• No breakout validation for the S&P 500 for now
    by Justin Low on January 30, 2023 at 11:41 am

    <p style="" class="text-align-justify">Stocks are facing a rough time to start the new week and we are seeing S&P 500 futures fall lower by 43 points, down 1.1%, on the day currently. This is accompanied by a 1.4% drop in Nasdaq futures and a 0.8% drop in Dow futures as we continue to digest the market mood in European morning trade.</p><p style="" class="text-align-justify">In the case of the S&P 500 index, the retreat in futures sets up yet another rejection at the 4,100 mark despite dip buyers looking for a more bullish breakout last week. The jump above the 200-day moving average (blue line) and key trendline resistance (white line) was extremely encouraging but there's just this one last hurdle to clear.</p><p style="" class="text-align-justify">As mentioned last week <a href="https://www.forexlive.com/news/is-this-the-break-that-stocks-are-looking-for-20230124/" target="_blank" rel="follow">here</a>, I'd be more convinced of a further upside break if the S&P 500 can clear 4,100 - so as to break the prevailing pattern of lower highs, lower lows. And it looks like we might not get there until after the major central bank decisions coming up later this week.</p> This article was written by Justin Low at www.forexlive.com.

  • Dollar keeps more mixed in European morning trade
    by Justin Low on January 30, 2023 at 10:28 am

    <p style="" class="text-align-justify">Despite equities posturing more defensively, there isn't a clear hint of a theme among major currencies. The dollar is trading more mixed as it is slightly higher against the yen, loonie and aussie but a touch softer against the euro, franc and kiwi at the moment. It seems like traders are still sorting out their feet to start the new week with <a href="https://www.forexlive.com/news/month-end-action-in-focus-20230130/" target="_blank" rel="follow">month-end also in focus</a>.</p><p style="" class="text-align-justify">USD/JPY was lower in Asia down to 129.20 but is now trading back up to around 130.00 although the predominantly downtrend is still very much intact (as seen below). Meanwhile, other dollar pairs are still respecting the technicals highlighted at the end of last week <a href="https://www.forexlive.com/news/its-been-a-choppy-week-for-the-dollar-what-are-the-key-levels-to-watch-20230127/" target="_blank" rel="follow">here</a> so there isn't much else to comment on that.</p><p style="" class="text-align-justify">It's going to be a bit messy to figure things out in the next few sessions as markets will be bracing for the <a href="https://www.forexlive.com/news/another-week-of-central-bank-bonanza-coming-up-20230130/" target="_blank" rel="follow">central bank bonanza</a> coming up later this week, while having to deal with month-end rebalancing flows as well.</p><p style="" class="text-align-justify">But as always, the technicals are arguably the best tool you can use to try and define risk and gauge the market bias during times like these. Otherwise, there might not be much else to work with to start the week as all eyes will be on the Fed, BOE and ECB in the coming days.</p> This article was written by Justin Low at www.forexlive.com.

  • FX Majors Weekly Outlook (30-03 February)
    by ForexLive on January 30, 2023 at 10:22 am

    <p>UPCOMING EVENTS:</p><p>Tuesday: US ECI, US Consumer Confidence.</p><p>Wednesday: ISM Manufacturing PMI, US JOLTs Job Openings, FOMC Policy Decision.</p><p>Thursday: BoE Policy Decision, ECB Policy Decision, US Jobless Claims.</p><p>Friday: US NFP, ISM Services PMI. </p><p>If the last week was a pretty dull one with lack of big catalysts and a choppy price action, this one is going to be the complete opposite. We will have the FOMC and other major central bank policy decisions and lots of economic reports that the market is particularly focused on.</p><p>The "soft landing" narrative is dominating the scene at the moment with moderation in inflation and the resilience in the labour market. This has led to an easing in financial conditions.</p><p>I think the labour market data is more important now to the market given that the Fed has complained many times about the “extremely tight” labour market. We’ve finally been seeing disinflation in the past few months and the market has rallied on that, but the labour market data has consistently beat expectations. </p><p>This is something that should keep the Fed on its track to hike to their projected terminal rate because from a risk management perspective they can’t risk another spike in inflation given the tightness in the labour market, the easing in financial conditions and the China reopening. </p><p>Tuesday: The Employment Cost Index (ECI) is expected at 1.1% for Q4, down from the 1.2% of Q3. Wage inflation is something the Fed and the markets are keeping an eye on for the risk of a wage price spiral, but in the past months this risk subsided as data showed a moderation in wage growth. </p><p>Since the labour market is what in my opinion the market is more focused on now, I would look at the US Consumer Confidence Present Situation Index, which correlates with the unemployment rate, and generally foreshadows changes in employment by a couple of months. </p><p>Wednesday: The ISM Manufacturing PMI is expected to slip to 48.0 from the prior 48.4. The employment and prices paid sub-indexes will also be important to watch, with the former carrying more weight now for me. This is also why the US JOLTs Job Openings should also be market moving in case of a notable fall in the data. </p><p>The FOMC is expected to hike by 25 bps bringing the FFR to 4.50-4.75%. This move has been well telegraphed in the past weeks by further moderation in inflation and Fed members leaning on the smaller increase. In fact, the market is pricing a 98.4% chance of the Fed raising rates by 25 bps. The Fed generally follows market pricing, so it’s very unlikely to see them surprising with a 50 bps hike. I can see them raising by 50 bps only if they wanted to break the current “animal spirits” that made financial conditions to ease quite strongly in the recent months. Such a move would certainly trigger a big risk off across the board. </p><p>I would also add that the market is underestimating a lot the Fed’s resolve of hiking to their projected terminal rate and stay there for a while. Their projections saw a 5.1% terminal rate with 4.6% unemployment rate in 2023. This means that they would be comfortable to not only hiking to their projected rate but also stay there for longer as long as the unemployment rate stays below 4.6%. The current unemployment rate is 3.5%. </p><p>Thursday: The BoE is expected to hike by 50 bps bringing the Bank Rate to 4%. We will likely see dissent again within the MPC with Tenreyro and Mann probably voting for unchanged. The market expects further 25 bps hikes at the next meetings with the terminal rate seen at 4.50%.</p><p>The ECB is expected to hike by 50 bps bringing the deposit rate to 2.50%. The ECB members and especially President Lagarde have been showing a more resolute and aggressive stance on their tightening in recent months with calls of multiple 50 bps hikes. A recent report from Bloomberg though citing “ECB Sources” (which are generally right) suggested that policymakers are beginning to consider a step down to a 25 bps pace from March onwards. However, in recent speeches ECB members leaned against such a report. The ECB is also expected to start QT in March 2023.</p><p>The US Jobless Claims is expected to show an increase to 200K from the prior 186K and unchanged for the Continuing Claims at 1675K. Jobless Claims reports have been consistently showing strength. A big miss should catch the market’s attention. </p><p>Friday: The NFP report is expected to show 185K jobs added, down from the prior 223K. The rate of jobs growth has been moderating month after months, but the labour market remains extremely tight. The unemployment rate is seen at 3.6%, up from the prior 3.5%. Average Hourly Earnings are seen moderating again with the Y/Y reading expected at 4.3%, down from the prior 4.6% and the M/M figure to remain unchanged at 0.3%. </p><p>The ISM Services PMI is expected to return in expansionary territory at 50.3 after a surprisingly big dive to 49.6 in the prior report. Another miss should be bad for risk sentiment. </p><p>This article was written by Giuseppe Dellamotta. </p> This article was written by ForexLive at www.forexlive.com.

  • S&P500 Technical Analysis - Fed in Focus
    by ForexLive on January 30, 2023 at 10:19 am

    <p>In terms of technical analysis for the S&P500, the major trendline that defined the 2022 bear market has been finally breached. The market keeps on charging higher and higher on expectations that the Fed will end its tightening cycle soon and inflation returns back to target without a significant damage to the economy. </p><p>In fact, since November 2022, inflation data have been showing a clear easing in inflation and the labour market data kept on beating expectations. </p><p>The problem is that inflation and employment are lagging indicators and the leading indicators have been pointing to something pretty bleak on the horizon, which has been largely ignored by the market. </p><p>It might be that until the labour market data do not show a notable weakening, the bulls will have the upper hand. This week there are many economic reports focused on the labour market, so it’s going to be a big one. </p><p>The other major risk is that the Fed decides to surprise with a 50 bps hike, although this is very unlikely since they follow market pricing, and they already telegraphed a 25 bps move.</p><p>S&P500 Technical Analysis</p><p>On the daily chart above, we can see that the major blue <a href="https://www.forexlive.com/Education/technical-analysis-trendlines-20220406/" target="_blank" rel="follow">trendline</a> that defined the 2022 bear market has been breached. The bulls may now target the first <a href="https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/" target="_blank" rel="follow">resistance</a> at 4175. </p><p>If they manage to extend higher, then the resistance at 4324 will be targeted. If we see the bears smacking the price back down below the blue trendline, that would be a possible major fakeout signal and the start of another big sell off with the <a href="https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/" target="_blank" rel="follow">support</a> at 1506.</p><p>Looking at the 4 hour chart, we can see that the minor upward blue trendline will define the current short-term uptrend from the major downtrend. At the moment, the price is <a href="https://www.forexlive.com/Education/technical-analysis-understanding-divergence-20220429/" target="_blank" rel="follow">diverging</a> with the <a href="https://www.forexlive.com/Education/technical-analysis-understanding-macd-20220427/" target="_blank" rel="follow">MACD</a>, which generally signals a possible pullback or reversal. </p><p>If the labour market reports beat expectations again and the Fed doesn’t deliver any surprises, the resistance at 4175 should be reached without issues. </p><p>Zooming in to the 1 hour chart, we can see that there are two possible scenarios for the near-term price action: break above the 4108 resistance and the bulls should manage to reach the 4175 resistance, on the other hand, break below the 4056 support and the bears should regain control and target the minor blue trendline. </p> This article was written by ForexLive at www.forexlive.com.

  • Eurozone January final consumer confidence -20.9 vs -20.9 prelim
    by Justin Low on January 30, 2023 at 10:05 am

    <ul><li>Economic confidence 99.9 vs 97.0 expected</li><li>Prior 95.8; revised to 97.1</li><li>Industrial confidence 1.3 vs -0.6 expected</li><li>Prior -1.5; revised to -0.6</li><li>Services confidence 10.7 vs 7.9 expected</li><li>Prior 6.3; revised to 7.7</li></ul><p style="" class="text-align-justify">Euro area economic sentiment continues to improve further to start the new year but that comes after a less harsh winter, which may provide a bit of a false dawn. If <a href="https://www.forexlive.com/terms/i/inflation/" class="terms__main-term" id="ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa" target="_blank">inflation</a> data comes in more sticky like what we saw with Spain earlier, expect the optimism to fade quickly especially if the ECB continues to double down on its hawkish rhetoric.</p> This article was written by Justin Low at www.forexlive.com.

  • Equities keep more on the defensive on the session
    by Justin Low on January 30, 2023 at 9:55 am

    <ul><li>S&P 500 futures -0.8%</li><li>Nasdaq futures -1.1%</li><li>Dow futures -0.6%</li><li>Eurostoxx -0.8%</li><li>Germany DAX -0.6%</li><li>France CAC 40 -0.6%</li><li>UK FTSE -0.1%</li></ul><p style="" class="text-align-justify">Caution is in the air as we are seeing equities turn more defensive to start the new week. It has been a consistent decline since the open in Asia with sentiment hitting fresh lows here in European morning trade. The mood is arguably not helped by Spain's inflation data earlier, even if it comes with a caveat that there is a new methodology to the weightings in the calculation.</p><p style="" class="text-align-justify">In FX, the dollar is steadier and trades more mixed with light changes mostly. AUD/USD is down 0.4% to 0.7075 though, staying away from its August highs of 0.7125-36 for now. Meanwhile, EUR/USD is firmer by 0.3% to 1.0900 - helped by the data pointed out above.</p> This article was written by Justin Low at www.forexlive.com.

  • Germany Q4 preliminary GDP -0.2% vs 0.0% q/q expected
    by Justin Low on January 30, 2023 at 9:00 am

    <ul><li>Prior +0.4%</li><li>GDP (non-seasonally adjusted) +0.5% vs +0.8% y/y expected</li><li>Prior +1.2%</li><li>GDP (working day adjusted) +1.1% vs +1.3% y/y expected</li><li>Prior +1.3%</li></ul><p style="" class="text-align-justify">Well, so much for the hope that the German economy would've been able to squeeze out a bit of growth at the end of last year. This may just be the preliminary reading but it goes to show that even with a less harsh winter, Europe's biggest economy is facing up against daunting odds of beating a recession.</p> This article was written by Justin Low at www.forexlive.com.

  • SNB total sight deposits w.e. 27 January CHF 528.0 bn vs CHF 531.6 bn prior
    by Justin Low on January 30, 2023 at 9:00 am

    <ul><li>Domestic sight deposits CHF 511.6 bn vs CHF 511.6 bn prior</li></ul><p style="" class="text-align-justify">A slight drop in overall sight deposits but it is fitting with the trend as the SNB continues to do some policy tweaking since having to raise interest rates last year.</p> This article was written by Justin Low at www.forexlive.com.