Solid ECN - Fundamental Analysis

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How China’s Banks Support the Yuan Against Moody’s Outlook

The yuan stays the same even though Moody’s lowers China’s credit outlook. The USDCNH did not change much at around 7.15 per dollar, because big state-owned banks in China sold dollars, balancing out Moody’s move to lower China’s credit outlook.

Chinese banks swapped yuan for US dollars in the onshore market and then sold those dollars in the spot market. This action helped keep the yuan steady and reduce the worries caused by Moody’s about slower economic growth and possible risks in China’s property sector. Also, a survey showed that China’s services activity increased the most in three months in November.​

 

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Bearish Bets on EUR/NZD: The 1.7487 Support in Focus

The EUR/NZD currency pair experienced a rebound from the 1.7487 support level. This upward momentum was anticipated by the stochastic oscillator, which indicated an oversold condition as the pair dipped. The support area at 1.7487 has been a significant obstacle for bearish trends since May 2023.

However, today the pair struggled to break above the 23.6% Fibonacci retracement level. Should the bulls fail to maintain the price above this crucial mark, the resilience of the 1.7487 support level may be tested.

The current market forecast remains bearish, with the potential for a breach of the 1.7487 support if the price continues to linger below the 23.6% Fibonacci retracement level.

Conversely, if the EUR/NZD manages to surpass the 23.6% level, it could signify a temporary pause in the downtrend. In such a scenario, the price might aim for the 50% Fibonacci retracement level, indicating a possible shift in market dynamics.​

 

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October 2023: A Challenging Month for German Factory Orders

In October 2023, Germany witnessed a noticeable decrease in factory orders, marking the first decline in three months. This drop was unexpected, especially since orders had slightly increased by 0.7% in September, and there were predictions of a modest 0.2% growth. However, the actual figures showed a significant 3.7% fall. This sudden decline points to ongoing instability in Germany's industrial sector.

A closer look at the data reveals that the most significant reduction was in the machinery and equipment sector, which plummeted by 13.5%. This was a major setback, as this sector is usually a strong contributor to industrial growth. Other areas like fabricated metal products, basic metals, electrical equipment, and the automotive industry also experienced downturns. These sectors are crucial for Germany's economy, and their decline can have broader implications.

Interestingly, not every sector faced a downfall. The transport equipment sector, for instance, saw a substantial increase of 20.2%. This surge was largely due to some large-scale orders, highlighting the variability in different industrial segments.

When examining the source of the orders, foreign demand showed a significant decrease of 7.6%. This drop was consistent across the board, with orders from the Euro Area and the rest of the world declining by 7.6% and 7.4%, respectively. However, domestic orders within Germany painted a different picture, registering a 2.4% increase. This suggests that the domestic market still has some resilience, even as international demand weakens.

Another interesting observation is that when excluding large-scale orders, there was actually a 0.7% increase in new orders in October. This indicates that the overall decline might be somewhat influenced by fluctuations in big-ticket orders.

To provide a broader perspective, it's useful to look at the three-month trend. Comparing the August to October 2023 period with the previous three months, there was a 4.6% decrease in new orders. This longer-term view offers a clearer picture of the industrial sector's health, beyond the monthly ups and downs.​

 

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GBPUSD in the Ichimoku Cloud

The GBPUSD pair is currently ranging within the Ichimoku cloud, which has stabilized the price above the 23.6% Fibonacci level. For the bullish trend to continue, the pair must cross above the bearish flag.

Failure to do so could lead to a decline towards the 38.2% Fibonacci level, which is a significant event to watch out for.​

 

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NZ Dollar Bounces Back: A Look at the Interest Rate Landscape

The New Zealand dollar has seen a slight uptick, reaching approximately $0.615. This recovery comes as a result of an improvement in risk sentiment, coupled with ongoing global evaluations of interest rate prospects. On the home front, the Reserve Bank of New Zealand (RBNZ) has maintained a steady interest rate for the fourth consecutive meeting in November, although it hasn’t ruled out the possibility of further tightening measures.

Despite mounting pressure for a rate cut due to slowing inflation and lackluster economic data, the RBNZ has kept the cash rate at 5.5%, a peak not seen since December 2008. The central bank has also hinted at the potential need for another rate hike if inflation remains unyielding. This is largely due to concerns about sustained excess demand and continuous inflationary pressures, driven by high core inflation.​

 

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Japanese Yen Climbs as US Fed Rate Cuts Anticipated​

The Japanese yen has strengthened to about 147 per dollar, reaching its highest point in 12 weeks. This rise comes amid increasing expectations that the US Federal Reserve may end its current phase of monetary tightening and possibly start reducing interest rates next year. Concurrently, Bank of Japan (BOJ) board member Asahi Noguchi expressed over the weekend that Japan has not yet achieved inflation driven by wage increases. Instead, recent inflation rises have been cost-push driven. Noguchi believes it's too early to move away from the BOJ's highly accommodative monetary policy, echoing sentiments from other BOJ officials.

In economic news, recent data indicated that Tokyo’s core inflation rate in November rose less than anticipated. However, it exceeded the BOJ’s 2% target for the 18th month in a row, signaling sustained inflationary pressure. Additionally, there's positive news from the manufacturing sector, where sentiment has improved significantly in December, especially in the auto industry, suggesting a robust recovery.​

 

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Swiss Franc Strengthens as SNB Adjusts Forex Reserves​

The Swiss franc has been on a strong upward trajectory, surpassing 0.875 against the USD in November, marking its highest point since early August. This increase is largely fueled by expectations that the US Federal Reserve might cut rates by the second quarter of 2024, which has put pressure on the US dollar. Meanwhile, in Switzerland, moderate inflation and a slowing economy have contributed to limited monetary policy support for the franc. Inflation has remained under the 2% mark for the fifth month in a row as of October, and the latest data indicates that the country's GDP growth stalled in the second quarter.

Moreover, diminishing concerns over a major escalation in the Israel-Gaza conflict have reduced the demand for the franc as a safe haven, leading it to approach four-month lows against the euro. Despite these factors, the franc is still on track to end 2023 stronger against both the dollar and the euro. This strength is partly attributed to the Swiss National Bank’s (SNB) reduction in foreign currency reserves, which dropped to a nearly six-year low in October.​

 

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Canadian Dollar Climbs as Bank of Canada Holds Firm on Rates​

The Canadian dollar has seen further appreciation, crossing the 1.35 mark against the USD. This uptick follows the Bank of Canada's decision to keep interest rates at their 22-year peak, along with a somewhat hawkish outlook. The bank held its key overnight rate at 5%, and even suggested the possibility of another rate hike. This comes amidst ongoing worries about inflation, even though there's been a recognition of both economic slowdown and a general easing of prices.

Recently, Canada reported a decline in its inflation rate to 3.1% in October, the lowest in four months, while the core rate fell to a 28-month low of 2.7%. At the same time, the economy saw an unexpected contraction at an annualized rate of 1.1% in the third quarter. This situation has led investors to speculate on the possibility of a rate cut as soon as March. However, Governor Tiff Macklem has clarified that the Bank of Canada is not currently considering any easing measures, as inflation still significantly exceeds the target.​

 

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Turkish Central Bank's Bold Moves Amidst Lira's Fall

The Turkish lira has been on a downward trajectory, now reaching nearly 29 units against the US dollar. This decline persists even as the central bank of Turkey continues to implement what they call 'intentional devaluation,' a strategy that hasn't changed despite increasing interest rates. To manage this situation, the bank has tightened reserve requirements for the lira. This move is aimed at reducing the amount of money available in the interbank market. As a result, local interest rates have risen, aligning more closely with the cost of borrowing lira internationally.

Over the last three months, the currency's value has been consistently dropping, setting new lows almost every day. On average, the lira loses just over 0.1% daily, which has led to a staggering 50% decrease since the beginning of the year. In a surprising turn, the central bank, during its latest meeting on November 23rd, raised the benchmark one-week repo rate by 500 basis points, reaching 40%. This increase exceeded market expectations, which predicted a rise of only 250 basis points. This decision signals the bank's intensified effort to curb the ongoing inflation trend.​

 

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Dollar Stays Strong as Job Market Data Looms

On Thursday, the dollar index maintained its position above 104, with investors taking a cautious approach. They are waiting for the upcoming monthly jobs report, which is anticipated to offer new insights into the current state of the US labor market. The report, due on Friday, is expected to reveal an increase in employment by 170,000 in November. Additionally, it's predicted that the unemployment rate will stay at a 22-month peak of 3.9%, and wage growth might slow down to 4%, marking the lowest since June 2021.

Recent data presents a mixed picture. Wednesday's figures suggested a slowdown in the US labor market, with the ADP report showing fewer job additions in November than anticipated, and labor costs in the third quarter being lower than expected. Despite these indications of a cooling labor market, the dollar has stayed near its highest levels in almost three weeks. This resilience is partly due to traders increasing their bets on rate cuts by other central banks. Currently, the market is pricing in about an 85% likelihood of the European Central Bank cutting rates in March 2024.​

 

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Gold Technical Analysis

Gold has been stabilizing its price above the Ichimoku cloud as expected. The pair is currently trading in a narrow range between $2,009 and $2,039. The direction and magnitude of the next breakout are crucial for the future trend.

If the XAUUSD price breaks above the upper boundary of the range, the bulls will have a clear path to the 23.6% resistance level at $2,078.

On the other hand, if the price falls below the lower boundary of the range, the bears will try to push it back into the Ichimoku cloud and test the support level at $1,984. The market sentiment and the global economic outlook will likely influence the price movement of gold in the coming days.​

 

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Cotton Futures Reach New Heights Amid Supply Concerns

Cotton futures recently hit a high not seen in over a month, climbing above 82 cents per pound. This surge, the most significant since late October, comes as traders face concerns over the short-term availability of cotton. Recent data from ICE reveals a sharp decline in certified cotton stocks. On December 5th, stocks available for delivery against futures contracts were at just 6,325 bales, a significant drop from the two-year high of 87,770 bales recorded on December 1st.

Adding to these supply worries, the Cotton Association of India (CAI) has lowered its forecast for the 2023/2024 cotton season's production to 29.4 million bales. This downward revision is due to the impact of the pink bollworm infestation in Haryana and the fact that many farmers have been forced to uproot their plants.

In other developments, Brazil reported its cotton export figures for November. The country shipped 253.71 thousand tons of cotton, indicating a 12% increase from October 2023. However, this figure represents a 5.5% decrease when compared to the exports in November 2022.​

 

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Post-Strike Surge: US Adds 180,000 Jobs in November

In November 2023, it's expected that the US economy experienced a notable upturn in job growth, primarily due to the conclusion of strikes in the automotive and entertainment sectors. It's estimated that around 180,000 jobs were added, a significant increase from the 150,000 jobs in October. This change can be largely attributed to the return of workers from the United Automobile Workers (UAW) and the Screen Actors Guild‐American Federation of Television and Radio Artists (SAG-AFTRA) after strike settlements.

Despite this improvement, there's an observable trend of deceleration in the job market. For the second month in a row, the number of jobs added has been below the average monthly increase of approximately 258,800 seen over the previous year, indicating a slowdown. Nevertheless, it's important to recognize that job growth is still surpassing the monthly requirement of 70,000 to 100,000 jobs necessary to keep pace with the growing working-age population.

On another note, the unemployment rate is projected to be around 3.9%, which is the highest it has been since January 2022. Additionally, there's an anticipated decrease in annual wage growth, possibly dropping to 4%, the lowest since June 2021. This suggests a complex scenario in the labor market, where job growth persists amidst a backdrop of declining wage increases and a slight rise in unemployment.​

 

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EURUSD Dips Slightly, Future Projections Indicate Decrease

On Friday, December 8, the EURUSD pair saw a slight decline, dropping by 0.0008 or 0.07%, to close at 1.0784. This was a marginal decrease from its previous trading session's level of 1.0792.

Analysts and global macro models from Solid ECN Security are projecting that the Euro to US Dollar exchange rate, commonly referred to as EUR/USD, will hover around 1.07 by the end of the current quarter. As we look ahead, our forecasts extend to 12 months, where we anticipate the exchange rate might further decrease to around 1.04.​

 

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DXY Edges Up, Future Projections Show Increase

On Friday, December 8, there was a small rise in the DXY, with an increase of 0.1831 or 0.18%, bringing it to 103.72. This marked a slight upturn from its previous level of 103.54 recorded in the last trading session.

Projections from Solid ECN, based on our global macro models and analysts' expectations, suggest that the United States Dollar could reach around 104.29 by the end of this quarter. Peering further into the future, our forecasts indicate that in 12 months' time, the Dollar might increase to approximately 107.58.​

 

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Chinese Yuan Expected to Strengthen in Coming Months

On Friday, December 8, there was a slight uptick in the USDCNY, with the rate increasing by 0.0062 or 0.09%, ending the day at 7.169. This rise was a small change from its previous closing of 7.163 in the last trading session.

Looking ahead, based on the insights from global macro models and the expectations of analysts, the Chinese Yuan is projected to reach about 7.19 by the end of this quarter. Moving further into the future, predictions suggest that in a year's time, the Yuan could be trading around the 7.38 mark.​

 

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GBPUSD Sees Slight Decline, Predicted to Lower Further

On Friday, December 8, the GBPUSD experienced a modest decrease, dropping 0.0046 or 0.37% to close at 1.2544, down from 1.2590 in the previous trading session. This shift reflects a slight downward trend in the currency pair.

It is anticipated that the British Pound will trade around the 1.25 mark by the end of the current quarter. Extending the outlook further, over the next 12 months, the Pound is estimated to potentially trade at around 1.20.​

 

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Bitcoin's Steady Rise: December 9th Update

On Saturday, December 9th, the value of Bitcoin in US Dollars was 44,193, showing a small rise of 33 or 0.07% from the last trading session. Over the past month, Bitcoin's value increased by 18.51%. If we look at the past year, it went up by 157.98%.

Predictions suggest that by the end of this quarter, the price of Bitcoin in US Dollars might decrease to 37,157 and further drop to 30,991 in a year, as per projections from global macro models and what experts anticipate.​

 

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China Experiences Steepest Food Price Fall Since 2021

In November 2023, the cost of food in China experienced a notable decrease, dropping by 4.2% compared to the same time last year. This decrease in food prices was more significant than the 4.0% drop observed in the previous month. In fact, this trend of falling food prices has been ongoing for five consecutive months, marking the most rapid decline since September 2021.

A key factor in this decline was the dramatic fall in pork prices, which went down by 31.8%, surpassing the 30.1% decrease seen in October. This larger drop in pork prices was unexpected and is thought to be due to a combination of unusually warm winter weather and a continued adequate supply following the Golden Week holiday in early October. In addition to pork, other food items also saw price reductions, including cooking oils (down by 4.1%), eggs (decreasing by 8.8%), and milk (a slight decrease of 0.3%).

However, not all food categories followed this downward trend. Fresh vegetables, for example, saw a slight increase in price (0.6%), reversing the previous month's decline of 3.8%. Similarly, the cost of fresh fruit accelerated, with prices rising by 2.7% compared to a 2.2% increase in the previous month.

In terms of the economic impact, this trend of falling food prices can have mixed effects. On one hand, lower food prices can benefit consumers by reducing their living expenses, potentially increasing their disposable income and encouraging spending in other sectors. On the other hand, for producers and farmers, falling prices can reduce income and profitability, possibly leading to challenges in the agricultural sector. Overall, the impact on the economy would depend on the balance between these consumer and producer effects.​

 

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Egypt's Inflation Eases, Food Prices Slow Down

In November 2023, Egypt saw its annual urban inflation rate decline for the second consecutive month, reaching a six-month low at 34.60%. This decrease from October's 35.8% rate follows a record peak in September of 38.0%. The current rate remains well above the Egyptian central bank's target range of 5-9%, yet it still surpasses the anticipated market forecast of 34.8%. A contributing factor to this development is the reduced pace of food inflation, which fell to 64.5% from 71.3% in October. On a monthly basis, consumer prices experienced a 1.3% increase, a slight acceleration compared to October's 1.0% rise, which was the most modest in over a year.​