16/01/2023

General Comment

The most important news of the past week was inflation in the United States for December. The de-escalation in inflation continued after it was announced at 6.5%, well below November’s 7.1%. The market felt that the Fed would soften its stance on interest rates. Already the previous increase was 0.50% while the next one scheduled for February 1, maybe even lower, at 0.25%. The statements of officials from the United States who agreed in this direction as nominal references were made to interest rate hike of 0.25% while Jerome Powell in his speech stressed that stable prices are the basis for a healthy economy. The footprint of the rest of the announcements in the United States was positive with initial jobless claims declining and the Michigan Consumer Sentiment Index having excellent performance.

On the European continent, things are quite different. Inflation persists at high rates (even if de-escalation trends have appeared) and statements by officials from the European Central Bank, speak of a serious problem that must be addressed with tight monetary policy. The sign of the economic announcements is positive since industrial production and the trade balance in the Eurozone had significantly better prices than expected.

There is a general euphoria about the course of the global economy compared to the very negative estimates of last summer. The possibility of a recession in the economy is still there, but many analysts agree that if it occurs, it will not be long in intensity and duration. This is helped by good weather in many countries that keep energy stocks high while positive economic announcements in most economies keep the fire of hope alive and optimism high. The evolution of the pandemic is a counterweight to the above since some new mutations that have appeared may be very contagious and escape the old vaccines.

The result of all of the above was the significant strengthening of the equity indices in the main economies of the world, while the commodity markets such as gold and oil were also significantly strengthened. The US dollar weakened and currencies such as the euro and sterling strengthened. Bond yields continued their downward spiral with the U.S. 10-year closing the week at 3.50%. Finally, the rise in cryptocurrencies was significant, with Bitcoin exceeding $20,000 for the first time in several weeks.

The current week is also important, in relation to economic developments, announcements, and news. The United States is in the background (only retail sales are an important announcement) after inflation announcements in the Eurozone, the United Kingdom, Germany, and Japan dominate, and interest rate decisions in China and Japan.

SP500

The US SP500 index closed last week with a rise, at 3,999 points, and gains close to 2.70%. From Tuesday onwards, the index had strong upward trends that accelerated on Thursday following the announcement of inflation in the US. The market welcomes with relief the de-escalation of inflation, as has been evident in recent months. Such a development limits the likelihood that we will see much tougher measures from the Fed and now most analysts speak of a final high price of interest rates at 5% – 5.25%, within the year. The rest of the macroeconomic figures announced do not refer to a worrying situation: initial jobless claims last week were just over 300K while the Michigan Consumer Sentiment Index shot up to 64.6 in January. The main economic news for this week is retail sales on Wednesday. Of course, the decision on interest rates on February 1 dominates, with markets expecting a rise, of just 0.25%. A solid breakout above 4,000 points can lead to the next resistance, close to 4,100 points. In contrast, a downward turn below 3,920 points could bring back nervousness. We may try short positions this week.

DAX40

The German DAX40 index moved up sharply last week, closing at 15,087 points, with gains of 3.25%. It is a fact that European stocks have been overperforming lately. DAX40, in particular, has been on an upward rally since the beginning of October, with total gains exceeding 25%. Concerns about the energy crisis seem to be abating as warm weather on the European continent has allowed inventories to run high, even though about half the winter has passed. Also, inflation in Germany and other eurozone countries is falling rapidly, raising the possibility that the ECB will be softer in its actions. In terms of economic figures, industrial production increased by 0.2% in November in Germany which is also a positive development. If the DAX40 stabilizes above 15,000 points, it could continue upward, but with such a strong rise, some corrections that may make sense below 14,675 points are not excluded so we may try short positions this week.

FTSE100

The British FTSE100 index moved significantly upward last week, closing at 7,844 points, gaining almost 1.90%. The index has been in an impressive upward rally for about 3 months, having approached quite close to all-time highs of 7,903 points. Almost all reports spoke of a strong recession in intensity and duration in the United Kingdom. However, at the moment, at least, the announced macroeconomic figures do not refer to this. GDP had a marginal 0.1% increase in November, industrial production contracted slightly by 0.2%, manufacturing contracted by 0.5% and the trade balance seems to be picking up. The all-time highs we mentioned are the obvious target of buyers, not excluding profit vesting corrections. The announcement of inflation on Wednesday will be important information on the course of the British economy and we prefer long positions for one more week.

Gold

Gold was bullish last week, with futures closing at $1,923 and gains of more than 2.80%. The dollar, which continues its downward trajectory, largely favors the rally for gold. An important role is played by the markets ‘ impression of the actions of central banks that seem to be softer, based on the decline in inflation observed in many economies of the world. When the medicine seems to be working, you don’t increase the dose. Thus, increased liquidity relative to initial expectations is positive news for the commodity market in general, and therefore for gold. Positive is the news about growth from China as well, which is the world’s largest gold consumer. Gold’s total earnings for the past 2.5 months have reached 17% and it is logical that $2,000 looks like a realistic target. On the other hand, this 17% may be a lure for many to close their position, which can cause corrections that is why we may try short positions this week.

US Oil

Last week’s oil futures closed at $80.04, with gains approaching 8.70%. An important factor in the rise in prices is certainly the fall of the dollar since the price of oil is denominated in dollars. Also, the general euphoria about the course of the global economy has helped the view that demand may remain high. Demand has already increased significantly in China, following the easing of pandemic measures, and this is especially important when we consider that China is the largest importer of oil. Prices for the past 1.5 months, cannot move above $81.50 and if this is done it will reignite the market for further rise. A correction below $77 and even further below $73.60, may give a better chance in the downward scenario and we prefer short positions this week.

EURUSD (Euro vs US Dollar)
Strongly bullish was the last week for EURUSD which opened at 1.0637 and closed at 1.0831. All week, upward trends dominated, culminating on Thursday, when inflation was announced in the United States. The strong de-escalation of inflation gives the signal to markets that interest rates in the United States will ultimately not be significantly higher than the price they are now. This assessment weakens the US dollar in contrast to the European currency, which is strengthening because according to the statements of European officials, there is still a way to raise interest rates in the European Central Bank. The two major economies of the world, the Eurozone and the USA had a positive performance in their economic announcements last week and so the climate of optimism for their course was further strengthened. An important contributor to the European economy is the good weather that prevails, which allows energy reserves to be kept at high levels and the energy crisis has not yet shown. The rate trend is clearly bullish and if it continues, it could reach the milestone price of 1.10 so we prefer buy positions this week.

GBPUSD (Great Britain Pound – US Dollar)

Bullish was last week for GBPUSD, which opened at 1.2082 and closed at 1.2227. The weakening of the US dollar was certainly a major factor in this upward movement. The dollar is weakening on the basis of the belief that the Fed will not raise interest rates significantly more than current levels as the problem of high inflation appears to be in a phase of de-escalation. This week is particularly important for the British economy because announcements dominate in relation to inflation and unemployment in the UK. These announcements, especially regarding inflation, may significantly affect the sterling as they will largely determine the future decisions of the Bank of England. If the exchange rate manages to climb above the significant resistance of 1.2450 then it may accelerate its upward trend further. We may try buy positions this week.

USDJPY (US Dollar – Japanese Yen)

The previous week was significantly bearish for the USDJPY, as it opened at 131.85 and closed at 127.83. The fall in the U.S. dollar and the continued de-escalation in bond yields pushed the exchange rate to these lows. Let’s just remember that the USDJPY was above 150 in mid-October. But the dollar for bonds was not in itself capable of causing such a big move. The cause is the ongoing rumors circulating about the Bank of Japan and the loose monetary policy that has been in place for a long time. Rumors are talking about changing this policy, and quite soon. The yield on Japan’s 10-year bond rose to around 7-year highs, reaching 0.51%. The relatively high inflation announced at 4% for December is certainly an indication of the direction of monetary policy change. Therefore, the decision on interest rates by the Bank of Japan on Wednesday is of particular importance and may play a decisive role in the course of the exchange rate. The last nearby support is in the area of 126.35 and we may try sell positions this week.

EURJPY (Euro – Japanese Yen)
Last week was bearish for EURJPY which opened at 140.31 and closed at 138.46. The euro has strengthened recently on the basis of market expectations for new interest rate hikes by the European Central Bank. The euro is also bolstered by positive Eurozone economic news in recent weeks. But it seems that the strengthening of the yen is sweeping, based on the estimates of many analysts that the very loose monetary policy pursued for some time by the Bank of Japan is about to change, maybe very soon. Since the exchange rate has lost 140, the prevailing trend is downward and until at least 135, there is no apparent technical support. Sell positions is our selection for the current week.

EURGBP (Euro – Great Britain Pound)

Last week was bullish for EURGBP which opened at 0.8796 and closed at 0.8848. The sterling is not in a bad phase, but the euro is going through a pretty good period, given the expected tight monetary policy from the ECB and the new interest rate hikes expected. Important are the announcements for both economies this week since we will find out about December inflation in both the Eurozone and the UK. The trend in the exchange rate has been strongly bullish for about a month and a half and if this trend continues, we may see the milestone price break down to 0.90. We prefer buy positions for one more week.

USDCAD (US Dollar – Canadian Dollar)

Last week was bearish for USDCAD, which opened at 1.3434 and closed at 1.3392. The exchange rate has completed four consecutive downward weeks, mainly due to the weakening of the US dollar. In addition, the significant rise in oil prices we saw last week boosted the Canadian dollar, helping the downward trends of the USDCAD. The announcement of inflation for Canada next Tuesday is crucial, while the announcement of retail sales on Friday is also important. The downtrend has room to continue until 1.3220, a value that is the lowest for the pair in about four months. We may try sell positions this week.

USDCHF (US Dollar – Swiss Franc)
The USDCHF moved slightly downward last week after the opening was at 0.9287 and the closing was at 0.9262. The downward course of the exchange rate that has begun since mid-October and is mainly driven by the losses suffered by the US dollar continues. The Swiss franc is not particularly strengthened because the low inflation in Switzerland, as announced recently, does not give signs of an increase in interest rates by the Bank of Switzerland. Thus, the USDCHF’s losses were significantly lower than those of other US currencies. In the area of economic announcements, the unemployment rate in Switzerland remained unchanged in December at 1.9% and therefore had no particular effect on the franc. Technically speaking, there is room for a further fall up to 0.91 but in the event of an upward reaction, values above 0.94 may signal a change in trend. We prefer sell positions for the current week as well.

AUDUSD (Australian Dollar – US Dollar)

Bullish was the last week for AUDUSD, which opened at 0.6877 and closed at 0.6975. The aftermath of the news of the lifting of the Chinese embargo on Australian exports continues to affect positively the exchange rate which has reached the edge of 0.70. Australia’s economic announcements are also in positive territory, with retail sales up 1.4% in November and the country’s trade balance performing very well in the same month. The news from China is also positive, not only because of the lifting of restrictions on the pandemic but also because of the positive economic news. Inflation in the country remained unchanged at 1.9% while the producer price index fell into negative territory. Imports, exports, and the trade balance in China were also better than expected. The logical thinking is that a clear breakout of 0.70 for AUDUSD can give new upward momentum so we may try buy positions this week.

Bitcoin

Last week, Bitcoin closed at $20,885 with gains of 22%. Bitcoin hasn’t seen such a rise on a weekly level since March last year, and it makes sense for cryptocurrency fans to have cheered up. The general positive belief about the course of the global economy has helped cryptocurrencies a lot. Also, the view that liquidity will not be limited as originally estimated since inflation is rapidly declining, favors cryptocurrencies. Bitcoin and cryptocurrencies in general are considered high-risk investment options and they need liquidity so that a sufficient share of funds can be directed to them. Good news came from Central America too: El Salvador is developing its Bitcoin City through the world’s first Bitcoin-based sovereign bonds. This news particularly pleased fans of digital currencies who are anxiously looking for the latest positive news, after FTX and other negative developments that had preceded it. The next two milestones in case the climb continues are $21,500 and $25,200 and we prefer long positions this in the current week too.

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.