, updating local highs from June 28. On Friday, December 2, investors reacted to the publication of the report on the US labor market for November, as a result of which the dollar attempted corrective growth, which ultimately did not result in the formation of any trend phenomena. November data showed an increase in the number of Nonfarm Payrolls by 263.0 thousand, which turned out to be significantly better than market expectations at the level of 200.0 thousand. The October indicator was revised from 261.0 thousand to 264.0 thousand. The Unemployment Rate remained at the same level of 3.7%, while the Average Hourly Earnings accelerated from 0.5% to 0.6% in monthly terms, contrary to forecasts of a slowdown to 0.3%, and in annual terms it corrected from 4.9% to 5.1%, beating expectations at 4.6%. The positions of the single currency were also supported by statistics from Europe on the dynamics of producer inflation. Producer Price Index in October fell by 2.9% after rising by 1.6% in the previous month, while analysts had projected a decline of 2.0%, and in annual terms, the indicator slowed down from 41.9% to 30.8% with the forecast of 31.5%.​

 

[SOLIDECN]

Euro hits fresh six-month highs against dollar​

Euro rose in European trade for the fourth straight session against dollar, hitting fresh six-month highs as concerns about a widening policy gap between the US and Europe fade. Dollar extended its decline after Fed Chair Jerome Powell's recent statements about slowing down the pace of rate hikes starting from December. EURUSD rose over 0.4% to 1.0584, the highest since June , after closing up 0.15% on Friday, the third profit in a row as risk appetite dominated markets.

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European Rates​

The financial markets are now expecting the European Central Bank to increase rates by 75 basis points in December instead of 50. There are strong recent incentives for the ECB to do such move according to many analysts, while the Federal Reserve is only expected to hike rates by 50 basis points this month.​

 

[SOLIDECN]

Chart of the day - US100​

US indices had another downbeat session in a row yesterday but the scale of declines was smaller than in previous two days when all major Wall Street benchmarks dropped more than 1%. Tech shares have once again lagged the most with Nasdaq index dropping 0.51% and Nasdaq-100 (US100) moving 0.45% lower.

Taking a look at the US100 chart at D1 interval, we can see that while the index saw some weakness in recent days and dropped 5% off December 1st peak, bearish momentum eased after prier reached support zone ranging above 11,500 pts handle. Downward move was halted at the 50-session moving average (green line) yesterday and today's retest of the aforementioned moving average also turned out to be a failure. Lower wicks of today's and yesterday's daily candlestick suggest that there is a strong bull camp in the 11,500 pts area and it is also a good place for a rebound from a technical point of few. However, one cannot rule out that we will have to wait until next week's Fed decision for the index to see a bigger move in either direction. In case bears regain control and push the index below the 11,500 pts price zone, the next support to watch can be found at the lower limit of the Overbalance structure (11,075 pts). On the other hand, should the index rebound from current levels, the 12,100 pts resistance zone, marked with recent local highs, will be a level to watch.​

 

[SOLIDECN]

Chart of the day - NATGAS​

Beginning of the week on the markets has been rather calm so far. Indices from Asia-Pacific moved lower but scale of declines was moderate. Similar picture can be seen at the beginning of the European cash session. However, there is one market that is seeing extraordinary moves and this is US natural gas (NATGAS). NATGAS launched a new week with a massive bullish price gap and is now trading almost 9%, after trimming some gains. New forecasts pointing to colder weather in the United States in the days ahead are to blame. Price tested 7 resistance zone, marked with 61.8% retracement of the recent major downward move, at the start of trading but has failed to break above. A lot will now depend on whether bulls make another attempt and whether they succeed. A break above would brighten the outlook for buyers and could herald a move towards recent highs. On the other hand, it should be noted that 7 is a good technical spot for reversal and move back towards price zone ranging between 6.30 mark and 38.2% retracement.

 

[SOLIDECN]

Chart of the day - GBPUSD​

GBPUSD pair pulled back slightly today as traders digested latest economic data from Great Britain. Yesterday’s UK jobs report showed the unemployment rate rose slightly to 3.7% in the August-to-October period, while average earnings rose by a stronger-than-expected 6.1%, however it also did indicate a slowdown in hiring as businesses brace for a difficult start of 2023. Monday's data had shown the UK economy grew more than anticipated in October, however UK Chancellor Hunt warned that the situation could get worse before it gets better. Today's figures showed that UK inflation fell more than expected in November, cementing expectations of a 50 bps move from BoE tomorrow. Also comments from Governor Bailey may provide more details as to the way forward and cause some market movements on Thursday.

Of course the pair may face a spike in volatility in the evening, following Fed interest rate decision. The US central bank is expected to moderate its aggressive tightening campaign but point to a higher peak for rates. Traders will be closely monitoring Fed Chair Powell’s press conference which will take place after the rates announcement for guidance on futures rate hikes.

From a technical point of view, the GBPUSD pair continues to oscillate around local support at 1.2355 waiting for a catalyst for another big move. Should break lower occur, downward move may deepen towards next support at 1.2150 which is marked with previous price reactions and 100 EMA (purple line). In case of a morendovish FED, the pair may retest recent high at 1.2450.​

 

[SOLIDECN]

Chart of the Day - EURGBP​

Swiss National Bank has already announced a 50 bp rate hike but there are 2 more major central banks, who are also scheduled to make rate decision today and who are also expected to deliver 50 bp rate hikes - Bank of England (12:00 pm GMT) and European Central Bank (1:15 pm GMT). As both economists and money markets see 50 bp rate hike to be a done deal, market reaction will depend on the communications of the central bank a lot. This was the case with yesterday's FOMC decision and will be the case with BoE and ECB today as well. However, recent data suggests that there is a chance that ECB will deliver hawkish surprises and hiked by 75 basis points instead of 50 bp. On the other hand, cost of living crisis in the United Kingdom boosts odds for a softer stance from BoE.



Taking a look at EURGBP at D1 interval, we can see that the pair attempted to break below the 0.8580 support zone, marked with a 200-session moving average (purple line), but failed to do so. Pair is bouncing off the zone today and is expected to become much more volatile in the early afternoon when BoE and ECB announce their rate decisions. Should we see a hawkish surprise from ECB, the pair could spike towards the resistance zone in the 0.8700 area, especially if BoE delivers dovish surprise as well.​

 

[SOLIDECN]

Chart of the day - US100

Yesterday's BoJ decision to widen the band around target 10-year yield was a hawkish one and has sent JPY spiking while equity markets plunged. However, those downbeat moods did not last long, at least not on US stock exchanges, with Wall Street indices recovering from early drop and finishing yesterday's session higher.
​

Taking a look at Nasdaq-100 (US100) at D1 interval we can see an interesting technical development. Index attempted to break below the lower limit of a local market geometry yesterday but bulls have ultimately managed to defend the 11,170 pts area. This means that the short-term uptrend is still in play and a long, lower wick of yesterday's daily candlestick boosts outlook for the bulls further. Should the ongoing recovery move extend, the first near-term resistance to watch is 11,500 pts area, which served as the lower limit of an earlier-broken trading range (11,500 - 12,100 pts).

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[SOLIDECN]

Breaking: CAD Strengthens slightly after CPI data​

• Canada’s annual inflation fell slightly to 6.8% YoY in November from 6.9% in October, above market expectations of 6.6%.​
• Today's report pointed to slowest pace of price growth since March. Consumer costs rose at a slower pace for transportation (8.5% vs 9.5% in October), largely due to a slower rise in gasoline prices (13.7% vs 17.8%) as the reopening of refineries in the western United States drove fuel prices in British Columbia and Alberta to ease. On a monthly basis, Canadian consumer prices rose by 0.1% in November, slowing from a 0.7% gain in the prior month.​

Core consumer prices in Canada remain unchanged at 5.8 % in November.



Mortgage interest costs also moved higher, nevertheless markets perceived today's report as hawkish which makes it more likely the BoC will raise rates next month. Current pricing is near 50/50.

USDCAD fell slightly after CPI release and is approaching 1.3600 support.​

 

[SOLIDECN]

AUDUSD - The instrument is updating record highs​

During the Asian session, the Australian dollar is actively adding in value, developing a "bullish" trend, which was formed on December 23. At the moment, the AUD/USD pair is testing 0.6830 for a breakout and updating local highs from December 15.

Significant support for the instrument today is provided by macroeconomic statistics from Australia. Thus, the Manufacturing PMI, published by the Commonwealth Bank of Australia and S&P Global, rose from 50.4 points to 56.9 points in December, which turned out to be much better than analysts' neutral forecasts. Buying activity was also supported by the December data from China, where the Caixin Manufacturing PMI slowed down from 49.4 points to 49.0 points, while traders were counting on 48.8 points.

Meanwhile, experts are counting the profits from the Christmas and New Year sales, and according to Bloomberg, consumer demand on the eve of the holidays not only did not decrease, but also amounted to a record 74.5 billion Australian dollars. On Boxing Day, sales increased 15.3% compared to a year earlier, reaching 1.23 billion Australian dollars. Thus, the "hawkish" policy of the Reserve Bank of Australia (RBA) in terms of raising the interest rate, which is already at 3.1%, does not yet exert significant pressure on buying activity; however, the regulator noted that it would monitor consumer behavior when determining its further course.

The growth of the AUD/USD pair at the beginning of the year is also due to expectations of further easing of monetary policy by the US Federal Reserve. The market expects two interest rate hikes in the range of 25-50 basis points this year, after which the regulator is likely to try to take a wait-and-see attitude to analyze the results of the steps already taken.

Resistance levels: 0.685, 0.69, 0.695, 0.7 | Support levels: 0.68, 0.675, 0.67, 0.6628​

 

[SOLIDECN]

Indices Trim Gains in the Early Afternoon​

European stock market indices and US index futures erased part of today's gains over the past hour. Earlier, gains were reasoned with lower than expected CPI readings for December from German states but it was driven mostly by one-off factors related to gas payments. Reading for the whole Germany will be released at 1:00 pm GMT today and, given surprises in state readings, may show a downside surprise. Such an outcome could be positive for indices as it would give ECB more room to be flexible when it comes to policy tightening. On the other hand, it should be noted that state reading have not shown a similar deceleration in core inflation as it either ticked slightly lower or stayed unchanged.

US30 dropped around 0.6% from a daily higher but still continues to trade 0.4% higher on the day. A potential trend line, marked with recent local lows, is being tested right now.



DE30 continues to trade around 1% higher but trades 0.8% off daily high. DE30 trades slightly above a key support zone in the 14,200 pts area. Apart from lower headline inflation figures from Germany, indices in Europe are also supported by steep drop in gas price which now trade near €75/MWh. On the other hand, should core German inflation surprise to the upside, indices may start to struggle.​

 

[Solid ECN]

Chart of the day - US500​

FOMC minutes released yesterday have been rather hawkish with the document noting that US central bankers do not expect rate cuts in 2023. It also noted that while progress has been made in bringing inflation back under control, more rate hikes are needed although a slower pace may be adequate. Release can be seen as hawkish but no major long-lasting market reaction occurred in the aftermath. This can be reasoned with the fact that FOMC minutes have only repeated what the market has already known and has already been pricing in.



Taking a look at US500 chart at H4 interval, we can see that the index has been struggling to launch a larger move in either direction as of late. US500 has been trading in a 3,800 - 3,920 pts range since mid-December, awaiting catalyst for the next bigger move. While today's ADP employment report at 1:15 pm GMT is unlikely to be such a catalyst, tomorrow's NFP data may be source of elevated volatility.​

 

[SOLIDECN]

USDCAD Fundamental Analysis​

• NFP +104k, consensus was +8k (previous +10.1k)​
• Unemployment Rate 5%, consensus 5.2%, previous 5.1%​
• Full time employment +84.5k after 50.7k in November​

A very strong report from Canada meets only a limited reaction on USDCAD. The pair reverses lower from the sub-1.37 resistance zone but doesn’t make a move that looks like it could conclude a 1-month long consolidation. Meanwhile the data, especially a second month of strong full time employment gains could push Bank of Canada onto the path of more tightening.​

 

[SOLIDECN]

US500 - Morning Wrap (09.01.2023)​

• US indices rallied on Friday following a solid NFP report - jobs data for December showed better-than-expected employment gain and slower-than-expected wage growth. Dow Jones, S&P 500, Nasdaq and Russell 2000 all gained more than 2%​
• Upbeat moods extended into a new week with indices from Asia-Pacific trading higher as well. S&P/ASX 200 gained 0.6%, Kospi rallied 2.6% and Nifty 50 added 1.5%. Indices from China traded up to 2% higher​
• A number of positive news from China has also provided support for Asian shares today. Reuters reported that financing for property sector increased 33% YoY in December 2022. Also Chinese authorities said they expected traffic during Spring Festival to double from 2022 levels, to over 2 billion passengers​
• DAX futures point to a higher opening of the European cash session today​
• Civil unrest broke out in Brazil with supporters of former President Bolsonaro breaking into the Supreme Court building, Congress and Presidential Palace. Riots were condemned by President Lula, former President Bolsonaro and leaders of democratic countries, including Joe Biden and Emmanuel Macron​
• MV Glory cargo vessel has run aground in Suez Canal this morning but so far it is unclear whether and to what extent traffic is disrupted. Canal authorities' vessel are trying to refloat it​
• People's Bank of China purchased 30 tonnes of gold in December 2022, putting China's official gold reserves to 2,010 tonnes​
• A fault in Iranian pipeline network led to a 70% drop in natural gas exports to Turkey​
• Australian building approvals dropped 9% MoM in November (exp. -1% MoM)​
• Cryptocurrencies are trading higher amid overall improvement in risk moods. Bitcoin gains 1.4%, Ethereum trades 3.1% higher and Litecoin jumps 7.7%. Cardano rallies over 12%​
• Energy commodities trade higher on expectations for increase in Chinese demand - US natural gas prices gain 2.4% while oil trades 1.5% higher​
• Precious metals benefit from USD weakness. Gold trades 0.6% higher, silver gains 0.8% and palladium jumps 1.2%. Platinum trades 0.1% higher​
• AUD and NZD are the best performing major currencies while safe havens - USD, JPY and CHF - are top laggards​

S&P 500 futures (US500) are making a break above the 3,920 pts resistance zone, that marks the upper limit of a recent short-term trading range. Index trades at the highest level since mid-December 2022.​

 

[SOLIDECN]

Chart of the Day - USDJPY​

Japanese yen is one of the best performing major currencies today. JPY gains thanks to reports in Japanese media that suggested Bank of Japan is planning to review side effects of its loose monetary policy at a meeting next week. Markets took it as another sign that BoJ is about to scale back its dovish approach. The first major sign was widening of a band around target yield that also led to a significant strengthening of JPY.



Taking a look at USDJPY chart at H4 interval, we can see that the pair has been trading in a downward move recently. The pair attempted to extend upward correction and break above the upper limit of the Overbalance structure at the end of the previous week but failed. This week's attempt to recover was halted at the 100-period exponential moving average. A break below recent lows in the 131.50 area would pave the way for a test of 129.50 area, that marks low of the whole downward impulse.

The pair will also be on watch later today when the US CPI report for December is released. Economists expect reading to show deceleration in both headline and core gauges of US consumer inflation. Headline CPI is seen dropping from 7.1 to 6.5% YoY while core CPI is seen dropping from 6.0 to 5.7% YoY. Report will be key for assessing whether the Fed will go with a 25 or 50 basis point rate hike at its next meeting.​

 

[SOLIDECN]

EURUSD Gets New Positive Signal​

The EURUSD pair resumes its positive trading after the temporary decline that it witnessed in the previous sessions, reinforcing the expectations of continuing the bullish trend, motivated by the positive overlapping signal provided by stochastic now, waiting to visit 1.0915 as a next main target.

The EMA50 continues to support the suggested bullish wave, which will remain valid as long as 1.0745 level remains intact. The expected trading range for today is between 1.0790 support and 1.0950 resistance.​