Market Update by Solidecn.com

[Solid ECN]

EURUSD

EURUSD has been trading lower since the beginning of February. The main currency pair pulled back almost 4% off the daily high reached on February 2, 2023. Outperformance of USD over EUR can be reasoned with monetary policy. Both ECB and Fed are committed to continuing tightening their policies. However, while it is widely believed that the ECB will continue to tighten, it was not so sure for the Fed. The Fed has slowed the pace of rate hikes to 25 basis points at the latest meeting. However, the message sent by Powell during the press conference was hawkish and a streak of better-than-expected US data since the latest FOMC meeting has further boosted expectations that Fed is not done yet. Moreover, FOMC minutes released yesterday showed that a number of Fed members saw a need for another 50 bp rate hike. Having said that, the outlook for ECB policy has not changed while the outlook for Fed policy got more hawkish and this is driving declines in EURUSD.



Taking a look at EURUSD chart at D1 interval, we can see that the main currency pair broke below the lower limit of the Overbalance structure at 1.0660 earlier this week. In theory, this mean that EURUSD trend has reversed bearish. Should we see declines deepen, the nearest support level to watch on the pair are 1.0575 (100-day EMA) and 1.0470 (38.2% retracement of the upward move launched in September 2022. On the other hand, should we see buyers regain control, it would be prudent for traders to wait to see whether EURUSD breaks back above the 1.0660-1.0702 zone before taking action.

[Solid ECN]

US100

• US indices finished yesterday's trading mixed. S&P 500 dropped 0.16%, Dow Jones moved 0.26% lower, Nasdaq gained 0.13% and Russell 2000 added 0.34%.
• FOMC minutes triggered a hawkish reaction on the markets, with USD gaining somewhat and indices slashing gains. Document noted that a few FOMC members opted for a 50 bp rate hike and that all members agreed more tightening is needed.
• Indices from Asia-Pacific traded mixed today. S&P/ASX 200 dropped 0.4%, Kospi moved 0.8% higher while Nifty 50 traded flat. Indices from China traded 0.2-0.4% lower.
• DAX futures point to a slightly higher opening of the European cash session today.
• Fed Williams said that demand is still exceeding supply and that monetary policy must ensure that balance is restored. Williams said that 2% inflation is foundational target.
• RBNZ Governor Orr said that cyclone-related price pressures may require higher rates to be kept for longer. Orr also said that a large inflationary shock would be needed for RBNZ to return to 75 bp rate hikes.
• Australian capital expenditures increased 2.2% QoQ in Q4 2022 (exp. +1.0% QoQ).
• API report pointed to a 9.89 million barrel build in US oil inventories (exp. +1.1 mb).
• Nvidia rallied almost 9% in the after-hours trading, following the release of earnings report for November 2022 - January 2023 period. Revenue reached $6.05 billion (exp. $6.00 billion) while adjusted EPS came in at $0.88 (exp. $0.81). Company expects revenue to reach $6.5 billion in February - April period, above Wall Street estimate of $6.33 billion.
• Cryptocurrencies are trading mostly higher - Bitcoin gains 1.1%, Ethereum adds 1.8% and Tezos jumps over 5%.
• Energy commodities trade mixed - Brent and WTI trades 0.3-0.4% higher while US natural gas prices drop 0.2%.
• Precious metals catch a bid amid USD weakening - gold gains 0.4%, silver adds 0.7% and platinum jumps 1%.
• NZD and AUD are the best performing major currencies while USD and JPY lag the most.

Nasdaq-100 (US100) trades within a short-term downward channel. Index took a hit yesterday following release of FOMC minutes but managed to find support at 200-period moving average (purple line, H4 interval) and climbed back above the price zone marked with 38.2% retracement of the upward move launched in late-December 2022.

[Solid ECN]

US500 Fell Slightly after Minutes

Markets unimpressed by latest FOMC minutes

Minutes from the latest FOMC meeting were hawkish but investors were expecting this narrative. The document did not present many new information regarding further steps that the FED intends to take regarding fiscal policy. Almost all FOMC participants agreed that it was appropriate to raise the target range for the federal funds rate by 25bps at the first monetary policy meeting of 2023, although a few officials favored raising it by 50bps. Minutes release taking into account hawkish tone led to small pullback on equity markets and appreciation of USD dollar.

Below you can find key takeaways from the document:

• A few participants favored raising rates by 50 basis points
• Several participants advocated raising interest rates by 50 basis points.
• Some participants predicted an increase in the likelihood of a recession in 2023.
• Participants stated that the continued tight job market would contribute upward pressure to inflation.
• Participants said that inflation in last three months has eased, but they need to see more progress.
• All participants agreed more rate hikes needed to achieve federal open market committee's job, inflation objectives.
• Upside risks for inflation, including China's economic reopening and Russia's war in Ukraine.

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US500 pulled back slightly after today's Minutes, however continues to trade above major support at 4000 pts.

[Solid ECN]

BREAKING: German IFO Data Meets Estimates, DE30 Muted

German IFO Institute published the latest survey data for February today at 9:00 am GMT. Data came in mostly in-line with market expectations with headline Business Climate index reaching 91.1 (exp. 91.2). Current conditions subindex missed estimates by quite a big margin while Expectations subindex turned out to be slightly better than expected. However, as scale of deviations from median estimates was small, there were no major reactions on the market. EURUSD ticked lower while DE30 was flat following the release.

• IFO Business Climate index for February: 91.1 vs 91.2 expected (90.2 previously)
• Expectations: 88.5 vs 88.4 expected (86.4 previously)
• Current Conditions: 93.9 vs 95.0 expected (94.1 previously)

DE30 barely saw any reaction to in-line IFO data. Index continues to trade near 15,300 pts price zone, that has limited recent downward moves.

[Solid ECN]

NZDUSD

New Zealand dollar is the top performing G10 currency today. Strength of NZD is driven by the rate hike announced by the Reserve Bank of New Zealand earlier today. RBNZ delivered a 50 basis point rate hike. While the decision was in-line with expectations of most economists, there were some concerns that RBNZ may decide to slow the pace of tightening following a recent hit from cyclone Gabrielle.

RBNZ Governor Orr said that there was barely any consideration for a 25 basis point rate hike as it is too early to determine impact of cyclone hit and that discussion was centered around a 50 bp rate move. RBNZ Chief Economist said that cyclone hit boosts demand for labour but it is possible that the build-back programme will exert upward pressure on inflation. Minutes showed that discussion was whether to hike rates by 50 or by 75 basis points. Ultimately, the official cash rate was increased by 50 bp to 4.75% - the highest level since late-2022. Moreover, the peak rate forecast was confirmed at 5.5% and it is expected to be reached Q1 2024. Interestingly, the cash rate forecast for June 2023 was cut from 5.4 to around 5.15%. While RBNZ sees need for more tightening ahead, it should also be said that Governor Orr noted that the Bank is still expecting recession in New Zealand in a 9-12 months period.



Taking a look at NZDUSD chart at D1 interval, we can see that the pair has recently pulled back and tested the lower limit of a trading range in the 0.6200 area. A 50 bp RBNZ rate hike today helped the pair bounce off the 0.62 handle and while initially it looked like a recovery move may be launched, gain started to be erased as USD regained ground.

[Solid ECN]

AUDNZD

• Wall Street dropped hard during the first session after a long weekend. S&P 500 dropped 2.00%, Dow Jones moved 2.06% lower, Nasdaq plunged 2.50% and Russell 2000 slumped 2.70%.
• While US stocks launched the day in bad moods, declines accelerated after solid US data (services PMI coming back above 50) boosted USD and Treasury yields, with 10-year rate climbing above 3.9%.
• Indices from Asia-Pacific traded lower as well but scale of the drop was smaller. Nikkei dropped 1.3%, S&P/ASX 200 traded 0.3% lower, Kospi slumped 1.7% and Nifty 50 declined 1%. Indices from China traded 0.2-0.8% lower.
• DAX futures point to a flat opening of the European cash session today.
• NZD gained after RBNZ delivered a 50 bp rate hike, putting cash rate at 4.75% - the highest level since late-2008. Majority of economists expected such a move but there were some calls for 25 bp hike or even pause following a recent cyclone hit.
• RBNZ signaled need for more rate hikes and confirmed its peak rate forecast at 5.50%.
• AUD weakened following disappointing data for Q4 2022. Wage index increased by 0.8% QoQ (exp. 1.0% QoQ) while construction work completed dropped by 0.4% QoQ (exp. +1.5% QoQ).
• Cryptocurrencies trade mostly lower - Bitcoin drops 1.6% while Ethereum and Dogecoin decline 1% each. Litecoin bucks the trend and gains 1%.
• Energy commodities are pulling back amid overall increase in risk aversion - Brent drops 0.3%, WTI trades 0.4% lower and US natural gas prices plunged 2.5%.
• Gold and silver trade little change while platinum and palladium jump around 0.8% each.
• NZD and JPY are the best performing major currencies while AUD, CAD and USD lag the most.

AUDNZD is plunging today amid a mix of NZD-positive and AUD-negative news. The pair pulled back from the resistance zone marked with 61.8% retracement and plunged back below recently-broken 200-session moving average (purple line). AUDNZD is attempting to make a break below the zone marked with 50% retracement, which would pave the way for a test of 1.0870 area, marked with 38.2% retracement.

[Solid ECN]

USDCAD

The Canadian dollar is weakening against the U.S. dollar ahead of an inflation reading from Canada, which will be announced at 1:30 pm GMT. The Bank of Canada recently announced the formal end of the 4.5% hike cycle (a 25 bp decision). The reading will show whether, in view of problems with the dynamics of a further decline in inflation in the USl, the BoC's decision to pause the cycle was premature. Analysts' consensus points to a CPI reading of around 6.1% vs. 6.3% previously, with an estimate of 5.1% for core inflation.

Wells Fargo expects Canadian inflation to fall as low as 6% in January as pressure from high energy prices wanes. The bank also expects the BoC to maintain a dovish stance over the next few quarters and to be one of the first central banks to decide to cut rates perhaps in the fourth quarter of this year, in the face of deteriorating economic conditions. A stronger-than-expected drop in CPI to 6% is also expected by TDS. The rental market, service prices and gasoline are likely to remain key drivers of inflation, while home furnishings and clothing should weigh on the reading. Citibank analysts indicated that the core inflation reading will be key, however. While CPI inflation may fall slightly primarily due to the high base effect, the risk remains that Canada's core inflation will stabilize in the summer at excessive levels of 3 to 4%.



USDCAD is weakening ahead of the reading, although bears may try to push the pair back below the 1.347 levels, which coincide with the SMA200 (red line), the 23.6 Fibonacci retracement of the upward wave started in mid-February and the local peak of February 16. Sellers may be stronger if the reading (like recent US data) indicates a lower rate of inflation decline. The level of 1.347 may be crucial for the bulls to hold.

[Solid ECN]

Silver

Major European indices finished today's session mostly lower, with Dax closing slightly below the flatline as traders brace themselves for the release of critical PMI data for the eurozone and the US due tomorrow before the publication of FOMC minutes later on Wednesday. ECB's Rehn said rates should be raised after March and the terminal rate could be reached this summer.



Silver bounced off the key support zone around $21.35-21.45 on Friday, which is marked with the lower limit of 1: 1 structure and 50% Fibonacci retracement of the last bullish wave. Moreover, a hammer formation has appeared on the D1 interval, which may be a sign that recent downward correction may have come to an end.

[Solid ECN]

EURUSD

The bullish momentum of recent months eased in February. The last sessions have been marked by some indecision in the price that ended up consolidating.



On the dollar index chart, we can see that there may be room for further declines in the dollar. Friday's daily candle rejected the 200-period EMA and if the price moves back below the 200- and 50-period EMAs, then the EUR could gain against US Dollar weakness.



AUD leads the gains this trading session.

[Solid ECN]

AUDUSD Approaches Major Resistance

The Australian dollar is the best performing G10 currency today as rising copper prices seem to support the resources-linked currencies amid subdued USD demand. AUDUSD bounced off the lowest level since January 6 touched on Friday and returned above 0.6900 level, however hawkish FED and simmering tensions between US and China may limit the upside movement. Currently the pair is approaching local resistance at 0.6925, which is marked with previous price reactions, 50% Fibonacci retracement of the last upward wave and 50 SMA (green line). Break higher would pave a way towards the next resistance at 0.6980, however if sellers manage to regain control and halt advances, then another downward impulse towards support at 0.6870 may be launched. Aussie may experience increased volatility in the evening and the coming Asian session, during the releases of flash PMI for February and RBA minutes.


One can observe a significant weakness of the US dollar, despite heightened geopolitical tensions.