02/01/2023

General Comment

The year of 2022, is leaving behind important developments for the financial markets that may mark 2023, without excluding the consequences that will be borne in the coming years. The war in Ukraine has created a major energy crisis, with oil and gas prices skyrocketing, but this crisis has not yet hit the economies as much as many initially assumed, perhaps because there has been more pessimism than the situation imposed, and perhaps because the mild winter so far, especially in Europe, has favored price restraint.

The other big problem that has arisen is the high inflationary pressures in the world’s major economies. This forced most central banks to make repeated increases in interest rates to control prices and restrain their growth. The main side effect of these moves is expected to be a slowdown in the growth of the global economy or even a generalized recession. This is therefore an ambiguous situation since high inflation eats away the incomes but the remedy for dealing with it, which is the increase in interest rates, creates recessionary pressures. A bra-de-fer or a scale if you prefer. The Golden Ratio, which is doubtful if it exists, will be determined in one way or another by the central banks. Already the Fed, the ECB, the Bank of England, and many other central banks have raised interest rates significantly. The recent report of the International Monetary Fund, however, speaks of a recession in the main economies of the World (USA, China, and E.E.) and a general recession in 1/3 of the world’s economies.

All these developments were reflected in the performance of the markets. Equity markets suffered significant losses while the dollar strengthened significantly during the year, even if there are strong weakening trends from the autumn onwards. Commodity markets had a mixed face but indisputable facts were a large increase in bond yields and significant losses in almost all cryptocurrencies.

As for the last week of the year, market volatility was particularly low due to the lack of interest from the investment community and the lack of regular economic news. Stock indexes had slightly downward trends, the US dollar continued to have losses, gold and oil had mild gains, bond yields continued their upward trend with the US 10-year closing at 3.88% and cryptocurrencies continued dropping.

The first week of 2023 is expected to stir investor interest, not only because most of the planet is returning to normality after the festive season but also because there are going to be important economic announcements. The announcement of the labor market in the United States on Friday (NFPs), the announcement of inflation in the Eurozone on the same day, and the announcement of the Fed’s minutes (FOMC) on Wednesday stand out. In second place stand out the announcements of PMI indicators, retail sales in the Eurozone and Germany, and ADP employment in the USA.

SP500

With mild corrective trends, the US SP500 index closed last week, at 3,839 points, and losses close to 0.15%. The index during the week dropped below 3,800 points but from Thursday onwards, the upward trends prevailed. The climate showed to be improved without obvious causes based on macroeconomic results or statements by officials from the government or the Fed but because of the news coming from China, concerning the pandemic and the lockdown. Also, traditionally at the end of the year, there is euphoria either because of the days or because of the closing of the year in many economic organizations. The announcements of Fed minutes on Wednesday and new U.S. jobs (NFPs) on Friday are expected to stir investor interest and increase volatility. On a technical level, below 3,765 points, nervousness will be evident but above 3,860 and even more above 3,890 points, part of the optimism comes back. We prefer short positions this week.

DAX40

The German DAX0 index moved slightly lower last week, closing at 13,924 points, with losses of 0.13%. The situation in Germany and many European Union countries in general so far does not look as gloomy as many thought either because the scenarios that were circulating were too pessimistic or because the good weather conditions (so far) in Europe, have limited the effects of the energy crisis. After the heavy losses until the middle of last year, the DAX40 has had strong recovery trends from October onwards but since the beginning of December, the pressures and correction have returned. A downward breakout below 13,790 points will probably have extended this correction, but an upward jump above 14,160 points may restore the optimistic mood. We may try long positions this week.

FTSE100

The British FTSE100 index declined last week, closing at 7,452 points, with losses of almost 0.30%. The index has significant difficulties approaching the zone of 6,690 points, which is a high of several years. The specter of recession is visible for the UK economy, but the latest discrepancy at the Bank of England has raised hopes that interest rates will not end up as high as expected. While with the new year, the economic news returns to the markets, for the UK economy only the PMI indicators stand out. A reaction above 7,550 points will improve the climate for the FTSE100 and a downward turn below 7,300 points will put to the test the big bullish movement that has been going on for about 2.5 months. We prefer long positions this week.

Gold

Gold was bullish last week, as next month’s futures closed at $1,830 and performed gains of more than 1.30%. The dollar that continues to lose ground is a key reason for the rise in gold prices. The investment climate that has worsened, through pandemic fears in China and geopolitical risk through the ongoing war in Ukraine, is also favoring low-risk investment options such as gold. The expected economic news of the week, and especially the minutes from the Fed and NFPs in the US, will set a tone for the course of gold in the near future. $1,841 is strong resistance and a high price of about 6.5 months and an upward breakout will definitely be a positive event for gold prices. Long positions is our selection for the current week.

US Oil

Last week was bullish for oil with next month’s futures closing at $80.36, with gains approaching 1.35%. The week had during the holidays season, surprisingly increased volatility. Oil found itself above $ 81 on Tuesday and below $ 77 on Thursday. China, the world’s largest oil consumer, is currently broadcasting contradictory messages. On the one hand, there is an easing of the restrictive measures for the pandemic, but at the same time, there are rumors of a huge number of cases and great pressure on the country’s hospitals. The investment community is also weighing Russia’s statements that from February 1 onwards, it will not supply oil to those countries that adopt the price cap. As for OPEC and its possible actions, the recent decision to cut production by 2 million barrels per day has been made, seems that enjoys the support of members, as at least was shown through the statements of the Saudi Energy Minister. Most likely, however, oil prices would be higher if we did not have mild weather conditions prevailing in many parts of the world and especially in Europe. If prices are above $81.20, we may see an upward rally in growth but a shift below $76.70 will stimulate the downward scenario. We may try long positions this week.

EURUSD (Euro vs US Dollar)
Bullish was the last week for EURUSD which opened at 1.0632 and closed at 1.0705. The exchange rate continued its upward course, stepping on the upward trend that has been going on for about three months, even with very low volatility due to the holidays. Because of the lack of economic news and statements from an official of the two economies (the US and the Eurozone), the markets moved based on the assessment of the next moves of the central banks. The Fed has already begun to reduce the rate of interest rate increases since December due to relative de-escalation of inflation and a recession fear. In Europe, things are different since inflation persists at high prices and the interest rate increases so far have not been particularly high concerning the severity of the problem. New U.S. jobs and Eurozone inflation announced on Friday will provide a better picture for the investment community. From a technical point of view, the price range at 1.0740, remains the most important resistance for the continuation of the upward course of EURUSD so we may try buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the previous week for GBPUSD, which opened at 1.2046 and closed at 1.2097. The exchange rate has recently diverged from the other exchange rates that contain the US dollar. The dollar has been weakening for a few weeks, but the exchange rate has been falling, following the latest rate hike by the Bank of England, which was accompanied by a discrepancy between the votes because two out of nine votes were against the increase. But it seems that this information has already been consumed by the markets and the GBPUSD rebounded last week, stepping on the weakness of the dollar. Sterling received significant help from the rumors that circulated that the new government is going to support businesses in 2023, in addition to the aid that has already been announced and that expires next March. If the recovery continues above 1.23 and especially if the multi-month resistance of 1.2450 is approached then the upward trend will have returned for good. But if there is a downward split of 1.20 then the downward trend becomes the most likely scenario so we prefer sell positions this week.

USDJPY (US Dollar – Japanese Yen)

Last week was bearish for USDJPY, opening at 132.86 and closing at 131.11. For a few weeks now, in addition to the fluctuation of the US dollar and bond yields, news has been coming from Japan that powerfully moves the exchange rate. After the 10 – year bond window widened from -0.25% – 0.25% to -0.50% – 0.50%, a piece of new news came. The Bank of Japan made major bond purchases from midweek onwards, and while this move should normally weaken the yen, there is a strong rumor that such moves herald a change in loose monetary policy in Japan, unlike most of the world’s economies. This is currently denied by Bank of Japan executives but the rumor remains in addition, the yen is strengthened due to the negative investing sentiment that has been created with the latest developments of the bad image of the pandemic. Below 130 the downtrend is expected to have formed more while a dynamic reaction above 134.50 is needed, at least in the first phase, to establish a reverse of this situation. We may try sell positions this week.

EURJPY (Euro – Japanese Yen)
Last week was bearish for EURJPY which opened at 141.23 and closed at 140.38. The euro had a relative strengthening, but the greater strengthening of the yen pushed the exchange rate into a downward channel. The latest moves by the Bank of Japan (massive bond buying and widening of the 10-year bond price window) are interpreted by many analysts as precursors of monetary policy change. In addition, investment sentiment has been negative in recent days due to fears of the spread of the pandemic following the news coming from China. A continuation of the movement below 140 will further strengthen the downward profile of EURJPY and we prefer sell positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bullish for EURGBP which opened at 0.8810 and closed at 0.8850. Sterling had a better picture than in previous weeks but that was not enough to outweigh the positive momentum that the euro has at this time due to imminent new interest rate hikes by the ECB. The Eurozone also has a better performance than the gloomy profile many analysts had predicted either because of excesses or because of the warm climate in Europe that makes the energy crisis milder. If the rising continues above 0.90 then it will be a clear upward trend so we may try buy positions for one more week.

USDCAD (US Dollar – Canadian Dollar)

Last week was bearish for USDCAD, which opened at 1.3572 and closed at 1.3540. The volatility of the exchange rate was reduced and so its drivers were the weakening of the US dollar and the strengthening of oil prices that in the majority of cases favor the Canadian currency. In the week that has just begun, we return to the economic news about the two economies, with the US labor market (NFPs) and the unemployment rate in Canada being the catalysts. In the event of a continuation of the weakness of the US currency, the exchange rate could be in the region of 1.32, and in case the situation changes to a solid upward breakout above 1.37, could return it to its uptrend. We may try buy positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF moved lower last week after the opening was at 0.9315 and the closing was at 0.9246. In addition to the continued weakening of the US currency, the Swiss franc strengthened on the one hand because the important KOF indicator was announced higher for December, and on the other hand due to the deterioration of economic sentiment that was observed last week, which favors low-risk options and investment safe havens such as the Swiss currency. The price zone in which the exchange rate is located is critical because it is a low of about 9 months and so a possible break could even lead to 0.90 in a reasonable time. Case of recovery will begin to have a base above 0.9350 and we may try buy positions this week.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, as it opened at 0.6721 and closed at 0.6808. The exchange rate has had a remarkably upward week when we consider that the mild weakness in the U.S. dollar was not able to give that much of a boost and that the situation in China is quite complicated. More specifically, China has eased the restrictive measures for the pandemic to a satisfactory extent, but the images from the country with the many cases and some reports from Western media about thousands of deaths every day, have worsened the climate and the surrounding atmosphere. In addition, the results of the PMI indices as announced in China, had a disappointing effect, especially the non-manufacturing index which was unexpectedly found at 41.6, given that markets were expecting a price above 50. A jump above 0.69 will further consolidate the upward trend that has been going on for about 2.5 months for the exchange rate. In the event of a re-strengthening of the US dollar, a shift below 0.6620 may signal a further fall. In any case, we prefer sell positions this week.

Bitcoin

Last week, Bitcoin closed at $16,615 with losses close to 1.30%. The reduced volatility for cryptocurrencies continued for another week, which indicates a lack of special interest. The recent wounds in the industry have not yet healed: the case of Terra/Luna, Celsius, and FTX were events that shook the cryptocurrency investment community which is looking for a way and a reason to get back on its feet. Expensive money and reduced liquidity, as a result of the monetary policy exercised by many central banks to combat inflationary pressures, do not favor cryptocurrencies, as increased risk options need increased liquidity and positive investment sentiment. Therefore, the price range close to $15,500 which is the most important support for Bitcoin remains critical. A clear improvement in the climate is needed either generally in international economies or more specifically through positive news from the world of cryptocurrencies for there to be reasonable hopes of price recovery. We prefer short positions for one more week.

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.