24/04/2023

General Comment

Last week did not contain any major economic announcements or developments that could bring new data to the perception of markets. Apart from Friday, when the PMI indicators were announced, the rest of the days were limited to statements by central bank executives and speculating markets on the next moves in terms of interest rates and monetary policy.

The United States has had modest economic results, and combined with hawkish statements from Fed officials, it has fostered a mood of gloom that a recession scenario may be confirmed. The decision on interest rates in the United States will be made on May 3 and the most likely scenario is to decide on a 0.25% increase.

In Europe, the climate is more optimistic based on the macroeconomic results we have seen, but most statements by European Central Bank officials converge to the fact that there is a scenario of a new increase in interest rates by 0.25% or even by 0.50% on the table. Christine Lagarde appeared optimistic, as her statements stressed that she believes that the de-escalation of inflation will continue.

As far as the geopolitical and geostrategic field is concerned, there is generally calm, but the new global problem is called Sudan. U.S. citizens were evacuated from Khartoum through a U.S. military operation, while the U.S. embassy was evacuated due to fierce fighting raging for a second week in a row.

As far as the results of the markets were concerned, a mild correction took place in the stock indices of the United States, while on the contrary, the European indices moved profitably. Corrective trends also dominated the commodity market with gold and oil suffering significant losses. In the foreign exchange market, we saw a slight upward reaction for the dollar but not enough to create anything impressive. Volatility was at low levels for most currencies. Bond yields continued to move upward with the U.S. 10-year closing Friday at 3.56%. Finally, strong pressure was placed on Bitcoin and most currencies, as we will see in detail below.

The current week is dominated by GDP announcements in the United States and Eurozone. We will therefore find out what state the world’s two major economies are in and whether the likelihood of a recession is approaching or moving away. Important also are the announcements of inflation in the Eurozone, Japan, and Australia and the announcement of durable goods orders in the United States.

SP500

With mild bearish trends, the US SP500 index closed last week, at 4,133 points and losses of 0.12%. The week started with an uptrend that brought the SP500 very close to the important resistance of 4,200 points. Afterward, we saw corrective pressures that were caused mainly by the fears of a possible recession and some statements that indicated a hawkish stance by the Fed. On Friday, the positive PMI results balanced the negative sentiment and so the index managed to close with light losses. The current week is important due to the important economic announcements concerning the US economy: GDP on Thursday and durable goods orders on Wednesday. Moreover, many important and big companies are going to release first-quarter earnings. Coca-Cola, General Motors, Microsoft, McDonald’s, Visa, Boeing, Amazon, and Intel are some of them. The volatility is expected to increase and since the investing sentiment has turned negative during the last few days, we consider to try short positions this week.

DAX30

The German DAX40 index was bullish last week, closing at 15,882 points, with profits approaching of 0.50%. As investors are still trying to recess the chance of a possible recession, the macroeconomic results and the statements by the ECB officials provide helpful evidence. Another interest rate hike should be considered a high-probability case in the ECB session in May. The possible increase rate is a factor that may affect the European markets significantly; both 0.25% and 0.50% cases are on the table. The signs of a quick de-escalation of the inflation though, provide a tone of optimism. The producer price index in Germany dropped by 2.7% in March (on a monthly basis). Also, the composite and the services PMI performed better than expected while there was a decline in the manufacturing sector. As DAX490 approached the all-time high zone of 16,290 points, some corrective trends may appear so we prefer short positions this week.

FTSE100

The British FTSE100 index moved upward last week, closing at 7,914 points, gaining more than 0.50%. It was the fifth profitable week in a row for FTSE100 after the big drop that took place in March. So, it is obvious that the sentiment has returned positive and the concerns about a heavy recession have been limited. There was an inflation decline last month and although the rate is still high, many analysts believe that the decline will carry on quickly. Many important announcements were released for the UK economy last week. The unemployment rate rose marginally in March to 3.8% from 3.7% in February and retail sales dropped by 0.9%. Composite and services PMI indicators had good results but the sector of manufacturing suffered losses. It won’t be easy for FTSE100 to exceed 8,000 points without significant positive developments so we may try short positions this week.

Gold

The previous week was slightly bearish for gold, with the next month’s futures closing at $1,993 and losses close to 1.20%. Most of the losses for gold occurred on Friday after the announcements of the PMI indicators worldwide. The decent performance of PMIs improved the sentiment and developed a perception that a possible heavy recession is not the most likely scenario. Of course, such changes in sentiment have happened many times lately and will happen many times based on the released data. The mild strengthening of the US dollar was another weakening factor for the gold prices last week. Moreover, the bond yields also rose last week so a gold competitor in the universe of safe-haven assets took advantage. As we approach the Fed’s decision about the interest rates (beginning of May), the statements and the market rumors may guide the gold prices. The announcement of the US GDP on Thursday will be also a critical factor. If gold breaks out the support of $1,980, it may develop a stronger downtrend so we may try short positions this week.

US Oil

Last week was heavily bearish for oil with next month’s futures closing at $77.90, with losses more than 5.70%. There were certain concerns last week regarding the oil demand. First of all, the markets’ sentiment turned bearish in the US and most of the stock indices suffered losses. Also, according to Energy Information Administration data released on Wednesday, gasoline stockpiles unexpectedly rose. There were three other reasons though, coming from non-western countries. Reuters suggested that China may reduce its portion for refined oil product exports due to the improvement in domestic demand and due to a possible reduced need to turn its economy to oil products. Also, trading and shipping sources have reported that oil loading from Russia’s western ports in April is expected to exceed 2.4 million barrels per day, which is the highest level since 2019, before the beginning of the Ukrainian war. Finally, Petroleum production in Mexico stabilizes after years of decline and the production starts to increase again. It means that the supply turns higher while the demand expectations get limited. The next support for oil is $76.72 and below that level, the price area of $72.25. We prefer short positions this week.

EURUSD (Euro vs US Dollar)
Last week was neutral for EURUSD as it opened and closed around 1.0990. The week began in decline with the exchange rate falling to the price range of 1.09, based on the strengthening of the dollar. In the following days, however, upward trends prevailed and thus the EURUSD closed where it had opened just below 1.10. Things are starting to clear up about the actions of central banks. The United States will likely raise interest rates by 0.25% in early May, and the European Central Bank will likely follow with a similar or even larger increase. PMI indicators were positive for the U.S. and Eurozone economies, while initial jobless claims in the United States showed a slight increase. The key will be the US and Eurozone GDP announcements in the week ahead. If the exchange rate manages to break with stability the resistance of 1.10, then perhaps new upward momentum will develop and therefore we may try buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was the last week for GBPUSD, which opened at 1.2410 and closed at 1.2441. Inflation in the UK was announced for March at 10.1%, down on the previous month’s 10.4% but still extremely high and in double figures. This certainly gives the impression to the investment community that the Bank of England still has a way to go in raising interest rates and tightening monetary policy to combat high inflationary pressures. But statements by central bankers such as those of Catherine Mann do not move in that direction. Catherine Mann said expectations of a de-escalation in inflation were driving votes to lower interest rate rises. This is the main reason sterling has not been able to develop a strong upward momentum and is finding it difficult to break out of the resistance of 1.2550. A further weakening of the dollar could change things so we’d prefer buy positions this week.

USDJPY (US Dollar – Japanese Yen)

USDJPY moved upward last week, opening at 133.81 and closing at 134.11. The inflation in Japan continues to be relatively elevated relative to the country’s data but there are currently no signs or some statements suggesting that a change in loose monetary policy is imminent. In that sense, the yen continues to weaken and a slight strengthening of the dollar towards what we saw last week led to an upward movement in the exchange rate. This rise also advocates a slight increase in bond yields. Japan’s macroeconomic results have been positive, and this may have prevented a further fall in the yen. More specifically, industrial production increased by 4.6% in February, while imports, exports, and the trade balance improved. The announcement of the US GDP will affect USDJPY and if the dollar loses ground, then we may see a downward turn towards 130. Our selection for the current week is to try sell positions.

EURJPY (Euro – Japanese Yen)
Bullish was last week for EURJPY which opened at 147.01 and closed at 147.38. Rumors and statements from European Central Bank officials about a new increase in interest rates by 0.25% or even 0.50% strengthen the euro. On the other hand, there are no signs that Japan’s loose monetary policy and negative interest rates are going to change, at least any time soon. Consequently, upward momentum has developed for the exchange rate, which is moving at a high price of about 8.5 years. Just because the long-standing highs are difficult to break out, we may see bearish reactions and therefore we will prefer sell positions this week.

EURGBP (Euro – Great Britain Pound)

Last week was slightly bearish for EURGBP, which opened at 0.8841 and closed at 0.8831. The euro and the sterling, due to the high inflationary pressures facing the economies of the Eurozone and the UK respectively, are on the rise this period as new interest rate increases are expected from central banks. Since the beginning of the year, therefore, the rate has been on a sideways trend moving into a tight range from 0.87 to 0.8980. At the moment there is no way to escape through the narrow channel and so we would prefer to stay out this week without risking any position.

USDCAD (US Dollar – Canadian Dollar)

Heavily bullish was the last week for USDCAD, which opened at 1.3361 and closed at 1.3539. The U.S. dollar had a slight rise, but the major pair’s movement came mainly due to the weakness of the Canadian dollar. Inflation in Canada was announced for March at 4.3%, down from February’s 4.7%, and so the perception among markets was that there would hardly be any new rate hikes by the country’s central bank. Bank of Canada chief Tiff Macklem said in the news conference that interest rates might need to stay high for longer to get inflation back to 2%. This does not sound like new interest rate hikes, and so the country’s currency reacted negatively. The weakening of the Canadian dollar was also helped by a big drop in oil prices that we saw last week. The main driver for the exchange rate, however, remains the US dollar which, if it weakens in the week ahead, we may see the exchange rate return to its bearish course and so we may try sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF had a downward course last week as the opening price was at 0.8939 and the closing price at 0.8922. Switzerland did not have any economic announcements or any developments in relation to its economy and monetary policy, so the drop we saw last week reflects the continuation of the downward trend that has taken place since the end of February. It was the seventh down week in the last eight weeks. This week the trade balance is announced in Switzerland, but the dominant event is the announcement of the US GDP which will give new fuel to the path of the dollar. Given that the exchange rate remains below the milestone value of 0.90, the downward movement may continue and therefore we will prefer sell positions this week.

AUDUSD (Australian Dollar – US Dollar)

Last week, Bitcoin closed at $27,596 with important losses of more than 9%. It was the first strongly bearish reaction for Bitcoin after the uptrend that has been developed since the beginning of the current year. The crypto universe followed the bearish trend of the traditional markets such as the stock indices but the losses was bigger. Furthermore, when the traditional assets recovered partially, cryptos continued with new losses. Many analysts from the cryptos ecosystem however insist that it was a healthy correction after a profitable course that produced profits of almost 100% for many cryptocurrencies. The point is that according to Cointelegraph, on April 19 there was the largest number of long liquidations of 2023 so far and as long as the corrective trend continues in the current week (although the price is below $27,500) we consider to try short positions.

Bitcoin

Last week, Bitcoin closed at $30,330 with important profits of more than 7%. Obviously, a key reason for this rise was the overall positive sentiment prevailing in the markets following the rapid decline in inflation in the United States. This gave the impression that monetary policy would not be as tight and that there will be sufficient liquidity to support high-risk options such as cryptocurrencies. The launch of the long-opposed “Shapella” upgrade, which went live on Wednesday, was also a major factor for the bullish trend of the cryptos. “Shapella” jointly refers to two upgrades, Shanghai and Capella, which have unlocked withdrawals of Ethereum staked on the network at the execution layer and the consensus layer according to Yahoo finance. Having exceeded $30,000, Bitcoin can continue to rise further so we may try long 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.