The past week has been fairly mild concerning economic announcements and other developments for the global economy and financial markets. However, the current week is particularly important as it contains central bank decisions and very important economic news that could generally signal the course of the markets for the next period.
Going back to the week that has just passed, the positive signs for the global economy continue and come mainly from the United States. U.S. GDP ran in the fourth quarter of 2023 at a growth rate of 2.9%, well above the 2.6% estimated by markets. The picture was also good for durable goods orders and the personal consumer spending index showed that the de-escalation of inflationary pressures continues.
The United States economy is in the final line of the interest rate decision next Wednesday. According to the Fed’s official FedWatch tool, the probability of 0.25% has exceeded 98%. If this is confirmed, it will also confirm the previous statements that, based on declining inflation, the Central Bank of the United States will begin a softer policy on interest rates and the cost of money. We may even see rate cuts toward the end of the year. This news helps a lot with the psychology of the markets, which for the most part had advanced a higher final value of interest rates than we may see.
In Europe, things are quite different. The good macroeconomic picture may continue, as in relation to the PMI indicators that had a very good result for December, but most statements by central bankers converge on the conclusion that we should expect new large increases in interest rates from the European Central Bank since it is generally believed that inflation continues to be at very high levels in the Eurozone. Two consecutive increases of 0.50%, is the prevailing scenario for the ECB.
The positive sentiment we reported was reflected last week in the positive performance of equity indices of the world’s major economies. The only exception was the UK market as we will see below. As for the commodity markets, the sign was mixed. On currencies, the big gainer of the week was the euro due to expected new interest rate rises in the Eurozone while the dollar had softer moves continuing its downward trend. Bond yields moved sideways, with the U.S. 10-year not able to escape far from the 3.50% zone. In the world of cryptocurrencies, we saw new upward trends prevail but not with the intensity and momentum we had in the previous two weeks.
Starting with the listing of the current week’s economic announcements, in addition to the announcement of interest rates in the United States on Wednesday there is a corresponding announcement for the Eurozone and the United Kingdom on Thursday. Particularly important is the announcement of the labor market in the United States (NFPs) on Friday, which will largely show the mood of the US economy for the first month of the year. The Eurozone also has important economic announcements that will show the course of the economy such as GDP, unemployment rate, and inflation. PMI indicators in the world’s main economies (United States, China, Eurozone, Germany, United Kingdom, etc.) will also be announced this week. Market volatility is expected to skyrocket.
The US SP500 index closed last week with upward trends, at 4,071 points and gains that touched 2.50%. The positive climate, as reflected in the US GDP of the 4th quarter of 2022 and the durable goods orders of December, helped the index to rise to the highest value for 2023. The perception that the next Fed rate increases will be 0.25% each and that those increases will soon end helps too. Several American companies have already announced their results for the 4th quarter of 2022. The results cause cautious optimism because the percentage of companies that announced EPS above expectations reaches 70% which is certainly a positive development but is lower than the decade average (73%) and even lower than the five-year average (77%). Given that the current week is punctuated by significant economic developments in the US (a decision on interest rates on Wednesday and the labor market announcement on Friday), higher volatility is expected. If there is a solid exceedance of 4,101 points, which is the highest price since the beginning of December, a new upward momentum may be created. In the case of a downward turn, any correction below 4,000 raises concerns. We may try short positions this week.
The German DAX40 index moved upward last week, closing at 15,150 points, with gains of 0.80%. As winter continues on the European continent and the energy crisis does not intensify, the economic climate improves and this is something that can be seen in the equity markets. In Germany, more specifically, PMI indicators had a positive effect after being announced above market estimates, while indicators reflecting the business climate were also improved. This week is crucial because, in addition to the economic announcements in the Eurozone and the decision on interest rates by the ECB, Germany is set to announce the GDP of the 4th quarter of 2022, retail sales, and the PMI indicators of December. The next resistance is close to 15,270, and if DAX40 breaks out of these levels, it will be at a price we had seen before the start of the war in Ukraine that is why we prefer long positions this week.
The British FTSE100 index moved slightly lower in the past week, closing at 7,765 points, with marginal losses. The approach of the all-time high, just above 7,900 units seems to have caused profit liquidation by investors, which in the first phase seems logical. The decision on interest rates by the Bank of England on Thursday is the most important event of the current week. Markets estimate that the increase will be 0.50%, so interest rates will be 4% from the current 3.50%. Any deviation from this estimate can create strong turbulence. Some analysts argue that this increase may be the last and such a case may improve the climate further. Last week we saw a de-escalation of producer indicators, which reinforces these analyses. Resistance at 7,903 points remains the main target of buyers of the FTSE100 index. We may try long positions for one more week.
Gold was bullish last week, as the next month’s futures closed at $1,945 with gains close to 0.90%. The upward rally for gold continues as the factors that drive up prices continue to apply. The dollar is showing no recovery trends and bond yields have been in sideways movements for a few weeks. The markets ‘ optimistic perception of central bank decisions in relation to money costs and liquidity is also a favorable factor for the rise in gold prices. Also, China, the world’s largest gold buyer, has positive economic announcements and signs of strong growth for the future. Since the end of October, only three weeks have been bearish for gold, so the trend is upward and $ 2,000 is the next obvious target for investors. We may try long positions for one more week.
Last week’s oil futures closed at $79.38, with losses exceeding 2.80%. Oil prices have gained an upward trend in the last month, mainly tapping on signs of a resurgence in demand, especially after the opening of lockdowns in China. Demand in China did boost oil and it exceeded $80, but demand did not strengthen in the rest of the world, so prices did not continue to rise. Last Thursday, after the positive announcements for US GDP, we saw an upward reaction above $82 but on Friday intense pressures prevailed and oil closed below $80. Markets are waiting for this week’s developments, mainly in relation to central bank decisions and the announcement of the US labor market (NFPs), and it seems that until then they maintain a balance point of around $80. The bullish scenario strengthens above $82.65 while below $78 the bearish scenario gains more chances. We prefer short positions this week.
EURUSD (Euro vs US Dollar)
Last week was neutral for EURUSD which opened and closed in the zone of 1.0865-1.0870. The US dollar had stabilizing trends, with some strengthening in the last two days of the week, due to positive economic announcements in the US but also with an expectation for Wednesday’s interest rate increase. Europe’s currency is particularly strengthened at the moment as inflation that persists in the Eurozone will likely lead the European Central Bank to raise interest rates again. PMI indicators performed positively, showing that Europe’s economy can withstand new big interest rate increases. It is a fact that these two economies, so far at least, do not confirm the very negative scenarios released in the summer and autumn in relation to a strong recession in intensity and duration. The mild weather has certainly helped the energy crisis but is probably not the only reason. Economies are showing resilience and experience in dealing with critical conditions and crises.
The week that has just begun will judge a lot even in the long run. The two central banks announce their decision on interest rates, while the United States also announces labor market results for January (NFPs). The Eurozone will announce inflation, GDP, and the unemployment rate, and if all this results in a continuation of the upward trend in the exchange rate, there could be a price above 1.10, for the first time since last April. We prefer buy positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Slightly bearish was the last week for GBPUSD, which opened at 1.2398 and closed at 1.2379. The exchange rate from the technical point of view shows an inability to exceed the critical resistance of 1.2450, even if the US dollar is going through a period of weakness. Of course, GBPUSD has strengthened enormously from the all-time lows we saw last September but there seems to be a difficulty in further strengthening. The two central banks will announce their interest rates this week, with markets ‘ expectations of a 0.25% increase in the United States and a 0.50% increase in the United Kingdom. That fact should boost the sterling significantly, but there are strong rumors that this increase may be the last as it will bring interest rates to 4%, which is considered by many analysts to be a ceiling. There appears to be a balance, but in the case of a robust break out above 1.2459, the exchange rate could develop new upward momentum. We may try buy positions this week.
USDJPY (US Dollar – Japanese Yen)
The previous week was bullish for the USDJPY, opening at 129.41 and closing at 129.81. Japan’s currency continues to be weak and so the exchange rate is on the rise even though the dollar is weakening and bond yields are not particularly rising. At the beginning of last week, the minutes of the Bank of Japan were released, and based on these minutes and statements by central bankers or very loose monetary policy is set to continue. Any interventions that have been made in the past and where they continue gradually even today, mainly in relation to the foreign exchange market and Japanese bonds do not seem to be of particular concern to the markets. Industrial production is the only major announcement of the current week coming from Japan’s side, while the announcement of interest rates in the US and the announcement of the labor market are set to shake the dollar for good. On a technical level, it seems that there is a weakness for the exchange rate to stabilize above 130 and if this behavior continues, we may see downward trends this week so we may try sell positions this week.
EURJPY (Euro – Japanese Yen)
Last week was bullish for EURJPY which opened at 140.69 and closed at 141.09. The exchange rate continued its rise for the second consecutive week as the intentions of the two central banks are clear. The ECB is likely to raise interest rates this week and may do so once more in the near future while all data from the Bank of Japan converge on how loose monetary policy and negative interest rates are set to continue, at least in the near future. This divergence of behaviors creates an upward trend that is not excluded to continue, especially if the exchange rate manages to exceed 143 so buy positions is our selection for the current week.
EURGBP (Euro – Great Britain Pound)
Last week was slightly bearish for EURGBP which opened at 0.8773 and closed at 0.8765. The Eurozone and UK economies face a severe inflation problem that forces them to raise interest rates. The Bank of England, however, is leading in this area and rumors of a 0.50% increase on Thursday gave the sterling the lead we saw last week. The euro, on the other hand, is not in a bad period as interest rate increases are also expected from the ECB. There has been strong speculation in recent days that the Bank of England will stop after Thursday’s increase and if this is widely accepted, an upward turn for the EURGBP will be favored so we may try buy positions this week.
USDCAD (US Dollar – Canadian Dollar)
Last week was bearish for USDCAD, which opened at 1.3377 and closed at 1.3309. The Canadian dollar was favored by a 0.25% rate hike last Wednesday and statements by Bank of Canada chief Tiff Macklem, who said it was still too early to talk about rate cuts and stressed that there could be future rate hikes according to economic developments and results. This statement was interpreted as a hawkish stance and strengthened the Canadian dollar, causing the exchange rate to fall even though the U.S. dollar had no particular weakness and oil prices performed corrective trends. Technically speaking, there is room for further decline until the significant support of 1.3220 but in such an important week for the US dollar, as we have seen above, upward reactions cannot be ruled out so we consider to try buy positions this week.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had sideways movements last week, after the open and the close were in the price range of 0.92. This lack of directionality and trend is attributed to the US dollar, which had no significant movements last week, but also to the Swiss franc, which had no reason to perform high volatility. The only major economic news from Switzerland’s economy was the country’s trade balance which was announced as slightly below market expectations. The lack of news on Switzerland will continue this week in contrast of course to the United States economy, with announcements on interest rates and the labor market dominating. The long-term trend continues to be bearish but due to the high volatility expected, upward reactions are not excluded. We may try buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Strongly bullish was the AUDUSD last week after it opened at 0.6959 and closed at 0.7106. The main reason for this launch of the Australian dollar was the announcement of inflation, which was found in the 4th quarter of 2022, at 7.8% significantly increased compared to the 7.3% of the previous quarter. It was an alert for the country’s economy that may lead to a review of monetary policy by the Bank of Australia. The PMI indicators announced on Tuesday, well below market estimates, were also a negative development. The fact is, however, that the good picture presented by China’s economy in combination with increased inflation in Australia create conditions for strengthening the Australian dollar. A positive development was the confirmation of AAA rating for the Australian economy, early this week by S & P Global Ratings. According to the company, it is most likely that the recession will be avoided. The United States has major announcements over interest rates and its labor market this week, which will increase volatility and complicate matters. If the uptrend continues, the next technical resistances for the exchange rate are at 0.7140 and 0.7280. We may try buy positions this week.
Last week, Bitcoin closed at $23,746 with gains exceeding 4.50%. It was the third in a row strongly bullish week for Bitcoin that seems to not only manage to break out of the $16,000 – $17,000 zone that was stuck for several weeks but seems to be stabilizing above $20,000. The cryptocurrency market shows a certain resilience since the recent shocks were not few. FTX, Genesis, and earlier Terra/Luna had plunged markets and thrown investment sentiment to a nadir. However, the time that has elapsed and the rest of the markets that seem to be recovering on the basis of more positive expectations for the global economy, have significantly helped the situation. The $25,200 resistance is the most important obstacle Bitcoin must overcome in order to continue upward, and it is needless to say that any return below $20,000 will bring back much of the nervousness. We prefer long positions for one more week.
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.
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