2023 Market Forecast by Solid ECN

[SOLID ECN LLC]

US100 gains over 1%

China's tech sector rebound fuels gains on Nasdaq

US100 futures are gaining, as a higher opening in Asia and euphoria on Alibaba shares have improved sentiment around the technology sector. Analysts have been very wary of Chinese tech stocks in recent years, fearing direct government intervention in their business and margins. So far, however, China is positioning itself as a free-market economy, allowing it to compete with the United States. A few months ago, representatives of Chinese authorities at the Davos Economic Forum asserted that, contrary to Western fears, the country does not intend to centralize power and completely subordinate the financial market party. In addition, reports from the Washington Post indicated that President Joe Biden is expected to present new banking regulations. The White House was prompted to create them by the SVB bankruptcy. The Nasdaq is attempting to close the quarter with its best performance since 2020, and after several weeks of turmoil in the banking sector, investors appear 'jaded' by news of the prospect of a crisis. US bank valuations are still far from a meaningful upward correction and Joe Biden has warned that the banking crisis is far from over, against which buyers have shifted from the 'risky' financial sector to the technology market.

Another supportive factor for US equities is the sharply losing VIX index, which is seen by investors as a barometer of market fear. Compiled by the CBOE, the index extends a 1.5-week-long downward impulse.

The US100 index is trying to maintain the bullish momentum initiated 2 weeks ago, and the declining VIX may support the buyers' side even now. However, it is worth watching tomorrow and Friday's session, when we will know many interesting macro readings from the US economy.​

 

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US100​

• US indices finished yesterday's trading higher with all major Wall Street indices adding 1% or more. S&P 500 gained 1.42%, Dow Jones moved 1.00% higher and Nasdaq jumped 1.79%. Russell 2000 gained 1.08%​
• Nasdaq gained over 20% off December low and has entered a technical bull market.​
• Indices from Asia-Pacific trade mostly higher. S&P/ASX 200 gained 1%, Kospi added 0.6%, Nift 50 moved 0.8% higher while Nikkei dropped 0.6%​
• Indices from China traded 0.2-0.5% higher​
• DAX futures point to a higher opening of the European cash session today​
• Fed Chair Powell has reportedly told Republican Representatives that Fed expects 1 more rate hike in 2023​
• ECB Schnabel said that banking troubles may have a disinflationary effect. On the other hand, she warned that labour costs indicate possibility of second round inflationary effects​
• Fitch noted that there were 14 sovereign default events since 2020, compared to 19 sovereign default events in whole 2000-2019 period​
• Chinese premier Li Qiang said that his country will strengthen macro policy adjustments and act to boost consumption and investments​
• UK car production increased 13.1% YoY in February as supply chain pressures eased. This was the first monthly increase in output in three months. 81% of all cars produced in UK were exported, with EU being main destination​
• New Zealand's building permits slumped 9% MoM in February. On annual basis drop reached 29.2% YoY​
• Major cryptocurrencies trade mixed - Bitcoin gains 1.2%, Ethereum adds 0.1%, Dogecoin drops 0.7% and Ripple trades 3.6% lower​
• Energy commodities trade mixed - oil gains around 0.3% while US natural gas prices drop 1.7%​
• Precious metals trade mostly higher - silver adds 0.7%, platinum trades 0.8% higher and palladium gains 0.6%. Gold trades flat​
• AUD and JPY are the best performing major currencies while USD and EUR lag the most​

Nasdaq-100 (US100) trades around 20% above the December 2022 low and therefore has entered a bull market, at least from a technical point of view. However, for any larger upward move to be delivered, a break above a psychological, mid-term resistance zone in the 13,000 pts area would be required.​

 

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EURUSD​

EURUSD will be on watch throughout the day today. This is thanks to releases of inflation data from Europe. Flash CPI reading for March from Spain was already released at 8:00 am BST and it came in even below low expectations - 3.3% YoY vs 3.8% YoY expected (6.0% YoY previously). Such a drop can be attributed to base effects, especially in energy, as oil prices skyrocketed a year ago in the aftermath of Russian invasion of Ukraine and now they are over 30% year-over-year lower. German reading at 1:00 pm BST is also expected to show a noticeable drop - from 8.7% YoY to 7.3% YoY.

Market expectations for ECB rate hikes have dropped and now the market prices in an around-75% chance of a 25 basis point rate hike at a meeting on May 4, 2023. However, a softer CPI readings from Europe may push those expectations even lower and it could serve as a drag for EUR. Nevertheless, it should be noted that CPI data for April will be available when ECB next meets therefore today's reading may have less of an importance for rate setters in Europe at their next meeting.

Taking a look at EURUSD chart at H1 interval, we can see that the pair dropped following Spanish CPI release (orange circle) but has managed to recover all of the losses later on. Pair broke above the 1.0850 resistance zone and is now attempting to take out yesterday's daily highs in the 1.0865 area.​

 

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AUDJPY​

• US indices finished another trading day higher. S&P 500 gained 0.57%, Dow Jones moved 0.43% higher and Nasdaq jumped 0.73%. Russell 2000 was a laggard and dropped 0.18%​
• Indices from Asia-Pacific followed into footsteps of US peers and traded higher. Nikkei and S&P/ASX 200 gained around 0.8% each, Kospi added 0.9% and Nifty 50 traded 1.0%. Indices from China traded up to 0.8% higher​
• DAX futures point to a slightly higher opening of the European cash session today​
• Reuters reports that Japan will set up a panel to discuss possibility of implementing digital yen backed by Bank of Japan​
• Turkey has approved Finland's NATO membership bid, clearing the final hurdle for the Nordic country to join the alliance. Sweden is still waiting for approval from Turkey and Hungary​
• According to Reuters report, OPEC+ JMMC is most likely to recommend leaving output cuts unchanged at a meeting on Monday​
• The Japanese trade and industry ministry announced that it will impose export controls on semiconductor manufacturing equipment. While it was stated that restrictions do not target any specific country, most take it as a step against China​
• Official Chinese manufacturing PMI dropped from 52.6 to 51.9 pts in March (exp. 51.6). Services gauge jumped from 56.3 to 58.2 pts (exp. 55.0)​
• Japanese industrial production increased 4.5% MoM in February (exp. 2.7% MoM)​
• Japanese retail sales increased 1.4% MoM in February (exp. -0.3% MoM)​
• Australian private sector credit increased 0.3% MoM in February (exp. 0.4% MoM)​
• Major cryptocurrencies are trading higher - Bitcoin gains 0.3%, Ethereum and Dogecoin add 0.6% each and Ripple trades 1.4% higher​
• Energy commodities are trading little changed - oil drops around 0.1% while US natural gas prices climb 0.2%​
• Precious metals trade mixed - gold and silver drop while platinum gains slightly​
• NZD and AUD are the best performing major currencies while JPY and CHF lag the most​

AUDJPY is trading higher following better than expected readings of official Chinese PMIs for March. A key near-term resistance to watch can be found in the 90.25 area, where the downward trendline and 50-session moving average (green line) can be found.​

 

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DE30​

German retail sales data for February was released today at 7:00 am BST. Report was expected to show a 0.5% MoM increase as well as 5.1% YoY drop in retail sales. However, actual data turned out to be much worse than expected with monthly data showing a 1.3% drop and annual data showing 7.0% YoY plunge. DE30 ticked lower following the release while EURUSD saw a minor uptick.

DE30 dipped after miss in German retail sales.​

 

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EURUSD climbs back above 1.09 mark after French CPI beat​

French flash CPI data for March was released today at 7:45 am BST. Report, just like reports from other European countries, was expected to show a significant deceleration in year-over-year reading. However, actual data showed a smaller than expected slowdown, just as it was the case with German data yesterday. French CPI slowed from 6.3 to 5.6% YoY in March, while the market expected a slowdown to 5.5% YoY. On a monthly basis, CPI reached 0.8% MoM, above 0.6% MoM expected by the market but below 1.0% MoM print from January.

Market reaction was small - DE30 ticked lower in a knee-jerk move before recovering losses while EURUSD moved higher and climbed back above 1.09 mark.​

 

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Gold​

Precious metals are trading a touch lower on the day after erasing earlier gains. Higher-than-expected reading of the French CPI this morning has taken some steam off the precious metals. Gold, as well as silver and platinum, may experience higher volatility following the release of European CPI reading for March (10:00 am BST) and US PCE reading for February (1:30 pm BST).

Taking a look at GOLD at the H1 interval, we can see that bulls attempted to push precious metal's price above the $1,985 resistance zone this morning. However, the attempt turned out to be a failed one and gold started to pull back. Should the ongoing pullback deepen, the first support to watch can be found in the $1,970 area, marked with previous price reactions as well as 50- and 200-hour moving averages. Overall, gold is trading sideways in a triangle pattern and direction of the next big move may be determined by direction of the breakout from this pattern.​

 

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US100​

It seems that we may be ending the downward phase on Wall Street, given the more than 20% rebound from the bottom. The US100 is having its best quarter since Q2 2020! In fact, if it weren't for the high inflation problem in February and then the banking crisis in March, then the US100 could even be above 14,000 points. Currently, the goal of investors will be to break through the area of 13450 points, where the range of the previous similar correction is located, and 13700 points, which are the peaks of the previous correction as well.

 

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Oil​

• Output cut came as a surprise as media reports prior to the weekend hinted that OPEC+ JMMC will likely recommend to keep output unchanged at a meeting today​
• Indices from Asia-Pacific traded mixed today - Nikkei and S&P/ASX 200 gained 0.5% each while Kospi dropped 0.2% and Nifty 50 traded 0.1% lower. Indices from China traded up to 1.2% higher​
• European and US index futures trade slightly below Friday's cash closing prices​
• Goldman Sachs updated oil price forecasts following a surprise OPEC output cut. The Bank now expects Brent price of $95 per barrel in December 2023 ($90 prior) and $100 per barrel in December 2024 ($97 prior)​
• ECB De Guindos said that while headline CPI in euro area is likely to fall this year, core inflation will likely stay firm. ECB members said that European banking sector is robust and that there is ample liquidity in the sector​
• Fed's Waller said that recent data shows that inflation can be brought down with causing damage to the labor market​
• Chinese Caixin manufacturing PMI dropped from 51.6 to 50.0 in March (exp. 51.7)​
• Australian building permits increased 4.0% MoM in February (exp. -2.6% MoM)​
• Cryptocurrencies are trading lower. Bitcoin drops 1%, Ethereum trades 0.4% lower while Dogecoin and Ripple dip 1.8%​
• Precious metals are pulling back amid USD strengthening - gold and platinum trade 0.9-1.0% lower while silver drops almost 2%​
• USD and JPY are the best performing major currencies while NZD and EUR lag the most​

A surprise output cut from OPEC triggered a spike on the oil market. WTI (OIL.WTI) launched a new week near the $81.20 resistance zone, marked with the upper limit of previous trading range as well as the upper limit of the Overbalance structure. However, bulls failed to break above it on the first attempt.​

 

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EURUSD

Today we are going to analyze the EUR/USD for a longer period of time, in order to get a broader view of the major currency pair. Over the last few months the euro has been recovering against the US dollar, but recently the bullish momentum has slowed down. But could the current rally be compromised?

On the weekly chart, we can see that the price continues to be supported relatively well by the 50-period EMA, although it continues to struggle to break above the recent highs reached this year.

Dollar Index - Weekly Time Frame

On the other hand, when we look at the dollar index chart, we can see that there is room for further declines in the USD. Above all, when we identify the chart pattern - head and shoulders which could support further declines if the price breaks below the neckline of the pattern.
Furthermore, the improvement in market sentiment also supports this bearish USD scenario.

AUD leads the gains this morning.