Solid ECN - Fundamental Analysis

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Canadian Dollar Falls Beyond 1.33 USD Mark

Solid ECN – The value of the Canadian dollar has recently dropped, surpassing 1.33 against the US dollar. This decline comes after it had reached a five-month peak at 1.32 on December 26th. Several factors contribute to this shift, including a strengthening US dollar, lackluster economic reports within Canada, and a decrease in foreign currency coming into the country. A notable point of concern is Canada's manufacturing sector, which has experienced its most significant downturn since the 2020 pandemic crash.

This downturn poses challenges for the central bank's efforts to control inflation through tighter policies. Additionally, the Canadian dollar's strength is further weakened by a global reduction in oil demand, which traditionally supports the currency through foreign exchange. Investors are now focusing on the upcoming labor market report, set to be released on Friday, to gain insights into the potential directions of future monetary policy.

 

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Swiss Franc Falls from 12-Year High​

Solid ECN – The Swiss franc dropped to 0.85 against the US dollar, down from a 12-year peak of 0.841. The DXY's recovery influenced this change. Last year, the franc gained 8.5% versus the dollar, reflecting differing interest rate policies of the Swiss National Bank and the Federal Reserve. The Fed's latest meeting hinted at a cautious approach, further affected by US inflation slowing down.

Despite this, the Swiss National Bank sees reasons for higher rates due to potential inflation increases. Currently, inflation in Switzerland is at 1.4%, but predictions show it might reach the 2% goal in mid-2024. This has led investors to believe that the Swiss National Bank will cut rates later than the Fed. Additionally, the franc reached a new high against the Euro, reflecting ongoing high rate expectations from the Swiss National Bank.

 

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Libya's Oil Halt Boosts WTI Above $72​

Solid ECN – WTI crude futures rose above $72.5 per barrel on Wednesday, extending gains from the previous session as escalating geopolitical tensions in the Middle East and halted oil production in Libya continued to support oil prices. Libya's Sharara oilfield has stopped oil production since last week due to political protests, removing approximately 300,000 barrels per day from the market.

A prolonged war in Gaza and Houthi attacks on ships in the Red Sea also stoked fears of a broader conflict in the region that could disrupt supply further. Moreover, industry data showed that US crude inventories declined by 5.215 million barrels last week, way above market expectations for a 1.2 million barrel drop. Meanwhile, US gasoline stockpiles rose by 4.9 million barrels, while distillate inventories gained 6.9 million. Investors now look ahead to US EIA data later on Wednesday and the International Energy Agency's monthly market report next week.

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Australian Dollar Rises Amid Cooling Inflation​

Solid ECN – The Australian dollar climbed to nearly $0.67, recovering from its four-week low. This rise occurred despite new data indicating a slowdown in inflation. In November, Australia's CPI grew by 4.3% compared to last year, less than October's 4.9% increase and the smallest since January 2022. The figure was also lower than the anticipated 4.4%.

Given the services sector's robustness, this suggests the Reserve Bank of Australia might not raise interest rates. The market doesn't expect the central bank to increase rates beyond the existing 4.35%. Also, the likelihood of a rate cut in May has decreased to about 36%.​

 

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New Zealand Dollar Balances as Rate Cut Expectations Grow

Solid ECN – The New Zealand dollar has stabilized at $0.624 after recent ups and downs. This comes as the US dollar weakens, with many expecting the Federal Reserve to cut interest rates several times this year. US consumer inflation expectations for the short term hit a near three-year low in December, hinting at a softer approach to monetary policy.

In New Zealand, markets anticipate four rate cuts from their central bank this year, possibly starting in May. The central bank's head noted the unexpected slowdown in growth, increasing chances of an earlier rate cut. In November, New Zealand's cash rate remained at 5.5%, narrowly avoiding a hike.​

 

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Analyzing EURUSD's Current Position​

Solid ECN – The EURUSD pair couldn't break the 38.2% Fibonacci level and is now in a bearish flag pattern. Its current price is 1.093, meeting the 50% Fibonacci level. Technical indicators aren't showing significant changes. The RSI is under 50, and the Awesome Oscillator bars are small and near the signal line. The ADX line is steady but over 20, indicating a possible upcoming trend.

If the price stays in the channel, it might go down. The first target for this drop could be the 61.8% Fibonacci level. But, if it breaks out of the channel, it might challenge the Ichimoku cloud.​

 

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GBPUSD Tests Ichimoku Cloud, Eyes Rise​

Solid ECN – The GBPUSD currency pair has tested the Ichimoku cloud in today’s trading session. The pair is currency trading at 1.2721 while the awesome oscillator bars turned green. The RSI indicator stayed above 50, another signal for the bullish trend’s resumption.

If the bulls can maintain the price above the cloud, the price will likely rise. But the first hurdle is 1.2776. Should this level be breached, the following target can be 1.2826.

The bullish scenario is invalid if the bears close below the cloud. In this case, the lower band of the bullish flag would be the next resistance.​

 

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USDJPY Above Ichimoku Cloud, Bulls Eye Gain​

The USDJPY currency pair is currently trading above the Ichimoku cloud, signaling a bullish trend. This positive outlook is further supported by various technical indicators. The ADX line, an indicator of trend strength, is above 40, indicating a strong upward trend. Additionally, the awesome oscillator bars are green, and the RSI indicator is positioned above its median line, both aligning with the bullish sentiment.

Bullish traders in the USDJPY market are likely setting their sights on the 61.8% Fibonacci resistance level. Supporting this bullish scenario are the lower band of the bullish flag and the cloud itself, both of which act as foundational supports for the uptrend. As long as the currency pair maintains its position above the cloud, the bullish trend remains valid and intact.​

 

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Gold: Bearish Channel and Fibonacci​

Solid ECN – The XAUUSD currently ranges between 61.8% and 38.2% Fibonacci levels. Interestingly, the Average Directional Index (ADX) lines hover below the 20 level, indicating market uncertainty. Despite this, gold continues to trade within the bearish channel. As a result, we can consider the current market trend as bearish.

Given this outlook, we might expect the bears to exert more pressure. This could lead to a continued decline towards the lower band of the bearish flag. However, this scenario would be invalidated if the gold price closes above the 38.2% Fibonacci resistance.​

 

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EURUSD Bullish Trend Analysis and Fibonacci Resistance Levels​

Solid ECN – The EURUSD currency pair has crossed above the bearish flag and is now testing the Ichimoku cloud. The ADX green line also crossed above the 20 level, signaling the emergence of a bullish trend. If the EURUSD remains above the blue trendline, the next target could be the 23.6% Fibonacci resistance.

The 50% Fibonacci level supports the bullish scenario. The uptrend analysis should be invalidated if the price declines below this resistance level.​

 

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USDCNH Tests Support; Bulls vs. Bears in Market Tug​

Solid ECN – The USDCNH pair is testing the 7.1631 support level on the 4-hour chart. Meanwhile, the Stochastic oscillator is gradually stepping outside the oversold area, signaling a potential change in momentum. If the bulls maintain the price above this support, we can reasonably expect the USDCNH price to experience a new bullish wave.

Consequently, the market might surge to the 7.1898 area in such a scenario.

On the flip side, should the bears successfully breach the support, the decline would likely extend to the 38.2% Fibonacci support level.​

 

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Gold Dips as Dollar Rises on US Data​

Solid ECN – Gold's price fell to under $2,030 per ounce on Thursday. This drop happened as the US dollar got more robust. Good US economic news reduced expectations for more accessible money policies in March. Inflation rates were higher than expected. Yearly inflation increased to 3.4% in December, up from 3.1% in November. Also, fewer people filed for unemployment last week than expected. Only 202,000 filed, less than the 210,000 predicted. This shows the job market is still strong.​

 

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UK Manufacturing Growth Rises in November 2023​

Solid ECN – In November 2023, the UK's manufacturing production increased by 0.4%. This was a change after four months of falling numbers. The growth almost matched the predictions of a 0.3% increase. The most significant boost to the yearly rate was from essential pharmaceuticals and preparations. Their production grew 4.8%, a recovery from a 3.4% drop in October.

Another significant growth was in food, beverages, and tobacco. This sector saw a rise of 1.4%, compared to only 0.1% in the previous month. Looking at the yearly data, manufacturing output grew by 1.3%. This was an improvement from October's 0.2% but fell short of the expected 1.7%.​

 

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Oil Prices Rise Amid Global Tensions​

Solid ECN – WTI crude futures experienced an upward trend, reaching nearly $73 per barrel at the start of the week. This marked the third consecutive session of gains, primarily influenced by military actions in the Red Sea region. US and UK forces conducted air and sea operations aimed at halting Houthi rebels in Yemen, who were reportedly targeting maritime vessels. These developments heightened concerns over potential disruptions in oil supplies. Several tankers altered their courses last Friday in response to the military strikes.

The Houthi group issued a warning on Sunday, promising a robust and decisive reaction against the United States. Libya's oil and gas sectors also faced threats of closure at two more facilities following the recent shutdown of the Sharara field, which reduced 300,000 barrels of oil per day from the market. Concurrently, the surge in oil production from non-OPEC nations, notably the United States, and the ongoing uncertainties surrounding China's crude oil demand continue to exert pressure on global oil prices.​

 

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AUDUSD Analysis​

Solid ECN – In the 4-hour chart, the AUDUSD currency pair oscillates within a downward channel. The RSI indicator is below 50, suggesting the downward trend may persist. If the downward channel remains intact, we could see a further decrease in the currency pair, potentially reaching the channel's lower boundary.

However, there's a chance for an upward breakout from the downward flag, as indicated by the divergence in the awesome oscillator. This divergence could signal a potential trend shift. Nevertheless, as long as the AUDUSD price remains within the flag, the downward technical analysis remains applicable.​

 

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GBPUSD Analysis​

Solid ECN – The GBPUSD currency pair trades within the bullish flag's lines, while the awesome oscillator indicator signals divergence in the daily chart.

The resistance that stopped the price from rising further is the 1.2827 mark. If the divergence signal comes into play, we can expect the GBPUSD price to fall and initially target the 38.2% Fibonacci support—the lower band of the envelopes indicator and the Ichimoku cloud further back up this support level.

Conversely, the bulls must break above the 1.2827 resistance for the uptrend to continue.​

 

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USDCHF: Switzerland's Inflation and Monetary Strategies​

Solid ECN – The Swiss franc has been stable since the beginning of the year, hovering around 0.85 against the US dollar. This stability is close to its 12-year peak of 0.83, achieved on December 29th. The Swiss National Bank (SNB) has implemented various support measures, leading to this steadiness. Market analysts believe the SNB might maintain its strict monetary policy for an extended time.

In December, Switzerland experienced an unexpected rise in inflation, reaching 1.7%. This rate is still within the SNB's expected range. However, it exceeded what many experts had predicted. This increase mirrors the inflation trends in countries using the Euro, Switzerland's primary trading partners. As a result, the SNB might need to raise interest rates. This move would support the Swiss franc and reduce the impact of imported inflation.

Contrasting with Switzerland's approach, there's growing speculation that the US Federal Reserve might cut interest rates sooner than anticipated. The SNB's strategy also includes selling foreign exchange. Recent data revealed that their reserves dropped to the lowest level in over seven years.​

 

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Indian Bond Yields Hit 4-Month Low: A Closer Look.​

In January, something notable happened in India's financial market. The yield on the 10-year Indian government bond dropped to 7.15%. This was its lowest point in almost four months. What caused this decline? A mix of positive economic trends and encouraging corporate news played a significant role.

First, let's look at the broader picture. Indian government securities (G-Secs) with a one-year maturity period saw a significant boost. This happened when Bloomberg suggested adding Indian bonds to its index for emerging market local currencies. JPMorgan had already taken a similar step by including Indian bonds in its emerging market debt index. These inclusions are crucial. They make foreign investors more interested in Indian sovereign bonds. When foreign demand goes up, bond yields typically go down.

Now, let's dive into the details. Core inflation is a crucial indicator of economic health. In December, reports from private banks revealed a substantial slowdown in core inflation. This slowdown sparked optimism. Many started anticipating that the Reserve Bank of India (RBI) might cut interest rates within the year. It's important to note, though, that overall headline inflation, as the official statistics office reported, had increased.

Despite this mixed inflation scenario, the RBI seems set to maintain its current policy stance. It's likely to continue the 'Withdrawal of Accommodation' policy in the upcoming meetings. This policy involves gradually reducing monetary support to the economy. While this move might limit the upswing in bond prices, the overall outlook remains cautiously optimistic.​

 

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UK's Producer Price Shift in December 2023​

Solid ECN – In December 2023, the UK saw a slight uptick in factory gate prices for domestically produced goods, marking a year-on-year increase of 0.1%. This change indicates a rebound from the previous month's revised 0.1% decrease and is a notable variance from the anticipated 0.4% growth projected by market analysts. This shift in the producer price index (PPI) is primarily attributed to the rise in prices for various outputs, which contributed the most significant upward push of 0.60 percentage points. Notably, these outputs saw an annual price jump of 2.7%, starkly contrasting their stagnant growth in November.

Further breaking down these changes, significant price increases were observed in specific sectors. Food products, for instance, witnessed a substantial rise of 1.8% in December, compared to no change in the previous month. Similarly, the prices for essential metals saw a considerable jump, reaching 2.7% growth compared to a mere 0.1% in November.

However, these increases were somewhat balanced by continued price drops in other sectors. The prices for coke and refined petroleum products maintained a downward trend, falling by 9.2%, which was even steeper than the 8.2% decrease observed earlier. Likewise, the chemical and pharmaceutical sectors experienced a significant contraction, with prices dropping by 12.8%, a more pronounced decline than the 0.7% fall in the previous period.

On a month-to-month basis, December's output producer prices declined by 0.6%, exceeding market expectations of a 0.2% fall. This decrease marked a change from the stagnant prices observed in the preceding period.

To understand these dynamics, it's essential to consider the broader economic context. The PPI is a critical economic indicator, reflecting the average change over time in the selling prices received by domestic producers for their output. These prices influence the cost of goods sold to consumers and can have ripple effects throughout the economy, affecting inflation, purchasing power, and overall economic health.

As investors and policymakers analyze these figures, it's essential to consider the complex interplay of various sectors and their impact on the economy. The fluctuating prices in key areas like food, metals, and petroleum products can signal changes in supply and demand, production costs, and broader market trends.​

 

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EURUSD Pair Falls Amid Mixed ECB Rate Views​

Solid ECN – The euro recently dipped below the $1.09 mark, reaching its lowest since mid-December. This decline is primarily attributed to the strengthening of the US dollar as investors reevaluate their expectations regarding interest rate cuts. Critical discussions at the Davos conference shed light on the varied perspectives of European Central Bank (ECB) officials regarding monetary policy and interest rates amidst ongoing high inflation.

Joachim Nagel, an ECB official, expressed at Davos that it is premature to consider reducing interest rates given the current inflationary pressures. Echoing this sentiment, Robert Holzmann from Austria suggested that rate cuts in 2024 seem highly unlikely. In contrast, France's Francois Villeroy de Galhau took a slightly different stance. While he agreed that the ECB is not in a position to declare victory over inflation yet, he hinted that a rate cut could be on the cards later in the year. Adding to these diverse viewpoints, Finnish policymaker Tuomas Valimaki advocated a more cautious approach, recommending patience and advising against premature policy actions.​