09/01/2023

General Comment

The sign in the international economy is considered positive based on announcements, news, and market reactions. The week ended with the announcement of the labor market in the United States, a result that was above expectations and estimates and therefore had a positive impact. Expectations were for 200K new jobs in December while the result was 223K new jobs. This fact, combined with the positive result for private sector employment on Wednesday, keeps alive the flame of optimism that finally the expected slowdown in the economy will not be long in duration and intensity. A counterweight to that positive market psychology was set up Wednesday after the Fed’s minutes were announced. Through the minutes we learned that the Central Bank of the United States welcomes the recent decrease in inflationary pressures but remains attached to the program of raising interest rates, considering that the problem of inflation is still active.

The result of the above was increased volatility in the US equity markets but Friday’s catalytic rise gave a positive sign. On the contrary, European markets and the United Kingdom had much higher profits, as we will see in detail below. The great de-escalation of inflation in the Eurozone has raised some hopes that the problem is starting to be dealt with drastically and therefore the European Central Bank will not be so tough in its decisions.

In addition to the economic announcements and the possible decisions of the central banks, the world news turns to the problem that the pandemic has created in China, the possible new mutations that can complicate the problem worldwide, and the ongoing war in Ukraine with the consequences that it has created for some time.

As for the foreign exchange market, the US dollar had a small strengthening, the euro had small losses while the sterling recovered marginally. Also notable was the weakening of the yen. Gold continued its upward rally but the big loss in oil prices created a lot of sense in the commodities markets. The de-escalation of the bond yields was also impressive, with the US 10-year falling to 3.56%. Finally, the cryptocurrency market has had a marginal boost but nothing to impress the community.

The week that just started contains the announcement of inflation in the United States for December and this is expected to be the key event that will concern the markets. Inflation is also announced in China, while announcements in the Eurozone regarding industrial production and the unemployment rate also stand out.

SP500

The US SP500 index closed last week with upward trends, at 3,895 points and gains over 1.40%. Friday’s upward rally was enough to bring about this result since until then the index had stabilizing trends. The week was marked by the announcement of the Fed’s minutes on Wednesday, where it appeared that the bank intends to stick to the goal of combating high inflation through interest rate hikes, which does not favor equity markets. Another important development was the robustness of the US labor market, as seen through the announcement of the NFPs on Friday. The big rise in the index began with this announcement but accelerated a little later when the service PMI indicator was announced, below 50 and well below the 55 estimated by the markets. The signal that was given was that there is nervousness and relative pessimism, so perhaps the Fed will appear more conciliatory in its decisions, so the upward rally continued until the end of the week. It is easy to see that exceeding the index above 4,000 points could improve the climate quite a bit. On the contrary, nervousness will probably prevail if there is a shift below 3,760 points. We prefer long positions this week.

DAX40

The German DAX40 index moved up sharply last week, closing at 14,610 points, with gains like 5%. The German equity market saw inflation rapidly decline with relief after the harmonized consumer price index was 9.6% in December from 11.3% in November. The decrease in inflation was also seen through the rate for the entire Eurozone where the de-escalation was from 10.1% to 9.2%. The positive market reaction was built around the perception that anti-inflation measures are paying off, so the ECB will not make extreme moves to reduce liquidity. There is also optimism on the European continent that the energy crisis will not have great consequences, due to good weather conditions that keep energy reserves at very high levels. The rest of the news for Germany was mixed: the trade balance improved sharply in November, above 10 billion euros, but retail sales and factory orders fell. Technically speaking, the index has approached 14,700 points which is a high value for many months and if it is above these levels, we may see an even more positive climate so we prefer long positions this week.

FTSE100

The British FTSE100 index moved significantly upward last week, closing at 7,699 points, gaining more than 3.30%. The overall sentiment on equity markets was positive, especially on the European continent. The FTSE100 was influenced by the job market announcements in the US, which somewhat softened pessimistic views of a global strong (in intensity and duration) recession. This news is combined with the trend of rapid de-escalation of inflation in several economies but also with the recent rift caused by the Bank of England after the vote to raise interest rates, it seemed that there was no unanimity. The index managed to close above 7,700 points for the first time since the summer of 2019 and it is obvious that investment sentiment has improved. In May 2018, the highest price of all time was recorded at 7,903 points and, logically, many investors see this price as their next target. We may try long positions for one more week.

Gold

Gold was bullish last week, with futures closing at $1,870 and gains close at 2.20%. The positive climate in most markets is dragging gold into an upward rally. Let’s remember that the price was just above $1,600 last October. The labor market in the US and trends in de-escalation in inflation worldwide are factors that contributed to the rise. The US dollar has also made a significant contribution, which has been weakening for about 3 months. The upward rally, however, takes new forces from China, which is the world’s largest gold consumer. The opening of borders after the lifting of restrictions on the pandemic, the positive climate that is set to prevail in the country due to the Chinese New Year holidays on January 22, and the encouraging reports of the people’s Bank of China for growth, have reignited the market for good. The price is very close to the significant support of $1,882 which is the highest price for several months and a price that has several times stopped the rise in gold prices. So, if a solid breakout is made above these levels, many investors will look with a good eye even the $2,000 and we may try long positions this week.

US Oil

Last week’s oil futures closed at $73.65, with losses approaching 8.50%. In the middle of the week, prices were strongly influenced by the announcement of the Fed’s minutes and the perception of continuing tight monetary policy, and global concerns about the new mutations of the pandemic. Both of these factors can potentially hurt oil demand. The climate improved somewhat from Thursday onwards and more on Friday due to the reduced inflation announced in the Eurozone and mainly due to the strength of the labor market in the US as shown in the results of the NFPs. Inventories in the U.S. on Wednesday were announced to have risen by more than 3 million on a weekly basis and showed a restriction in consumption. A piece of news that somewhat restrained prices, was the announcement of the occasional shutdown of the Colonial Pipeline in the US due to planned maintenance, but it is not news of significance to change things. If the price of oil continues to fall, on a technical level the supports are at $72.45 and $70.08. Especially the last one support needs special attention because it is the lowest price for oil for over a year. In any case, we prefer short positions this week.

EURUSD (Euro vs US Dollar)
Last week, EURUSD opened at 1.0695 and closed at 1.0643 and so it was bearish. The drop in the week was noticeably greater after the pair even found itself at 1.0480 but Friday’s explosively upward reaction limited the losses. The US dollar went through several phases that had to do with the announcement of the Fed’s minutes and the announcements of the US labor market. The sign was ultimately positive for the US currency as the view that the tough policy of raising interest rates will prevail prevailed marginally. A similar feeling exists in the Eurozone, based on the statements of European officials, but the large de-escalation of inflation (9.2% in December compared to 10.1% in November) somewhat slowed the perception of the markets for a tough ECB. The negative for the US economy is the small drop in PMI indicators, while on the contrary, news from the European continent was in a more positive mood: PMI indicators were above market estimates and retail sales rebounded. The price zone near 1.0740 continues to remain the strongest resistance if the rise of the pair continues. We may try buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Almost unchanged was the previous week for GBPUSD, which opened and closed in the 1.2085 – 1.2090 price zone. The pair performed an impressive rally on Friday that offset all the losses it had during the week. The labor market in the United States and the negative result of the PMI indicators significantly weakened the dollar, which had lots of losses in the last hours of the week. The PMI indicators did not have a positive effect in the United Kingdom either, but it seems that markets are valuing the results more than the United States at the moment. But economic news will return to the UK this week after the results on British GDP, industrial production, manufacturing, and trade balance will be announced. A positive step for the uptrend was the return of the pair above the milestone value of 1.20 but more rise, perhaps above 1.23, will be needed to consolidate this trend. We may try buy positions this week.

USDJPY (US Dollar – Japanese Yen)

The previous week was bullish for the USDJPY, opening at 130.87 and closing at 132.07. The rise in the week was significantly higher because the exchange rate was even on the outskirts of 135, but the weakness that the dollar showed on Friday, combined with the de-escalation of bond yields, brought about this result. Japan’s currency has returned to its familiar weakness even though the central bank’s interventions in relation to the bond market were seen by many as a sign of a change in monetary policy. But on Wednesday, Bank of Japan Chief Hirohiko Kuroda largely changed those views because he said monetary policy would not change and that quantitative easing would continue until targets will be met. Any move towards the price range of 135 is considered a positive sign for the continuation of the uptrend. We prefer buy positions this week.

EURJPY (Euro – Japanese Yen)
Bullish was the last week for EURJPY which opened at 140.35 and closed at 140.58. The euro had a slight weakening trend, especially after the announcement of reduced inflation in the Eurozone, which gives the impression to several analysts that the ECB will soften its stance on interest rates, perhaps fearing a recession. Japan’s currency, on the other hand, entered a new weakening phase following Kuroda’s statements on the continuation of loose monetary policy by the Bank of Japan. The aggregation helped the euro more and so the exchange rate had a slight rise, which can continue and accelerate if we see prices above 141.50. Under these circumstances, we may try buy positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was bearish for EURGBP which opened at 0.8837 and closed at 0.8801. While the sterling had no particular reasons for strengthening since there were no developments either in relation to economic news or in relation to any statements from officials, the euro had strong news that weakened it slightly. The main reason was the de-escalation of inflation in the Eurozone which may put the ECB on second thoughts about the continued increase in interest rates. It was the first corrective week after four consecutive upward weeks and for the upward trend to return it needs to be exceeded 0.8880. By contrast, a drop below 0.8770 could widen the correction. Sell positions is our selection for the current week.

USDCAD (US Dollar – Canadian Dollar)

Last week was bearish for USDCAD, which opened at 1.3529 and closed at 1.3440. It was the third consecutive downward week for the exchange rate, against the marginal strengthening of the US dollar and the heavy pressure of oil prices. The Canadian dollar strengthened mainly due to the strong image that the country’s economy displayed in its labor market. Estimates said there were 8K new jobs in December, but the result was impressive: 104K new jobs were created and the unemployment rate fell to 5%. If this mini-downward trend continues, it will meet the support of 1.3220. But if the U.S. dollar shows a strengthening trend, a return above 1.37 could reverse the sentiment. We may try sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF moved upward last week after the opening price was at 0.9230 and the closing price was at 0.9277. In addition to the developments with the US dollar caused by the announcement of the Fed’s minutes and the announcement of the US labor market, we also had important news from the Swiss economy. The country’s inflation rate fell in December to 2.8% from 3% the previous month, a rate that is quite low compared to rates in Europe and the United States. Such low inflation certainly creates a climate that the Swiss bank has no particular reason to make new interest rate increases and thus the country’s currency weakens. By Friday we had seen several higher prices but the losses suffered by the dollar that day limited them. The price range of 0.92 is strong support and so any breakout leads to thoughts of a further fall. An upward reaction will have more luck if we see prices above 0.94. We prefer sell positions this week.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, which opened at 0.6793 and closed at 0.6875. The US dollar may have gone through several phases this week, but news from China gave a big boost to the Australian dollar, raising optimism for the country’s economy. China said it would lift restrictions on coal imports from Australia. These restrictions were put in place about two years ago, and if we recall how Australia’s economy is heavily dependent on trade with China, we understand how important this event was. The rest of the news was almost indifferent as the PMI indicators announced in Australia and China were mixed. The pair is already very close to the significant resistance of 0.69, which if broken up could lead to the 0.70 range. We prefer buy positions this week.

Bitcoin

Last week, Bitcoin closed at $17,119 with gains exceeding 3%. We have had several weeks to see such an upward movement, but it is doubtful whether it is due to the cryptocurrency market itself. Most markets and especially equity markets had upward trends and due to the high correlation, that has been created between them and cryptocurrencies, it is not excluded that the rise we see is the result of other markets. There is a resurgence in the demand for some altcoins such as Solana and Cardano in recent days and as long as no new negative news of the Luna/Terra or FTX type is heard, the situation seems to be normalizing. “No news, good news.” A small source of nervousness is perhaps from Genesis, a cryptocurrency lending company, which said it would cut 30% of jobs, after a 20% cut recently. Of course, a larger and more decisive rise is needed, perhaps well above $18,400 for Bitcoin to escape the misery that has beset it for several weeks but we’re keen to try long positions this 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.