Fundamental updates by Solid ECN

[SOLIDECN]

Chart of the Day - GBPJPY​

The Japanese yen is in the center of attention today, following the Bank of Japan monetary policy. The Bank of Japan decided not to make a move today - interest rates were left unchanged and the tolerance band around target 10-year yield was left unchanged as well. This was seen as disappointment. The Bank of Japan has to intervene almost on a daily basis to bring 10-year yields down from the upper limit of the tolerance band so investors hoped that another widening of the band could be on the cards today. No such decision was made and JPY took a beating as a result. BoJ Governor Kuroda said during a post-meeting press conference that he does not believe the tolerance band needs to be widened further. Nevertheless, the term of Governor Kuroda ends in April this year and his successor may have different beliefs when it comes to markets and rates.

However, it should be noted that the Bank of Japan did make some changes today. BoJ announced that it is amending rules for funds-supply market operations. New rules allow the Bank of Japan to make loans against collateral to financial institutions on both - fixed and variable - rates. Earlier, loans with maturity of up to 10-years were only offered at fixed-rate. The move is aimed at making funds-supply market operations a viable tool for preventing excessive increases in the long-term rates.



As no changed to the rates or tolerance band was made and Bank of Japan pledge to continue with large scale bond purchases to keep yields in check, one should not be surprised that Japanese yen took a hit today. JPY was trading as much as 2.5% lower against US dollar at one point, and over 2% lower against almost all other majors. However, big part of the move has been erased already.

Taking a look at GBPJPY chart at D1 interval, we can see that the move on the pair today was massive. Pair traded 2.5% higher at one point and was testing the resistance zone ranging below 162.00 handle, and marked with previous price reactions. Nevertheless, as we have said earlier - a big part of the move was already released and GBPJPY pulled back to the 160.00 swing level.​

 

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Chart of the Day - EURTRY​

Norges Bank decided to leave rates unchanged at a meeting today but there is one more rate decision to be announced today. Central Bank of the Republic of Turkey will announce its rate decision at 11:00 am GMT. Market expects no change from CBRT with one-week repo rate staying unchanged at 9:00 am GMT. The Bank said that it has ended the rate cut cycle after a 150 bp rate cut in November and indeed rates stayed unchanged at the December meeting later on. While Turkey is facing massive inflation, there is a view that rates may stay unchanged until mid-2023 when elections in Turkey take place. However, should the Bank make a move at one of the coming meetings, it is more likely to be another cut rather than hike.



Apart from CBRT rate decisions, traders will also get a chance to take a look at ECB minutes. ECB hiked interest rates by 50 basis points at the latest meeting, slowing the pace of hikes from previous 75 bps. Bank noted that rates will have to rise further significantly and a balance sheet reduction schedule was also announced. While there were some rather dovish comments from ECB members in recent days, minutes may not reflect it as they relate to the December 15, 2022 meeting.

Taking a look at EURTRY chart at the H1 interval, we can see that the pair has bounced off the 200-hour moving average (purple line) and climbed above the 20.28 swing area later on. The nearest resistance zone to watch can be found in the 20.42 area and is marked with recent local highs. Should CBRT surprised with a rather unlikely rate cut, the pair may quickly jump above the aforementioned 20.42 zone and look towards all-time highs from late-2021 in the 20.68 area.​

 

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US100 Surges Nearly %2.5​

Wall Street rallies ahead of big tech earnings

US indices rose sharply today, extending Friday gains as risk appetite improved bolstered by the lack of Fed members' speeches, due to the blackout period, ahead of the FOMC meeting on January 31 – February 1. Now investors brace themselves for a busy week of earnings, including top tech giants Microsoft, Tesla, IBM, and Intel.

Recent economic data have magnified concerns that the US economy is near a recession while boosting bets that the Fed will continue to raise rates however at a slower pace. Wall Street Journal Fed insider, claims that the US central bank will announce a 25 basis point rate hike next week, which boosted upbeat sentiment. Later this week we get the US GDP and inflation data releases, which may increase volatility on the markets and influence FED decision.



US100 jumped above major resistance at 11500 pts and 50 SMA (green line) on Friday and during today's session buyers breached long-term downward trendline. Currently the index is approaching 200 SMA (red line) and if buyers manage to uphold momentum resistance at 13000 pts may be at risk. This level is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave started in March 2020.​

 

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EUR Drops After French and German PMIs​

Flash PMI indices for January from France and Germany were released today at 8:15 am GMT and 8:30 am GMT, respectively. French release turned out to be mixed - the manufacturing index showed a big beat and returned above the 50 threshold while the services index missed expectations and moved deeper into contraction territory. Similarly mixed results were shown by German reading. However, in this case manufacturing data missed expectations while services gauge beat and moved back above 50 point threshold.

France​

• Manufacturing: 50.8 vs 49.7 expected (49.2 previously)​
• Services: 49.2 vs 49.9 expected (49.5 previously)​

Germany​

• Manufacturing: 47.0 vs 47.8 expected: (47.1 previously)​
• Services: 50.4 vs 49.6 expected (49.2 previously)​

EURUSD moved lower in a knee-jerk move following the French release but this drop was quickly erased while European indices moved higher. However, upward move on EURUSD was entirely erased following release of German data. DE30 erased big part of the gain but continues to trade slightly above pre-announcement levels.

EURUSD took a hit following release of German PMI data and is looking back towards the 1.0860 support zone.​

 

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XAGUSD - Silver prices are recovering​

Investors are in no hurry to open new positions in anticipation of the publication of key US Q4 gross domestic product (GDP) data: experts expect a decline from 3.2% to 2.6%, which will confirm further softening of the "hawkish" rhetoric of the US Federal Reserve. On Wednesday, February 1, the regulator may announce an increase in interest rates by only 25.0 basis points, and analysts do not exclude another correction of the value by a similar amount in the first half of the year, after which a pause is expected to assess the effectiveness of the measures taken. The European Central Bank (ECB) and the Bank of England are more resolute so far that silver remains dependent on possible increases in interest rates. Also, the Bank of Japan, which has long adhered to the "dovish" monetary policy, may soon begin to tighten it.
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According to the latest report from the US Commodity Futures Trading Commission (CFTC), last week, the number of net speculative positions in silver amounted to 31.5K versus 29.0K a week earlier: "bears" are in the lead in the number of contracts at swap dealers, and the gap is held regardless of the decrease in the interest of this group of investors in the asset, amounting to 45.728K against 34.865K for the "bulls." This week, sellers have reduced their positions by 98 trades and buyers by 699.
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The trading instrument is supported by hopes for further activity recovery in China, where the government has been gradually lifting quarantine restrictions since December. The China Gold Association reported a 10.63% decrease in metal consumption last year to 1,001.74 tons. In comparison, jewelry lost 8.01% to 654.32 tons, and investment in gold bars and coins fell by 17.23%, amounting to 258.94 tons. Still, experts expect that the opening of the economy can dramatically improve the situation.

Resistance levels: 24, 24.2, 24.42, 24.67 | Support levels: 23.6, 23.32, 23, 22.7​

 

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Chart of the day Platinum​

Precious metals are underperforming today as the US dollar strengthened. USD has erased some of the gains, allowing precious metals to trim part of the losses. Nevertheless, precious metals continue to trade lower with gold dropping 0.2% while silver and platinum are dropping 0.8%. Release of US data pack for December at 1:30 pm GMT, including core PCE inflation, is likely to trigger some USD volatility, and it should also lead to more action on the precious metals market.



Taking a look at the PLATINUM chart at D1 interval, we can see that the price of this precious metal has dropped below the $1,030 support zone yesterday and is now trading back within a recent range. Bulls managed to recover some gains and push the price off daily lows today but, unless a break back above $1,030 zone is delivered, the next move from a technical point of view could be a pullback towards the lower limit of the range ($970 area). A potential higher-than-expected US PCE reading may benefit the US dollar and this, in turn, should exert pressure on precious metals.​

 

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Euro Area Q4 GDP Beats Estimates​

Q4 GDP report from euro area just came out and turned out to be a positive surprise. Growth reached 0.1% QoQ while market expected a 0.1% QoQ drop. On annual basis, GDP growth reached 1.9% YoY (exp. 1.8% YoY), slightly slower than 2.1% YoY reported in Q3 2022. Simultaneously, Q4 GDP report from Italy was released and it also turned out to be better-than-expected. Italian GDP declined 0.1% QoQ in Q4 2022, but the market expected a 0.2% QoQ drop. On an annual basis growth reached 1.7% YoY (exp. 1.6% YoY).



However, in spite of being a positive surprise, reports did not have much of an impact. EURUSD barely moved while DE30 ticked lower.​

 

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Inflation in the EU Below Expectations!​

• Annual inflation rate in the Euro Area fell to an eight-month low of 8.5% in January from 9.2% in December, below market forecasts of 9%, preliminary estimates showed.​
• Core inflation remained unchanged at 5.2%, while markets expected drop to 5.1%.​
• Unemployment rate 6.6% above market estimates of 6.5%..​
• Inflation slowed in Italy, Ireland and the Netherlands, but edged higher in Spain and France.​
• The data for Germany inflation is not available though, as the country's statistical office had to delay the release of its own figures due to technical issues with data processing.​
• In January, energy prices rose at a slower pace (17.2% vs 25.5%) and services inflation also eased (4.2% vs 4.4%) while cost increased faster for food, alcohol & tobacco (14.1% vs 13.8%) and non-energy industrial goods (6.9% vs 6.4%). Compared to the previous month, consumer prices fell 0.4%, the same as in December, led by a 0.9% decline in energy cost.​

Core inflation remains at record levels.

Core inflation remains at record levels.

 

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Chart of the Day EURGBP​

EURGBP is one of major currency pairs that may see some more volatile moves today. This is because the Bank of England and European Central Bank are scheduled to announce monetary policy decisions at 12:00 pm GMT and 1:15 pm GMT, respectively. Both are expected to deliver 50 basis point rate hikes.

While ECB members have been quite vocal about the fact that a 50 basis point rate hike is appropriate for today's meeting, recent cycle pause from BoC and slowdown from Fed raises questions whether ECB will alter its approach. A 50 bp rate move looks like a done deal and should the ECB commit to another 50 bp rate hike in March, EUR may benefit. A 50 bp rate hike and a hint that pace of rate increases will slow going forward would be EUR-negative and may support European stock market indices.

On the other hand, things look less rosy when it comes to the Bank of England. The UK economy is facing a recession and BoE knows it very well. Higher interest rates are magnifying the so-called "cost of living crisis" in the United Kingdom and while another rate hike could help combat inflation, Bank of England is facing an increasing public backlash over its tightening. Having said that, there is a scope for a dovish surprise with BoE going in with a 25 basis point rate hike.

Taking a look at EURGBP chart at D1 interval, we can see that the pair has managed to climb above the 0.8880 resistance zone today and has even briefly traded at the highest level since late-September 2022. If ECB provides more fuel for the upward move by hinting at another 50 bp rate hike in March, the pair may look towards the 0.8990 swing area that was tested a few times in the 2019-2020 period and marks a local high from late-September 2022. A dovish Bank of England would also support a bullish scenario on the pair.​

 

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Morning Wrap​

• US indices finished yesterday's trading higher. S&P 500 gained 1.47%, Russell 2000 added 2.06% and Nasdaq rallied over 3%. Dow Jones was a laggard with 0.11% drop​
• US index futures dropped in the after-hours trading following earnings releases from Apple, Amazon and Alphabet​
• Apple dropped 3.2% in the after-hours trading. Company reported a 5% sales drop to $117.15 billion (exp. $121.10 billion) and almost 11% YoY drop in EPS, to $1.88 (exp. $1.94). CEO Tim Cook said that strong dollar, production problems in China as well as the overall macroeconomic environment were to blame for poor results​
• Amazon traded 5% lower in the after-hours trading. Company reported Q4 revenue at $149.2 billion (exp. $145.4 billion) and EPS at $0.03 per share. Sales growth in cloud business slowed from 27.5 to 20% YoY in Q4 2022. Company provided a rather light guidance pointing to a 4-8% sales growth in Q1 2023​
• Alphabet dropped 4.6% in the after-hours trading. Company missed sales and earnings expectations with revenue coming in at $76.05 billion (exp. $76.5 billion) and EPS reaching $1.05 (exp. $1.18). Alphabet's sales grew at a pace of just 1% YoY in Q4 2022, marking the slowest growth since Q2 2020​
• Indices from Asia Pacific traded mixed. Nikkei, S&P/ASX 200, Kospi and Nifty 50 gained while indices from China and Vietnam traded lower​
• DAX futures point to a slightly higher opening of the European cash session today​
• US and Canadian militaries are monitoring a Chinese spy balloon that is currently flying above continental United States. It was decided not to shoot it down to prevent collateral damage from falling debris​
• Chinese Caixin services PMI came in at 52.9 in January (exp. 51.6)​
• BoJ Governor Kuroda said that Bank of Japan has a 8.8 trillion JPY unrealized loss from bonds it bought as part of yield curve control mechanism​
• Cryptocurrencies are trading mixed today. Dogecoin gains 0.2%, BitcoinCash adds 0.8%, Bitcoin drops 0.1% and Ethereum trades 0.8% down​
• Energy commodities trade lower - oil drops 0.2% while US natural gas prices traded 0.9% lower​
• Precious metals trade higher - gold gains 0.2%, silver trades 0.3% higher and platinum adds 0.5%​
• NZD and JPY are the best performing major currencies while EUR and CAD lag the most​

Nasdaq-100 (US100) had another solid session yesterday. However, things turned sour after the close of the Wall Street cash session as Apple, Amazon and Alphabet disappointed with earnings reports. US100 took a hit and pulled back around 2.5% off yesterday's highs.​

 

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Morning Wrap - US500​

S&P 500 (US500) failed to break above the 4,165 pts resistance zone last week and started to pull back. The move lower is being continued today. Tensions between China and the US are picking-up after the US Air Force shot down a Chinese spy balloon over the weekend.

 

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Chart of the Day - USDCAD​

USDCAD has been trading in a descending triangle pattern since October 2022. The pair failed to break above the resistance zone ranging below the 1.3500 area yesterday and can be seen pulling back today. USDCAD is expected to get more volatile later today as traders will be offered comments from both - Fed Chair Powell (5:40 pm GMT) and BoC Governor Macklem (5:45pm GMT).

Solid jobs data led some to believe that the Fed may switch back to a 50 bp rate hike at its next meeting and Powell's comments will be key in shaping expectations further. Macklem will deliver a speech titled "How monetary policy works" at CFA Society Quebec. Speech will surely touch on the topic of monetary policy as the title implies. More importantly, Macklem will answer reporters' questions afterwards at 7:00 pm GMT and it could be a chance for more details on the current policy outlook.

USDCAD is trading around 1% below upper limit of the triangle pattern and around 1.2% above the lower limit. While today's speeches from BoC and Fed heads may not lead to an immediate breakout, they could set the tone for the coming days, which may lead to a breakout. A textbook range of the breakout from the pattern in either direction is 720 pips.​

 

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Chart of the Day - USDDIX​

The dollar index fell below 103 on Wednesday, extending yesterday's losses sparked by Powell’s latest comments. Head of the Fed said that more rate hikes will likely be needed and that the terminal rate could peak higher if the jobs market remains strong, however underlined that disinflation has begun. Traders now look ahead to more Fed commentary on Wednesday for further guidance.

From a technical point of view, USDIDX bounced off key resistance at 103.40, which is marked with upper limit of the local 1:1 structure, previous price reactions,50 SMA (green line) and upper limit of the descending channel. As long as price sits below the aforementioned level, the main sentiment remains bearish. Nearest major support to watch is located around recent lows at 100.60. On the other hand, if buyers manage to regain control, upward correction may be launched towards resistance at 105.30, which coincides with 38.2% Fibonacci retracement of the upward move launched in January 2021.​

 

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Breaking - EUR Weakens Slightly After German Inflation Data​

Annual inflation rate in Germany rose to 8.7% YoY in January, from 8.6% YoY in previous month, below market estimates of 8.9% preliminary estimates showed. The statistical office changed the CPI base year to 2020 from 2015 and a technical programme made it necessary to postpone the release of the preliminary CPI.

On a monthly basis, the inflation rose to 1.0%, in January from -0.8% in the previous month and above market estimates of 0.8% increase. In December when a federal one-off payment to cover the monthly installment for gas and heat for all households and small- to medium-sized businesses came into effect, pressuring the inflation down. The EU-harmonized index fell to 9.2% from 9.6%, below forecasts of 10%.

EURUSD bounced off the1.0740 resistance after release of today’s German inflation data.​

 

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Chart of the Day - USDCHF​

Swiss franc strengthened on Monday after the annual inflation rate in Switzerland jumped to 3.3% YoY in January, the highest reading since September 2022, from 2.8% in the prior month and above analysts' estimates of 2.9%, which should support the case for further SNB policy tightening. Pair may experience increased volatility ahead of tomorrow’s US inflation data that could reinforce the case for more Federal Reserve interest rate hikes.

From technical point of view, the pair broke below the local support at 0.9235, which is marked with previous price reactions, 23.6% Fibonacci retracement of the latest upward wave and 200 SMA (red line). As long as price sits below, downward move may deepen towards next major support at 0.9200, which coincides with the lower limit of the triangle formation, 50 SMA (green line) and 38.2% retracement.​

 

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Chart of the Day - GBPUSD​

The GBPUSD pair erased most of the early gains as investors digested latest figures from the UK labour market. The UK Office for National Statistics Office for National Statistics reported that the unemployment rate remained unchanged at 3.7% in December as widely expected, while the number of people claiming unemployment-related benefits fell by 12.9K in January. Moreover, December reading was also revised down sharply to -3.2K as compared to the 19.7k rise estimated originally. The number of people in work grew by 74k in Q4 of 2022, easily topping analysts’ projections of a 40k increase. The number of part-time employees jumped to the highest level since the September-November period of 2021, however the number of full-time employees decreased but still above pre-pandemic levels. On self-employment, part-time self-employed increased, while full-time self-employed remained low.

On the other hand, in November 2022 to January 2023, job vacancies fell by 76K to 1,134K, the seventh consecutive quarterly fall, reflecting uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment.

Meanwhile US dollar trades slightly lower, extending yesterday's decline, however further downside move may be capped as traders might refrain from placing aggressive bets ahead of the crucial US consumer inflation figures, which will be released at 1:30 pm BST.

From a technical point of view, GBPUSD rose sharply in the morning after the release of UK data, however the pair pulled back after buyers failed to break above the 100 EMA (purple line). If sellers manage to regain full control, then declines may deepen towards local support at 1.2075. On the other hand, if bulls manage to regain control, next key resistance to watch can be found around 1.2215.​

 

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Chart of the Day - GBPJPY​

UK inflation data for January was released today at 7:00 am GMT. Release showed a bigger slowdown in price growth than expected, with headline CPI gauge moving down from 10.5 to 10.1% YoY (exp. 10.3% YoY). Core gauge dropped from 6.3 to 5.8% YoY (exp. 6.2% YoY). Unsurprisingly, lower inflation reading was taken as dovish with investors increasing bearish BoE bets. This, in turn, triggered a pull back on GBP market.

Taking a look at GBPJPY chart at H4 interval, we can see that the pair has managed to climb above the resistance zone ranging below 38.2% retracement of the downward move launched in October 2022 recently but this breakout was short-lived. Pair pulled back below it this morning but has bounced off the daily lows and it looks like another attempt to break above 38.2% retracement may be on the cards. However, if bulls fail and bears regain control, a deeper correction may be on the cards. In such a scenario, 156.76 zones will be a key support to watch. However, 23.6% retracement in the 159.30 area may also provide some support given that it saw numerous price reactions over the past 2 months.​

 

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Gold Drops to Six-week Low Amid Stronger USD​

Gold price dropped over 1.0% during today's session and is trading at levels not seen since early January as fresh US inflation figures bolstered bets that Fed will stick to its tightening path in order to bring down inflation. Also latest Fed commentary also showed that policymakers largely backed more rate increases, though Fed's Harker said the Fed was nearing the point where rates were restrictive enough. Markets now expect the Fed funds rate to peak around 5.26% in July from the current range of 4.5% to 4.75%. This puts pressure on precious metals, while the dollar strengthens across the board, with the most pronounced buying activity against the antipodean currencies. The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, is moving towards 3.8%, a level not seen in more than a month. Traders now look ahead to US retail sales data on 1:30 pm GMT for more clues about the economy. Higher than expected reading would give Fed more reasons to continue on a hawkish path and put further pressure on bullion.

From a technical point of view, gold prices pull back sharply after buyers failed to break above major resistance at $1875. Price is currently approaching crucial support at $1830, which is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave started in March 2020. Should break lower occur, sell-off may accelerate towards psychological support at $1800.



Gold price dropped over 1.0% during today's session and is trading at levels not seen since early January as fresh US inflation figures bolstered bets that Fed will stick to its tightening path in order to bring down inflation. Also latest Fed commentary also showed that policymakers largely backed more rate increases, though Fed's Harker said the Fed was nearing the point where rates were restrictive enough. Markets now expect the Fed funds rate to peak around 5.26% in July from the current range of 4.5% to 4.75%. This puts pressure on precious metals, while the dollar strengthens across the board, with the most pronounced buying activity against the antipodean currencies. The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, is moving towards 3.8%, a level not seen in more than a month. Traders now look ahead to US retail sales data on 1:30 pm GMT for more clues about the economy. Higher than expected reading would give Fed more reasons to continue on a hawkish path and put further pressure on bullion.

From a technical point of view, gold prices pull back sharply after buyers failed to break above major resistance at $1875. Price is currently approaching crucial support at $1830, which is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave started in March 2020. Should break lower occur, sell-off may accelerate towards psychological support at $1800.

US dollar strengthens across the board during today's session.

 

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Tesla's 2023 Recal of Full Self-Driving Targets a 'Fundamental' Flaw​

More than 360,000 vehicles will receive an over-the-air update after the US government said that Autopilot can be dangerous in some driving situations.

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NZDUSD​

• Indices from Asia-Pacific traded mostly higher at the beginning of a new week. Nikkei and S&P/ASX 200 traded 0.1% higher, Kospi added 0.2% and Nifty 50 dropped 0.1%. Indices from China traded up to 2% higher.​
• DAX futures point to a higher opening of the European cash session today.​
• US index futures trade little change compared to Friday's cash closing prices.​
• US and Canadian traders are off for holidays today so liquidity conditions in the afternoon may be thinner.​
• US Secretary of State Blinken said that US has information suggesting that China is considering providing Russia with ammunition and lethal weapons for war in Ukraine.​
• Bloomberg reports that meeting between Blinken and his Chinese counterpart Wang Yi over the weekend was rocky and far from encouraging.​
• People's Bank of China left 1- and 5-year prime lending rates unchanged at 3.65 and 4.30%, respectively. Decision was in-line with expectations.​
• According to Reuters report, People's Bank of China has reportedly asked domestic bank to slow issuance of loans this month.​
• North Korea fired two ballistic missiles today. UN Security Council will convene at 8:00 pm GMT today to discuss the situation.​
• Cryptocurrencies are trading mixed today with major coins experiencing rather small moves. Bitcoin drops 0.2%, Ethereum trades 0.3% higher and Dogecoin adds 0.4%.​
• Energy commodities trade mixed - oil gains 0.8-0.9% while natural gas pulls back around 2%.​
• Precious metals benefit from USD weakening at the beginning of a new week - gold and silver gain around 0.1% each while platinum adds almost 0.5%.​
• AUD and JPY are the best performing major currencies while CHF, EUR and USD lag the most.​

NZDUSD bounced off the 0.62 support zone last week but failed to launch a major recovery move. There is a lot of uncertainty around NZD as RBNZ is set to announce rate decision this week (Wednesday, 1:00 am GMT) and some see a chance for rate hike cycle pause amid recent floods and cyclone hit.​