2023-04-12 01:35

AUD/USD Intraday: bullish bias above 0.6630. Pivot: 0.6630 Our preference: Long positions above 0.6630 with targets at 0.6665 & 0.6680 in extension. Alternative scenario: Below 0.6630 look for further downside with 0.6615 & 0.6600 as targets. Comment: Even though a continuation of the consolidation cannot be ruled out, its extent should be limited. Gold Intraday: watch 2015.00. Pivot: 1996.00 Our preference: Long positions above 1996.00 with targets at 2010.00 & 2015.00 in extension. Alternative scenario: Below 1996.00 look for further downside with 1990.00 & 1982.00 as targets. Comment: The RSI calls for a bounce. Crude Oil (WTI)‎ (K3)‎ Intraday: intraday support around 81.00. Pivot: 81.00 Our preference: Long positions above 81.00 with targets at 81.80 & 82.30 in extension. Alternative scenario: Below 81.00 look for further downside with 80.50 & 80.00 as targets. Comment: The next resistances are at 81.80 and then at 82.30. EUR/USD Intraday: further advance. Pivot: 1.0890 Our preference: Long positions above 1.0890 with targets at 1.0935 & 1.0950 in extension. Alternative scenario: Below 1.0890 look for further downside with 1.0875 & 1.0860 as targets. Comment: The RSI is bullish and calls for further upside. GBP/USD Intraday: the bias remains bullish. Pivot: 1.2405 Our preference: Long positions above 1.2405 with targets at 1.2455 & 1.2470 in extension. Alternative scenario: Below 1.2405 look for further downside with 1.2390 & 1.2370 as targets. Comment: A support base at 1.2405 has formed and has allowed for a temporary stabilisation. USD/JPY Intraday: expect 134.10. Pivot: 133.25 Our preference: Long positions above 133.25 with targets at 133.85 & 134.10 in extension. Alternative scenario: Below 133.25 look for further downside with 132.95 & 132.70 as targets. Comment: The RSI calls for a bounce.

2023-01-16 09:54

In November 2022, the UK’s nominal CPI growth rate was 10.7%, lower than the previous 11.1%, indicating that a shift from its high inflation could be underway. The same scenario was seen in August when the inflation rate saw a month-onmonth decline but rebounded in September. Therefore, whether this shift is permanent remains uncertain, as this depends on the changes seen in the next two months. The US economy is a bellwether not only for the global economy but also for the EU and British economies. When the US inflation rate reaches an inflection point, the high inflation rate in the EU and the UK will also drop. America’s nominal CPI growth rate hit an inflection point as early as July 2022, and so did its core CPI growth rate in October. Therefore, the decline in the UK’s nominal CPI growth rate in November will likely be a robust peak turnaround point for its high inflation. It is noteworthy that Europe and the US differ on oil and natural gas supply. Oil produced locally in the US can meet its own needs, and even if there is a gap, which only occurs occasionally, the US can still import oil from Canada. Comparatively, Europe’s oil and gas are mainly supplied by Russia, which influences its lower level of autonomy. The EU continues to adopt additional sanctions against Russia. Measures such as the “maritime oil embargo”, “oil price cap”, and “abandonment of the Nord Stream 2 pipeline” will gradually deepen the energy crisis in EU countries. Thus, whether the UK inflation will continue to fall in Q1 2023 still hinges on how the Russia-Ukraine conflict goes. The inflation rate data will affect the Bank of England’s (BOE) monetary policy. The BOE’s last interest rate decision in 2022 reduced the size of a single rate hike to 50 basis points (bps) from the previous 75 bps and raised its benchmark interest rate to 3.5%. The easing of the year-long aggressive interest hike policy signals that the BOE is optimistic about the downward trend in CPI data. Andrew Bailey, the BOE Governor, said, “We think the data released this week shows that we may have seen glimmers of hope on the horizon. Not only has inflation begun to decline, but it is also slightly lower than our previous expectations.” The GBPUSD’s trend depends mainly on the BOE and the Federal Reserve (Fed) monetary policies. In Q1 2023, the BOE will make two interest rate decisions on February 2 and March 23, each expected to raise rates by 50 bps; the Fed will also make two interest rate decisions on January 26 and March 23, respectively. And the size of the interest rate hikes will likely drop from 50 bps to 25 bps. Because the turning point of the UK’s inflation rate was later than that of the US, the BOE may press ahead with its 50 bps rate hike policy longer than the Fed. In light of that, the GBPUSD will likely continue its upward trend in Q1 2023, and we can temporarily set the medium-term target at 1.3. Expectations often reverse when realized. The GBPUSD’s rise in the last two months of 2022 was driven by expectations that the Fed would reduce the size of a single interest rate hike. The Fed’s interest rate decision in December has already met this expectation, and the funds betting on this forecast may have already taken their profits. Therefore, the GBPUSD will probably see a drop in January 2023. Technically, as long as it does not break below the 1.15 support level, the bullish uptrend remains intact. By Dean Chen, ATFX Guest Analyst

2023-01-16 09:54

The year 2022 witnessed a 10% decline in the performance of European stocks, in addition to an unprecedented surge in inflation. This prompted major central banks, including the European Central Bank (ECB), to tighten their monetary policies and raise interest rates to record highs. Not forgetting the energy crisis ignited at the beginning of the Russia-Ukraine war in February. Key factors that may affect the volatility of European stocks in Q1 2023 include inflation trends, the pace of monetary tightening, the depth of the economic recession and government bond yields. The new year could take the title of worst performer marking the most challenging period for European stocks since 2018. Monetary Tightening We had already seen a significant recovery in stock prices since late September 2022, when inflation figures began to slow, raising hopes that inflation would fall and the pace of interest rate hikes would slow significantly in early 2023. So long as the ECB is not satisfied with the level of real inflation rates, the bank’s hawkish stance will continue to support higher interest rates for longer, creating more volatility in European equity markets. Investors are predicting ECB rate hikes of more than 150 basis points by the end of June 2023. Economic Recession The risks of an economic recession are now evident as a natural outcome of the monetary tightening policies and the weakening of global growth momentum in the first half of 2023. This, in turn, pushes investors into risk aversion mode, offset by the partial decline in real bond yields, thus weakening the performance of European stock markets. Russia’s invasion of Ukraine has pushed investors out of European stocks as energy and commodity prices have reached record highs, forcing heavily indebted governments to take on more debt to protect consumers and businesses from the consequences of hyperinflation. In the first half of 2023, we may see slowing economic growth, a 12% drop in earnings estimates, and continued geopolitical and trade tensions, negatively affecting the performance of European stocks. European Stock Indices in 2023 The “Stoxx Europe 600” remained on track to achieve its biggest annual decline since 2018 by falling about 12% since the beginning of 2022. However, we may see some stability around the 450-point level before the trend continues, with the index falling by more than 15% at the end of Q2 2023 before rebounding from 365 points to 430 points by the end of the year as European economies start recovering. The UK “FTSE 100” may see a decline at the beginning of 2023 and likely settle at 6,700 points by the middle of the year. However, it could rise to 7,373 points by the end of 2023 as the UK economy recovers. The German “DAX 30” is expected to end the first half of 2023 at 13,210 points and rise by a mere 2.2% in 2023. DAX Monthly Chart Short pressure continues on the German DAX amid high inflation and slowing economic activity Technically on the monthly chart, the DAX is trending lower and could touch the primary bullish trend line at the 11,750 points support level, just above the 200-day moving average, provided the first support level at 13,210 points breaks. The alternative scenario is if the index manages to hold above the 13,210-point level, it may rally back to the first resistance level at 14,600 points, then the next resistance level at 15,856 points. Technically, on the monthly chart, the FTSE 100 fell strongly from the 7,649 resistance level due to continued interest rate hikes that put pressure on public company profits and profit margins. The index will target the primary bullish trend line at the 6,700 support level above the 200-day moving average if it can break the first support level at 7,005 points. An alternative scenario is if the index manages to hold above the 7,005 level, it may return to positive momentum and retest the first resistance level at 7,480 points, then the next resistance level at 7,800 points. By Dr. Mohamed Nabawy, ATFX MENA Market Analyst

2023-01-16 09:53

The Bank of Japan’s (BoJ) monetary policy has been highly stable, adhering to the yield curve control (YCC) policy. The BoJ consistently maintains short-term interest rates at -0.1%, and ten-year bond yields around 0%. As a direct result of the low interest rates, the yen depreciated sharply by nearly 20% in 2022, making it the most depreciated currency among G7 currencies. The Japanese economy is typically known for its low inflation levels. While the CPI growth rate of developed Western countries soared to over 7%, Japan’s CPI growth rate was only 3.7%. The internationally accepted level of moderate inflation is 2%. Japan’s CPI growth rate is higher than this standard, but it has not reached a level sufficient to change the BoJ’s monetary policy. The BoJ has been worried that the current high inflation rate cannot be sustained. As the bank’s Governor, Haruhiko Kuroda, said, “The BoJ has not yet reached a sustainable and stable inflation level. Until this target level is reached, we will press ahead with the easing policy.” In 2020 and 2021, Japan’s CPI growth rate repeatedly fell to a negative range, reaching a low of -1.2%. In 2022, affected by the rising international energy prices, inflation improved, but no negative growth rate showed up. However, high inflation in the US, the European Union, and the UK has reached an inflection point. Japan’s inflation rate is expected to echo that and decline accordingly. Provided that in 2023, international oil prices fall more than expected, Japan’s inflation rate may fall into negative territory again. The main reason for Japan’s persistently low inflation rate lies in its massive elderly population and the lacklustre domestic demand for goods and services. According to data from Japan’s Ministry of Internal Affairs and Communications, in 2022, the elderly population aged 75 and above rose to 19.37 million, accounting for more than 15% of the total population, while the elderly population aged 65 and above accounted for nearly 30% of the total population. According to internationally recognized standards, a country is defined as an ageing country when the proportion of the elderly aged 65 and above reaches 7%. Japan is at more than four times that standard. The yearly number of births in Japan is fewer than one million, the fertility rate is low, and there is a severe shortage of young people to fuel high consumer demand. Unfortunately, the population structure cannot be changed in a short time. Once international energy prices return to normal, it will be difficult for Japan’s inflation rate to remain above 3%. Haruhiko Kuroda, the current governor of the BoJ, is due to step down in April 2023. Takehiko Nakao has been floated as the possible successor and publicly stated that he would re-evaluate the country’s monetary policy. Market participants, in this case, cannot help but wonder if the new governor will change the existing YYC policy in favour of a more aggressive monetary policy. We hold that Japan’s monetary policy is unlikely to undergo significant changes because of a new BoJ governor and that the macroeconomic strategies based on “Abenomics” will remain in force. No matter who is elected as the new governor, the reality of low inflation in Japan will not change, and the best way to deal with low inflation is the BoJ’s current YCC policy. Since the BoJ’s monetary policy will likely stay the same in Q1 2023, the USDJPY’s trend mainly depends on the Fed’s actions and the US dollar index’s (DXY) performance. In Q1 2023, the Fed will announce two interest rate decisions, which are expected to be 50 bps and 25 bps, respectively. As the Fed shifts from aggressive to moderate interest rate hikes, the DXY will likely continue its downtrend from Q4 2022. Technically, in Q1 2023, the DXY could fall below 100, a critical integer resistance level; correspondingly, the USDJPY may slide below 130. Given that the USDJPY has plummeted in Q4 2022, it is expected that the USDJPY will rally to a certain level from January to early February 2023, and the major downward wave will start in late February. Long and Short-Term LPR Rates Will Keep Declining as the USDCNH Retreats From Record Highs Western central banks when adjusting monetary policies, mainly refer to the inflation rate and unemployment rate data, which is not the case for the People’s Bank of China (PBOC). The PBOC’s monetary policy adjustments are not based on individual economic data but are derived from a comprehensive analysis of the overall macroeconomic dynamics. Given its large size and seismic influence, China’s real estate market is critical for its macroeconomic development. As Vice Premier Liu He said, “Real estate is the pillar industry of the national economy. In view of the current downside risks, we have promulgated some policies and are considering new measures to shore up the industry’s balance sheets and guide market expectations and confidence recovery.” On November 22, 2022, Li Keqiang, Premier of the State Council, said in his speech, “(We will) step up supports for private enterprises’ debt issuance, and employ monetary policy tools such as required reserve ratio reductions in a timely and appropriate manner, so as to maintain reasonably sufficient liquidity.” Three days later, the PBOC announced a 0.25 percentage point cut in financial institutions’ required deposit reserve ratio. It is clear from this move that the pace at which the PBOC will implement loose monetary policies in 2023 depends mainly on how strongly private enterprises’ demand for capital is, especially the demand from real estate developers. Premier Li Keqiang’s speech serves as a beacon for the PBOC’s monetary policy in 2023 — continuing the loose monetary policy of cutting interest rates and reserve ratios to boost the steady and healthy development of the real estate industry from the funding side. In 2022, the PBOC lowered the five-year LPR interest rate three times by 5 bps, 15 bps, and 15 bps, respectively. It lowered the two-year LPR interest rate twice, by 10 bps and 5 bps, respectively. In 2023, long-term and shortterm LPR interest rates are expected to be lowered at least twice, and the cumulative decline is likely to be 15 bps or more. In December, the Fed’s interest rate decision lowered the single rate hike from 75 bps to 50 bps. Although the intensity has weakened, the pattern of interest rate hikes has not changed. Logically speaking, under the divergence of monetary policies between China and the US, the USDCNH possesses long-term upward momentum. However, the PBOC could adopt a loose monetary policy if the macroeconomic situation remains stable, as various economic indicators are controlled within a reasonable range. The LPR interest rate adjustment intervals are expected to be quite long. Although the CNH will continue to face depreciation pressure at the monetary policy level imposed by the PBOC, the impact is supposed to be limited. Although China’s monetary policy will affect the offshore renminbi, the trend of USDCNH is not dominated by the monetary policy of the PBOC but by the Fed and the DXY. For example, the surge in USDCNH from February to October 2022 and the plunge from November to December were all caused by intensive swings in the DXY. Therefore, the trend of USDCNH in Q1 2023 will be determined by the DXY’s movements during the same period. This turning point of the high inflation rate has caused disagreement within the Fed regarding whether to continue the aggressive interest rate hiking policy. The December interest rate decision to cut the size of a single rate hike was just the beginning. The interest rate decisions in January and March 2023 will continue to limit the size of each single rate hike, and it is forecasted that the Fed’s interest rate hike will officially end in Q2 2023. The DXY will likely break the 100 mark in Q1 2023, and the USDCNH will experience a resonant decline; hence, the medium-term target can be set at 6.7. Investors should remember that since the “811 exchange rate reform” in 2015, the USDCNH has been fluctuating within a broad range from 6.2 to 7.2. Even in Q2 and Q3 2022, when the Fed aggressively raised interest rates, the USDCNH did not break through that range effectively. As the Fed’s interest rate hike weakens, there are salient signs that the USDCNH is falling back from its recent highs. Although some corrective rebound may appear during the process, the pair will continue to fall until it reaches the final target of approximately 6.2. By Dean Chen, ATFX Guest Analyst

2023-01-16 09:52

Crude oil prices have witnessed a fair amount of weakness after failing to re-capture the $90-a-barrel critical level towards the end of 2022. Demand concerns have weighed heavily on investor sentiment towards oil as the US dollar strengthens amid fears of a global slowdown in demand. However, China’s border reopening and loosening strict COVID-19 rules could lead to higher oil demand. According to some central bank economists, crude oil demand could rise by 1 million barrels daily in 20223 from 2022 levels. On the supply side, OPEC+ decided to stick to their existing policy of reducing oil output by 2 million barrels a day from November through Q1 2023. Meanwhile, as global economic growth concerns persist, the EIA expects global inventories to tighten in early 2023, supporting crude oil’s rally back to $90 a barrel. However, supply and demand will likely be balanced in the second half of 2023. On the other hand, the EU ban on Russian crude imports and a G7 price cap on Russian seaborne exports at $60 per barrel recently came into effect. According to the International Energy Agency (IEA), the move is expected to reduce Russia’s exports to the European Union by 430,000 barrels per day to 1.4 million BPD. Therefore, crude oil prices will continue to experience significant uncertainty during Q1 2023. However, the aggressive interest rate hikes from leading central banks to combat spiralling inflation, combined with market concerns about the risk of a global recession, could damage global oil demand. According to the IEA, the global oil demand growth from 2011-2025 might continue rising since peak rates are yet to be reached. In summary, the crude oil market is expected to tighten during 2023 as the EU ban on Russian crude oil products is implemented, along with OPEC+ supply cuts. As a result, we expect crude oil prices to strengthen in the first quarter of 2023. Technical Perspective Crude oil is down over 20% from its November 7th peak, and a bounce off $70.00 allowed it to trade higher before peaking at $76. Sellers may remain in control pushing crude oil prices to retest their lowest levels since oil prices have already broken below the range between $93 and $76.58 a barrel. Hence, if the crude oil price fails to re-capture the $80 per barrel level, it could potentially extend its decline towards $70. Once this crucial support level breaks, sellers may continue pushing prices lower to the $65 or $62 a barrel (29th November 2021 Low) support zone. Alternatively, from a bullish perspective, a sustained move above $80 a barrel would indicate the presence of buyers. The buying could come from an aggressive and bullish outlook. If such a move generates enough upside momentum, the next resistance level would be at the $84 (1st November High) level. To summarize, crude oil prices look bearish from a shortterm perspective. However, crude oil prices might gain bullish momentum during the first half of Q1. A break above the nearby resistance of $80 is expected to trigger more buying pressure. By Jason Tee, ATFX (Asia Pacific) Global Market Strategist

2023-01-16 09:51

After tightening monetary policies for nine months, including seven interest rate hikes, the Bank of Canada (BoC) hinted that it was planning to pause further interest rate hikes at its last meeting in December. This means that the central bank may choose to stand by throughout Q1 2023 as it observes the effect of its previous consecutive interest rate hikes on Canada’s economy. Given that domestic housing investments make up almost 10% of Canada’s GDP, the risk of a downturn in the housing market as the household debt-to-income ratio soars globally is increasing, which is fueling the economic pressures in Canada. At the beginning of December, the inverted curve of Canadian government bond yields further deepened with a rate difference much higher than that of the U.S. government bond yields, indicating a potentially more severe economic recession than expected. Canada’s inflation rate was recorded at 6.9% in October. Despite a slowdown, it was still higher than the 2% target the Bank of Canada set. Despite the slowing economic growth in 2023, it is estimated that inflation will linger at a high position, around 5%, for quite a long time. If it takes longer to cool down inflation, the possibility of a soft economic landing will be lower. Both personal spending and housing investments in Canada dropped during the previous quarter. According to a Reuters survey, housing prices dropped by 17.5% from their peak, which was about twice the decline witnessed during the financial crisis of 2008-2009. The Canadian central bank predicts that the country’s economy will stagnate from Q4 2022 to mid-2023. With limited willingness for interest rate hikes among central banks, the U.S. Fed is still advancing its interest rate hikes in 2023, which means that CAD will decline due to the changes in monetary policies. This expectation has already been gradually proven since the last quarter. The only exception is if there is a milder economic recession in Canada than expected, which could support the CAD. Another crucial factor influencing CAD movements is international oil prices, which have been falling gradually due to the global economy’s slowing down since last year. As a result, oil prices in early December completely offset the rally seen earlier in 2022. The continuous drop in oil prices also sent Canada’s current account into a deficit, reflecting the adverse effect of weak oil prices on Canada’s economy and the CAD. In the new year, major global economies will face recession pressure. This will further decrease oil demand from the U.S., Canada’s largest crude oil importer (accounting for over 50% of total U.S. oil exports), negatively impacting the Canadian economy. However, since the implementation of the European Union’s ban on Russian oil last December, the EU will have to turn to other alternative energy providers, which could divert part of the demand to Canada, relieving some pressure from the demand side. Technical Analysis The weekly USD/CAD chart shows that the exchange rate has been within a wide fluctuation range, which met resistance at 1.4000 (a high from 2004), triggering the current retracement. The pair may attempt to test the 10MA support before breaking it again. Combined with the USD index’s upward advantage, the exchange rate may rebound and break the resistance zone between 1.4000 and 1.4300. Suppose international oil prices rebound and drive CAD upward in Q1 2023, according to the latest institutional predictions. In that case, we should note that the downward pressure on USD/CAD may extend below 1.3000 (2009 high converting it into support), making 1.2640 its next target. By Jessica Lin, ATFX (Asia Pacific) Global Market Analyst