2023 Market Forecast by Solid ECN

The Oil Market's Recent Dip: OPEC+ Strategy and Economic Factors

On Tuesday, WTI crude futures saw a slight uptick, trading around $75 per barrel after experiencing losses in four straight sessions. This change comes amid worries about potential further delays in the upcoming OPEC+ meeting, which may result in continuing the existing oil production policy.

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Saudi Arabia is advocating for a cut in production quotas to stabilize the market, yet no agreement has been reached so far. The meeting, initially scheduled for November 26, has been pushed to November 30 because of disagreements over output quotas, particularly involving Nigeria and Angola. Since September 27th, there has been a more than 15% decline in the oil market, attributed to abundant supplies and global economic uncertainties.​
 
Germany's Import Prices: A Continuing Decline

In October 2023, Germany saw a continued decrease in the cost of imported goods, marking the eighth month of this trend. The reduction in import prices was 13.0%, slightly less than the anticipated 13.4%. This ongoing drop stems largely from the high prices experienced in 2022 due to the conflict in Ukraine. The biggest decrease was in energy imports, which were 43.5% cheaper than the previous year. This includes significant reductions in the prices of natural gas, hard coal, electricity, mineral oil products, and crude oil. Intermediate goods and agricultural products also saw price drops, as well as both durable and non-durable consumer goods, albeit to a lesser extent. On the flip side, the cost of capital goods actually went up a bit.

For a catchy and visually appealing representation of this topic, I would suggest an image that creatively illustrates the decline in import prices in Germany. It could depict a downward graph or arrow, symbolizing the price reduction, set against a backdrop of key items such as energy sources and consumer goods. The overall tone should be informative yet engaging.​
 
GBPUSD Sees Strong Uptrend, Caution Advised for Long Positions

The GBPUSD currency pair recently began a stronger upward movement, surpassing its previous bullish trend. As of now, it's trading near 1.2703, with the RSI indicator indicating an overbought condition for nearly a day. Our previous technical analysis of GBPUSD cautioned that the pair was overbought, advising against long positions for retail traders. This advice remains relevant and applicable.

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For investors considering going long, the 1.260 level presents a good and fair entry point, should there be any price adjustments in the GBPUSD pair.​
 
EURUSD Fundamentals

On Wednesday, the Euro struggled to maintain its strength above the 1.1000 level against the US Dollar, ultimately retreating to around 1.0990 as trading began in Europe. Conversely, the US Dollar, referred to as the Greenback, is wavering around 102.70, despite recovering from earlier dips in the 102.50-102.45 range, as indicated by the USD Index (DXY).

The current monetary policy landscape remains stable for now. However, investors are speculating about potential interest rate reductions by the Federal Reserve (Fed) and the European Central Bank (ECB) come spring 2024.

Attention in the Eurozone is now turning towards Germany’s forthcoming release of preliminary inflation data for November. Meanwhile, in the US, the spotlight is on several key economic indicators, including the advanced Q3 GDP Growth Rate, preliminary figures for Goods Trade Balance, and Mortgage Applications as monitored by the MBA. The day in North America will conclude with the publication of the Fed’s Beige Book.

Adding to this, Cleveland Fed’s Loretta Mester, a hawkish figure and 2024 voter, is scheduled to speak, potentially offering further insights into future economic policies.​
 

US Stock Futures Rise: A Sign of Economic Optimism​

On a recent Wednesday, the US stock market showed signs of optimism before the market opened. Futures, which are contracts to buy or sell assets at a later date for a price agreed upon now, indicated an upward trend. Both the S&P 500 and the Dow Jones, two major stock market indices, were expected to rise by approximately 0.3%. The Nasdaq 100 futures, representing a third significant index, were poised to see an even more substantial increase of nearly 0.4%.

Factors Influencing the Market

Several factors contributed to this positive outlook. First, comments from officials at the Federal Reserve, the central bank of the United States, suggested a more accommodating monetary policy. They hinted that the period of increasing interest rates might be over, raising hopes of reduced borrowing costs in the coming year. This change in tone from the Fed can make it cheaper for individuals and businesses to borrow money, potentially stimulating economic activity.

Additionally, a decrease in Treasury yields, which are the returns on government securities, was seen as favorable for stocks. Lower yields often make stocks more attractive to investors compared to bonds.

Key Economic Indicators and Corporate News

Investors were also anticipating the release of revised figures for the US Gross Domestic Product (GDP) growth and initial data on corporate profits. GDP growth rate is a crucial indicator of the overall health of the economy, reflecting the total value of goods and services produced over a specific period. Positive GDP growth suggests a thriving economy, while a decline can indicate economic challenges.

On the corporate side, General Motors (GM) saw its shares jump over 5% in premarket trading. This surge was a reaction to the company's announcement of a $10 billion share buyback program, indicating confidence in its future financial performance. In contrast, shares of Las Vegas Sands, a major hospitality and gaming company, fell by about 5% after news that its largest shareholder planned to sell $2 billion worth of shares.

Assessing the Economic Implications​

The overall sentiment in the US stock market on this day was positive, which is generally beneficial for the economy. Rising stock prices can increase wealth for investors and boost consumer confidence, leading to more spending. When companies like GM announce significant share buybacks, it often reflects their confidence in their financial health, which can further stimulate economic growth.

However, large sales of shares, like in the case of Las Vegas Sands, can sometimes raise concerns about a company's future prospects, potentially impacting investor confidence.

Impact on the Economy

  • Positive Indicators: Higher futures, dovish Federal Reserve comments, and rising corporate shares like those of GM are all positive signs for the economy. They indicate investor confidence and a potentially growing economy.​
  • Cautionary Signs: Large share sales and fluctuations in key economic indicators like GDP growth and corporate profits require careful monitoring as they can signal shifts in economic stability.​
 
EURUSD: Testing the Waters at 1.096

In the EURUSD market, the bears are currently putting pressure on the 1.096 support level. At the same time, the RSI indicator has exited the overbought zone, yet there's a noticeable divergence present. If the EURUSD manages to stay above 1.0963, the market sentiment is likely to remain bullish.

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However, if the price of EURUSD dips below 1.0963, this bullish trend may pause. In this case, the focus will shift to how the market responds to the pivot point, which is also backed by the lower boundary of the bearish channel.​
 
USDCAD Eases Selling Pressure, Eyes 1.35 Level

Today, the USDCAD experienced a reduction in selling pressure, settling below the flag's median line. The pair is now finding its footing below the middle line, around the 64.8% Fibonacci level on the 4-hour chart. A bearish movement towards 1.35 is anticipated, matching the 78.6% Fibonacci level.

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A closer look at the 4-hour USDCAD chart reveals a divergence in the Awesome Oscillator with its bars turning green, while the RSI indicator suggests the likelihood of a price correction. The pair is currently restrained by the 23.6% Fibonacci level, which is preventing it from recovering more of its recent losses.

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As long as it stays below this level, the price is expected to fluctuate within the 1.35 to 1.36 range.​
 

How Hong Kong’s Retail Sector Slowed Down in October​

In October 2023, Hong Kong’s retail sector grew by only 2.7% compared to the same month last year. This was a big drop from the 10.0% growth rate in September 2023. It was also the lowest growth rate since December 2022.

One of the main reasons for this slowdown was the decline in sales of some essential items, such as food, drinks, tobacco, fuels, and consumer durable goods. These items are usually bought by local residents for their daily needs. However, due to the high inflation and the COVID-19 pandemic, many people reduced their spending on these items.

Another reason was the weak demand for luxury goods, such as jewellery, watches, clocks, and valuable gifts. These items are usually bought by tourists and wealthy customers. However, due to the travel restrictions and the political unrest, many tourists and investors stayed away from Hong Kong.

On the other hand, some categories of retail sales still performed well in October 2023. These included clothing, footwear, and other consumer goods. These items are usually bought by young and fashionable customers. They also benefited from the online shopping platforms and the festive promotions.

Compared to September 2023, retail sales increased by 6.1% in October 2023. This was mainly because of the seasonal factors and the low base of comparison. However, this increase was not enough to offset the year-on-year slowdown.

The Impact of Retail Sales on the Economy​

Retail sales are an important indicator of the economic health of a country or a region. They reflect the level of consumer confidence, income, and spending. They also affect the employment, tax revenue, and business activity of the retail sector.

Therefore, the slowdown in retail sales in Hong Kong could have a negative impact on the economy. It could reduce the income and profits of the retailers and their suppliers. It could also lower the tax revenue and the public spending of the government. It could also discourage the investment and the innovation of the retail sector.

However, the slowdown in retail sales could also have some positive effects on the economy. It could encourage the consumers to save more and spend less. It could also motivate the retailers to improve their efficiency and quality. It could also stimulate the diversification and the transformation of the retail sector.​
 

Lithium Prices Continue to Fall​

The price of lithium carbonate, a key ingredient for making batteries, has dropped to CNY 120,000 per tonne. This is the lowest price since August 2021. The reason for this price drop is that there is more lithium than people need. People are not buying as many electric vehicles (EVs) as expected in China, which is the biggest market for lithium batteries. Instead, battery makers are using up their existing stocks of lithium, which they bought when the Chinese government gave them a lot of subsidies in 2021 and 2022. Some experts now think that there will be enough lithium for everyone until 2028. This is a big change from the previous predictions that there would be a shortage of lithium soon. In November 2022, the price of lithium was as high as CNY 600,000 per tonne.

The situation is not much better in other countries. In the US, people are not buying many EVs either, because they have to pay more interest on their loans. This makes them less willing to spend money on big items like cars. Meanwhile, the production of lithium is still going strong. Mineral Resources, the second-largest producer of spodumene, a type of lithium ore, plans to double its output in Western Australia next year.

The Effect of Lithium Prices on the Economy​

Lithium prices are an important indicator of the economic health of the battery and EV industries. They show how much demand and supply there is for lithium, and how much profit and cost there is for the producers and consumers of lithium. They also affect the employment, tax revenue, and business activity of these industries.

Therefore, the fall in lithium prices could have a negative impact on the economy. It could reduce the income and profits of the lithium miners and battery makers. It could also lower the tax revenue and the public spending of the governments that support these industries. It could also discourage the investment and the innovation of these industries.

However, the fall in lithium prices could also have some positive effects on the economy. It could encourage the consumers to save more and spend less. It could also motivate the lithium miners and battery makers to improve their efficiency and quality. It could also stimulate the diversification and the transformation of these industries.​
 
EURUSD: Easing Near the Cloud

The EURUSD currency pair's downtick slowed near the lower line of the bullish flag. This pivotal mark is additionally supported by the Ichimoku cloud. For the bullish trend to maintain, the price should hold above the cloud and/or the 23.6% Fibonacci level. In this case, we can expect the EURUSD to continue its upward trend inside the flag.

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To trigger a long trade on the pair, it is recommended to patiently wait for the technical indicators to support the bullish scenario. The Stochastic oscillator hovers in the oversold zone, while the ADX indicator is about to cross above the 20 level. While the ADX indicator demonstrates that the trend is lacking momentum, the stochastic oscillator or RSI should cross above the signal lines.

Conversely, the bullish flag will be invalid if the bears close and stabilize the price below the 23.6% Fibonacci level. Please note, this event won't invalidate the bullish trend as long as the EURUSD hovers above the Ichimoku cloud.​
 
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