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Morning Wrap - US500

S&P 500 (US500) failed to break above the 4,165 pts resistance zone last week and started to pull back. The move lower is being continued today. Tensions between China and the US are picking-up after the US Air Force shot down a Chinese spy balloon over the weekend.

 

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NZDUSD Faces Solid Support

The NZDUSD pair found solid support at 0.6290, to show some slight bullish bias and begins attempts to build bullish wave, but it loses the positive momentum clearly, which might force the price to decline again and attack the mentioned level in attempt to achieve more bearish correction.

Therefore, we prefer to stay aside until we get clearer signal for the next trend, noting that breaking the mentioned support will push the price to head towards 0.6210 followed by 0.6140 levels as next negative targets, while breaching 0.6365 represents positive factor that will lead the price to recover and achieve gains that start at 0.6445. The expected trading range for today is between 0.6260 support and 0.6380 resistance.

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Chart of the Day - USDCAD

USDCAD has been trading in a descending triangle pattern since October 2022. The pair failed to break above the resistance zone ranging below the 1.3500 area yesterday and can be seen pulling back today. USDCAD is expected to get more volatile later today as traders will be offered comments from both - Fed Chair Powell (5:40 pm GMT) and BoC Governor Macklem (5:45pm GMT). 

Solid jobs data led some to believe that the Fed may switch back to a 50 bp rate hike at its next meeting and Powell's comments will be key in shaping expectations further. Macklem will deliver a speech titled "How monetary policy works" at CFA Society Quebec. Speech will surely touch on the topic of monetary policy as the title implies. More importantly, Macklem will answer reporters' questions afterwards at 7:00 pm GMT and it could be a chance for more details on the current policy outlook.

USDCAD is trading around 1% below upper limit of the triangle pattern and around 1.2% above the lower limit. While today's speeches from BoC and Fed heads may not lead to an immediate breakout, they could set the tone for the coming days, which may lead to a breakout. A textbook range of the breakout from the pattern in either direction is 720 pips.

 

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Chart of the Day - USDDIX

The dollar index fell below 103 on Wednesday, extending yesterday's losses sparked by Powell’s latest comments. Head of the Fed said that more rate hikes will likely be needed and that the terminal rate could peak higher if the jobs market remains strong, however underlined that disinflation has begun. Traders now look ahead to more Fed commentary on Wednesday for further guidance. 

From a technical point of view, USDIDX bounced off key resistance at 103.40, which is marked with upper limit of the local 1:1 structure, previous price reactions,50 SMA (green line) and upper limit of the descending channel. As long as price sits below the aforementioned level, the main sentiment remains bearish. Nearest major support to watch is located around recent lows at 100.60. On the other hand, if buyers manage to regain control, upward correction may be launched towards resistance at 105.30, which coincides with 38.2% Fibonacci retracement of the upward move launched in January 2021.

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Bitcoin is Trying to Maintain Momentum Above $23,000

Bitcoin is trading near $23,000 today. After Powell's speech yesterday, cryptocurrencies were unable to continue their rally despite the initial euphoria. The mood among cryptocurrencies is mixed, with the biggest loser being Graph which gained nearly 50% yesterday on the AI trend. Let's take a look at some key 'on-chain' indicators like NUPL and SOPR, and see how the balance of short (STH) and long-term (LTH) BTC addresses:

NUPL (Net Unrealized Profit/ Loss Ratio) indicator tracks the ratio of unrealized profit/loss and shows that the rally has lifted Bitcoin above the average purchase price of the broad market, making the 'average' BTC holder back in profit. Compiling the duration of the negative NUPL in all the bull markets, we observe a historical similarity between the current cycle (166 days) and the bear markets of 2011-12 (157 days) and 2018-19 (134 days). However, the 2015-2016 bear market stood out under this, experiencing a dominance of unrealized losses twice as long as the current one. This could serve as a potential warning signal should BTC return below $20,000.

The ratio between the total unrealized gain held by the market and its annual average could be another indicator of momentum. The momentum metric is currently approaching the equilibrium point and shows similarities to the recent phases of the 2015 and 2018 bull markets. Confirmed breakouts above the equilibrium point (1 - the horizontal red line) coincided with a change in the market's profit structure in the past foreshadowed a longer recovery in sentiment. The length of time elapsed below the equilibrium point was similar in all major bear markets, but reaching a key on-chain level may foreshadow supply resistance - the index is struggling to climb above resistance on a sustained basis, which underscores how important it is to overcome $24,000 on a sustained basis.

The SOPR (Spent Output Profit Ratio) indicator can be used to check the profit aggregated by different groups of BTC holders. For short-term traders (STH, in red), we see that the STH-SOPR is currently trading above the 1.0 value, showing the first sharp increase in profitability since March 2022. This reflects the large amount of BTC purchased at lower prices in recent months, which can be sold at a profit if sentiment weakens further.

It is positive that not only short-term investors but the broader market also gained after a very deep and prolonged period of losses. However, assessing the LTH (Long Term Holder) group of long-term investors, we can see that the stressful situation has continued nd since the LUNY implosion. Although the group is still, on average, in a loss, there are the first signs of recovery, including the potential formation of an upward LTH-SOPR trend. During the 2018 bull market, long-term investors averaged 291 days in losses; today it's about 265 days.

Bitcoin, W1 interval. The major cryptocurrency is still struggling to climb above the 200-week average, which has turned into resistance from its historic, very strong support in 2022.
 

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Breaking - EUR Weakens Slightly After German Inflation Data

Annual inflation rate in Germany rose to 8.7% YoY in January, from 8.6% YoY in previous month, below market estimates of 8.9% preliminary estimates showed. The statistical office changed the CPI base year to 2020 from 2015 and a technical programme made it necessary to postpone the release of the preliminary CPI.

On a monthly basis, the inflation rose to 1.0%, in January from -0.8% in the previous month and above market estimates of 0.8% increase. In December when a federal one-off payment to cover the monthly installment for gas and heat for all households and small- to medium-sized businesses came into effect, pressuring the inflation down. The EU-harmonized index fell to 9.2% from 9.6%, below forecasts of 10%.

EURUSD bounced off the1.0740 resistance after release of today’s German inflation data.

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Chart of the Day - USDCHF

Swiss franc strengthened on Monday after the annual inflation rate in Switzerland jumped to 3.3% YoY in January, the highest reading since September 2022, from 2.8% in the prior month and above analysts' estimates of 2.9%, which should  support the case for further SNB policy tightening. Pair may experience increased volatility ahead of tomorrow’s US inflation data that could reinforce the case for more Federal Reserve interest rate hikes.

From technical point of view, the pair broke below the local support at 0.9235, which is marked with previous price reactions, 23.6% Fibonacci retracement of the latest upward wave and 200 SMA (red line). As long as price sits below, downward move may deepen towards next major support at 0.9200, which coincides with the lower limit of the triangle formation, 50 SMA (green line) and 38.2% retracement.
 

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EURUSD Attempts to Rebound

Fed's Bowman pointed out today that the US central bank still has a lot of work to do in order to achieve financial stability. Bowman emphasizes that further tightening of monetary policy is needed in order to achieve the desired level of inflation. Bowman also points out that interest rates need to reach restrictive levels and will stay there for a long time.

Volatility is rather limited today as the market awaits tomorrow’s US CPI report. EURUSD rebounds despite  the fact that yields are rather muted, which is attributed to good market sentiment.

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Chart of the Day - GBPUSD

The GBPUSD pair erased most of the early gains as investors digested latest figures from the UK labour market. The UK Office for National Statistics Office for National Statistics reported that the unemployment rate remained unchanged at 3.7% in December as widely expected, while the number of people claiming unemployment-related benefits fell by 12.9K in January. Moreover, December reading was also revised down sharply to -3.2K as compared to the 19.7k rise estimated originally. The number of people in work grew by 74k in Q4 of 2022,  easily topping analysts’ projections of a 40k increase. The number of part-time employees jumped to the highest level since the September-November period of 2021, however the number of full-time employees decreased but still above pre-pandemic levels. On self-employment, part-time self-employed increased, while full-time self-employed remained low.

On the other hand, in November 2022 to January 2023, job vacancies fell by 76K to 1,134K, the seventh consecutive quarterly fall, reflecting uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment.

Meanwhile US dollar trades slightly lower, extending yesterday's decline, however further downside move may be capped as traders might refrain from placing aggressive bets ahead of the crucial US consumer inflation figures, which will be released at 1:30 pm BST.

From a technical point of view, GBPUSD rose sharply in the morning after the release of UK data, however the pair pulled back after buyers failed to break above the 100 EMA (purple line). If sellers manage to regain full control, then declines may deepen towards local support at 1.2075. On the other hand, if bulls manage to regain control, next key resistance to watch can be found around 1.2215.

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AUDCAD Leans above the Additional Support

The AUDCAD pair lost the positive momentum, which forces it to form some of the bearish correctional rebound, to face the extra support at 0.9225 and settles above it, the continuation of the stability above this support besides providing positive momentum by stochastic exit from the oversold level, which will increase the chances for gathering positive momentum, to begin activating the bullish track by targeting 0.9345 level initially, then breaching the barrier near 0.9420.

while the price reach below the current support will force it to suffer extra losses by resuming the bearish correctional attempts, to expect reaching the critical support at 0.9130.

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Gold Drops to Six-week Low Amid Stronger USD

Gold price dropped over 1.0% during today's session and is trading at levels not seen since early January as fresh US inflation figures bolstered bets that Fed will stick to its tightening path in order to bring down inflation. Also latest Fed commentary also showed that policymakers largely backed more rate increases, though Fed's Harker said the Fed was nearing the point where rates were restrictive enough. Markets now expect the Fed funds rate to peak around 5.26% in July from the current range of 4.5% to 4.75%. This puts pressure on precious metals, while the dollar strengthens across the board, with the most pronounced buying activity against the antipodean currencies. The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, is moving towards 3.8%, a level not seen in more than a month. Traders now look ahead to US retail sales data on 1:30 pm GMT for more clues about the economy. Higher than expected reading would give Fed more reasons to continue on a hawkish path and put further pressure on bullion.

From a technical point of view, gold prices pull back sharply after buyers failed to break above major resistance at $1875. Price is currently approaching crucial support at $1830, which is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave started in March 2020.  Should break lower occur, sell-off may accelerate towards psychological support at $1800. 

Gold price dropped over 1.0% during today's session and is trading at levels not seen since early January as fresh US inflation figures bolstered bets that Fed will stick to its tightening path in order to bring down inflation. Also latest Fed commentary also showed that policymakers largely backed more rate increases, though Fed's Harker said the Fed was nearing the point where rates were restrictive enough. Markets now expect the Fed funds rate to peak around 5.26% in July from the current range of 4.5% to 4.75%. This puts pressure on precious metals, while the dollar strengthens across the board, with the most pronounced buying activity against the antipodean currencies. The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, is moving towards 3.8%, a level not seen in more than a month. Traders now look ahead to US retail sales data on 1:30 pm GMT for more clues about the economy. Higher than expected reading would give Fed more reasons to continue on a hawkish path and put further pressure on bullion.

From a technical point of view, gold prices pull back sharply after buyers failed to break above major resistance at $1875. Price is currently approaching crucial support at $1830, which is marked with previous price reactions and 38.2% Fibonacci retracement of the upward wave started in March 2020.  Should break lower occur, sell-off may accelerate towards psychological support at $1800. 

US dollar strengthens across the board during today's session. 

 

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Morning Wrap - GOLD

• US indices finished yesterday's trading lower as higher-than-expected US PPI reading for January added to inflation concerns. S&P 500 dropped 1.38%, Dow Jones moved 1.26%, Nasdaq plunged 1.78% and Russell 2000 dropped 0.98%
• Indices from Asia-Pacific followed into footsteps of US peers and traded lower today. Nikkei dropped 0.7%, S&P/ASX 200 traded 0.9% lower, Kospi declined 1% and Nifty 50 traded 0.3% down. Indices from China traded up to 1% lower
• DAX futures point to a lower opening of the European cash session
• US President Biden said that he expects to speak with Chinese counterpart, Xi Jinping, soon. However, relations between China and the United States are strained following the shooting down of a Chinese balloon. Moreover, Financial Times reports that senior Pentagon official will make a trip to Taiwan what is unlikely to brighten up relations between China and the US
• Fed Mester said that recent data shows demand not softening as expected. She also said that Fed will have to go above 5% and keep rates there for a while 
• RBA Governor Lowe said that if "things go right" rate cuts could come as soon as 2024. However, Lowe also said that rate hike cycle in Australia is not over yet as inflation remains high and damaging
• Shinichi Uchida, Bank of Japan official, said that BoJ decided to launch a pilot central bank digital currency (CBDC) this April. Program will be aimed at testing technical feasibility of such solutions
• New Zealand Finance Minister Robertson say that there is evidence suggesting that inflation has peaked already
• Saudi Energy Minister bin Salman said that the output deal struck in October will remain in place for the full 2023. He also said that he is skeptical about quick pick-up in Chinese demand following economic reopening
• While decent gains can be spotted on most altcoins, major cryptocurrencies are lagging behind. Bitcoin drops 1.5%, Ethereum trades 0.5% higher, Litecoin declined 0.4% and Ripple trades 0.5% down
• Energy commodities trade mixed - oil drops around 0.5% while US natural gas rallies 4%
• Precious metals are pulling back as USD strengthens - gold drops 0.6% and silver trades 0.8% down
• USD and CAD are the best performing major currencies while JPY and NZD lag the most

Strong USD, driven by hawkish Fed speakers, is putting a break on the recent gold market rally. GOLD has already pulled back around 7% off a recent high.

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EURUSD Economic Calendar: Quiet end to a busy week

• European indices trade 0.3-0.5% lower ahead of the opening
• Speeches from Fed and ECB members
• Earnings from Deere & Co, AMC Networks

European indices trade lower on Friday, following a downbeat US and Asian sessions. Moods on the global markets deteriorated further yesterday as higher-than-expected PPI reading added to concerns over inflation and scale of still needed tightening. USD is the best performing G10 currency but has pared some gains ahead of the European cash session open. Commodities find themselves under pressure amid stronger USD with gold trading 0.6% lower and oil dropping 0.5%.

Economic calendar for today is very light. There are no macro releases scheduled for release that tend to move the markets. The UK retail sales report was released at 7:00 am GMT and showed an unexpected increase (+0.3% MoM vs -0.5% MoM expected). GBP has had a fairly muted reaction to the release. Speeches from Fed and ECB members may offer some FX volatility

1:30 pm GMT - US, export prices for January. Expected: -0.2% MoM. Previous: 0.4% MoM

Central bankers' speeches

• 11:30 am GMT - ECB Villeroy
• 1:30 pm GMT - Fed Barkin
• 1:45 pm GMT - Fed Bowman

Top US earnings

• Deere & Company (DE.US) - before market open
• AMC Networks (AMCX.US) - before market open
• AutoNation (AN.US) - before market open

 

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Economic Calendar: Holidays in US and Canada Thin out Liquidity

diplomats was far from encouraging and it should deteriorate sentiment rather than improve it.

Economic calendar for today is light with only some second-tier data being scheduled for release during the European trading hours. A point to note is that US traders will be off today to observe Presidents Day. On top of that, traders from Canada will also be off to observe Family Day holiday. As a result, liquidity conditions in the afternoon are expected to be much thinner (changes to trading hours listed below). AUD may see some action this evening and the coming Asian session, thanks to scheduled releases of flash PMI for February and RBA minutes.

9:00 am GMT - Poland, data pack for January.

• Industrial production. Expected: 4.2% YoY. Previous: 1.0% YoY
• Wage growth. Expected: 12.6% YoY. Previous: 10.3% YoY
• Employment. Expected: 1.8% YoY. Previous: 2.2% YoY

Overnight/Asian session

• Monday, 10:00 pm GMT - Australia, flash PMIs for February.
• Tuesday, 0:30 am GMT - RBA minutes
• Tuesday, 0:30 am GMT - Japan, flash manufacturing PMI for February

US holiday - trading hours changes

• No trading - BRAComp, CORN, SOYBEAN, WHEAT, SOYOIL, LEANHOGS, CATTLE, SUGAR, COCOA, COFFEE, COTTON
• Trading until 4:30 pm GMT - VIX
• Trading until 6:00 pm GMT - US30, US100, US500, US2000, USDIDX, TNOTE
• Trading until 7:15 pm GMT - PLATINUM, PALLADIUM
• Trading until 7:30 pm GMT - GOLD, SILVER, GASOLINE, OIL.WTI, NATGAS
   

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Economic Calendar: FOMC Minutes, German IFO

• European indices set for flat opening of the cash session
• FOMC minutes due at 7:00 pm GMT
• German IFO data for February, Nvidia earnings

European stock market indices are set to open little change compared to yesterday's cash session closing levels. This comes after a downbeat US session yesterday and in Asia today. Nevertheless, moods look to have calmed down a bit as we head into a new trading day. Risky assets, like commodities or cryptocurrencies, are pulling back while precious metals trade a touch higher. NZD is G10 top performer following RBNZ rate hike while AUD lags the most after disappointing Q4 data.

Economic calendar for the day ahead is light but includes some interesting releases. FOMC minutes release is a key macro event of the day. Powell has been rather hawkish at its latest meeting and investors are eager to see details of discussion. Apart from that, traders will also be offered German IFO indices for February and API print on US oil inventories. RBNZ Governor Orr is set to speak in the evening while Nvidia is scheduled to report earnings after Wall Street close

• 9:00 am GMT - Germany, IFO index for February. Expected: 91.2. Previous: 90.2
• 9:00 am GMT - Italy, CPI inflation for January. Expected: 10.1% YoY. Previous: 11.6% YoY
• 7:00 pm GMT - FOMC minutes
• 9:40 pm GMT - API report on US oil inventories. Expected: +1.1 mb. Previous: +10.51 mb

Central bankers' speeches

• 7:10 pm GMT - RBNZ Governor Orr
• 10:30 pm GMT - Fed Williams

Top Wall Street earnings reports

• Baidu (BIDU.US) - before market open
• TJX (TJX.US) - before market open
• NVIDIA (NVDA.US) - after market close
• Lucid Group (LCID.US) - after market close
• Etsy (ETSY.US) - after market close

 

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