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Market picture

Gold’s historic highs and the surge in risk demand at the end of last week did not spare cryptocurrencies. Cryptos experienced impressive gains on Monday, but one cannot leave aside the weekend bull run as well. The crypto market capitalisation reached 1.55 trillion, adding 10.5% in seven days.

Bitcoin proved that the smooth uptrend since late October was just a long consolidation before a new upward spurt. Bitcoin has added over 11.5% since Friday, surpassing $42K at one point on Monday. While Bitcoin is overbought on daily timeframes, this is not necessarily a reason for a correction. In this mode, the first cryptocurrency can move for many more days, drawing more and more layers of investors into FOMO. Technically, up to $46K is thin-air territory for Bitcoin, and price swings between $40K and $46K can be pretty wild.

News background

Matrixport reiterated its forecast for Bitcoin to rise to $63K by April 2024 and $125K by the end of next year. Among the reasons for the rally are halving; geopolitical, monetary, and macroeconomic factors.

Grayscale expects that the emergence of spot bitcoin-ETFs has the potential to reduce the supply of BTC in the market, which in turn will have a positive impact on the first cryptocurrency’s rate. Halving in April will also reduce supply from mining companies.

DeFi and NFT activity is showing “tentative” signs of recovery from a two-year slump as the pending approval of spot bitcoin-ETFs has improved sentiment in the crypto market, JPMorgan noted.

Cryptocurrency exchange Kraken, which has been charged by the SEC, is going to fight the regulator and answer all complaints in court, the company’s general counsel said. He said the authorities’ accusations that “Kraken is a clearing house and a broker-dealer are completely made up.”

Circle, the issuer of the USDC stablecoin, denied reports of illegal funding and ties to the TRON Foundation, HTX and Tron founder Justin Sun.

Meanwhile, Cryptocurrency exchange Binance has entered into an agreement with an unnamed bank for the sake of attracting large legal entity investors and eliminating counterparty risk. Binance is preparing the foundation for the launch of spot bitcoin-ETFs in the US, which many market players have been waiting for a long time.

Markets

Gold grabbed most headlines today. The price of bullion spiked to an all-time high in illiquid Asian dealings of $2130/ounce. The spike didn’t last with gold prices falling back towards Friday’s closing levels near $2060/ounce. The move smells like an exhaustion move after the October/November core bond rally pushed gold prices up by around 15%. A quick look at the bitcoin graph (+5% today; +60% since early October; highest since April 2022) also suggests that the air is becoming thin. US Treasuries for the first time show some tentative signs of topping off. US yields add 4.5 bps (30-yr) to 9.7 bps (2-yr). Investors are chewing on Fed Chair Powell’s comments Friday in absence of eco data. He pushed back against premature rate cut bets though his warning initially fell on deaf ears, being overtaken by a weak manufacturing ISM. We don’t draw firm conclusions yet though as it will be tough sailing this week with US non-manufacturing ISM, JOLTS job openings, ADP employment and official payrolls all scheduled for release. We still need first evidence that Treasuries no longer rally on weak (or in line with consensus) data or sell-off on better figures. UK Gilts underperformed Bunds and Treasuries the past weeks with the topping off pattern being strengthened today. UK gilt yields add 3 bps (30-yr) to 5.1 bps (5-yr). Collective action by BoE members succeeded in convincing markets that a BoE rate cut won’t arrive in H1 2024. Sterling no longer profits today with EUR/GBP steady around 0.8580. GBP/USD loses a big figure at 1.2620. German Bunds are exception to the rule with Bund yields ceding another 1.5 bps (2-yr) to 4.8 bps (30-yr). There’s no specific outperformance of French OAT’s after they dodged a possible credit rating cut by S&P. The outlook on the AA rating remains negative though. EUR/USD can’t defy the gravity law, testing last week’s low around 1.0830. Risk sentiment starts the week a little heavy with main European indices mixed and key US gauges opening on the backfoot (Nasdaq up to 1% lower).

News & Views

Swiss inflation slowed more than expected in November. Prices fell by 0.2% M/M slowing the Y/Y measure from 1.7% to 1.4%. Core inflation eased from 1.5% Y/Y to 1.4%. Price decreases were broad-based, especially in the goods sector, with housing rental costs (+1.1% M/M and 2.4% Y/Y) the exception to the global trend. Goods prices declined 0.7% M/M and are only 1.1% higher compared to the same month last year. Services inflation printed at 0.1% M/M and 1.7% Y/Y (unchanged). Recent inflation data came out below the SNB forecast from the September policy meeting, when it expected inflation to average 2% in Q4 2023 and to return slightly north of the 2% top of the tolerance band throughout 2024. The November data suggest a lower starting point for new projections to be published alongside the Dec 14 SNB decision. Even as SNB recently indicated that it remains prepared to raise the policy rate further if needed, the central bank next week can keep a wait-and see approach. The franc declined modestly to test EUR/CHF 0.95 after the CPI release.

At the other end of the inflation-spectrum Turkish prices continued to rise in November. Headline inflation printed at 3.28% M/M and 61.98% Y/Y (from 61.36%). Core inflation rose slightly to 69.9% Y/Y. Still, both measures were slightly softer than expected. In a monthly perspective, housing related costs added 11.17% with alcoholic beverages and tobacco prices 9.16% higher. The CBRT in its November inflation report upwardly revised its outlook for 2023 eoy inflation to 65%. It expects inflation to continue to rise in the first half of 2024. It might reach a peak near 75% Y/Y, before staging a steady decline to 36% at the end of next year. The CBRT raised its policy rate to 40% two weeks ago. The hike was bigger than expected, but the central bank indicated that the current level of tightness is significantly close to the required level. So, the pace of tightening will slow from here and the cycle is expected to be completed soon. The lira is holding near historic low levels against the dollar (USD/TRY 28.92) and the euro (EUR/TRY 31.48), but the pace of depreciation recently almost came to a halt.

Brent oil prices fell to 78.30 USD per barrel on Monday.

Despite OPEC+ decisions at the November meeting, oil prices are falling. The issue is that the actual parameters of OPEC+ quotas turned out to be lower than investors expected. This does not cancel out the Cartel's powerful support on prices. However, the market cannot cope with emotional reactions.

Escalating tensions in the Middle East observed last weekend may bolster the oil quotes. The factor of a strong US dollar is working oppositely. While the USD is rising, commodity assets appear less attractive to buyers.

Brent technical analysis

On the H4 Brent chart, there was a rebound from the 84.81 level. The market has fallen to 80.10 and is forming a consolidation range around this level today. A decline to 78.10 is expected, followed by a rise to 80.00 (a test from below). Subsequently, the price could continue its downward trajectory to 76.50. A growth wave might start after the price reaches this level, targeting 85.80. This is the first target for the growth wave. Technically, this scenario is confirmed by the MACD, with its signal line breaking the zero mark, aimed strictly downwards.

On the H1 Brent chart, a consolidation range has expanded downwards to 78.10. Today, a rise to 80.10 is expected, followed by a drop to 76.50, potentially continuing to 75.40. Technically, this scenario is confirmed by the Stochastic oscillator, with its signal line below 20 and poised to rise to the 50 mark.

Daily Pivots: (S1) 1.0838; (P) 1.0875; (R1) 1.0922; More...

EUR/USD's fall from 1.1016 is in progress and intraday bias remains on the downside. Deeper decline would be seen to 55 D EMA (now at 1.0766). On the upside, above 1.0912 minor resistance will turn intraday bias neutral again first. Further break of 1.1016 will resume the rise from 1.0447 to retest 1.1274 high instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Rise from 1.0447 is tentatively seen as the second leg. Hence while further rally could be seen, upside should be limited by 1.1274 to bring the third leg of the pattern. Meanwhile, sustained break of 55 D EMA will argue that the third leg has already started for 1.0447 and below.

Daily Pivots: (S1) 1.2645; (P) 1.2680; (R1) 1.2747; More...

GBP/USD is still bounded in consolidation from 1.2731 and intraday bias stays neutral. But further rally is expected as long as 1.2590 minor support holds. On the upside, decisive break of 1.2731 will resume the rally from 1.2036 for retesting 1.3141 high next.

In the bigger picture, price actions from 1.3141 are seen as a corrective pattern to rise from 1.0351 (2022 low). Strong rebound from 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 suggests that current rise from 1.2036 is already the second leg. However, while further rally could be seen, upside should be limited by 1.3141 to bring the third leg of the pattern.

Daily Pivots: (S1) 146.20; (P) 147.27; (R1) 147.88; More...

Intraday bias in USD/JPY stays on the downside at this point. Fall from 151.89 is in progress and should target 145.06 key support level. On the upside, break of 148.50 resistance is needed to indicate short term bottoming. Otherwise, further decline with remain in favor in case of recovery.

In the bigger picture, rise from 127.20 (2023 low) is seen as the second leg of the pattern from 151.93 (2022 high). Decisive break of 145.06 resistance turned support will confirm that this second leg has completed, after rejection by 151.93. Deeper fall would be seen through 38.2% retracement of 127.20 to 151.89 at 142.45 to 61.8% retracement at 136.63. Nevertheless strong bounce from 145.06 will retain medium term bullishness for another test on 151.93 at a later stage.

Daily Pivots: (S1) 0.8657; (P) 0.8713; (R1) 0.8746; More....

Intraday bias in USD/CHF remains neutral for the moment. Another fall is in favor as long as 0.8769 minor resistance holds. Below 0.8665 will resume the decline from 0.9243 to 161.8% projection of 0.9243 to 0.8886 from 0.9111 at 0.8533, which is close to 0.8551 low. However, break of 0.8769 minor resistance should indicate short term bottoming, and turn bias back to the upside for stronger recovery.

In the bigger picture, price actions from 0.8551 are currently seen as part of a corrective pattern to the decline from 1.0146 (2022 high). Fall from 0.9243 is seen as the second leg for now. Deeper decline could be seen to 0.8551 low but strong support should be seen there to bring rebound. For now, this will remain the favored case as long as 0.8886 support turned resistance holds.

Today's markets are characterized by a sense of caution, with most major pairs and crosses gyrating inside Friday's range. Japanese Yen is an exception as a stronger performer, although it has not yet seen significant follow-through buying. Dollar and the Euro are currently in a consolidation phase, with traders adopting a 'wait and see' approach. Australian Dollar, alongside other commodity-linked currencies, exhibits a softer tone. Swiss Franc is also trending on the softer side, while Sterling is mixed.

The upcoming Asian session is set to feature several key economic indicators that are likely to influence market movements. Japan's Tokyo CPI, China's Caixin PMI Services, and RBA rate decision are among the key events. RBA is expected to maintain the interest rate at 4.35%. It is anticipated that RBA will refrain from making any significant policy announcements or giving clear forward guidance until Q4 inflation data is thoroughly analyzed. This approach suggests that the upcoming meeting will likely be procedural.

Technically, there is prospect of some volatility in AUD/JPY ahead. The cross turned into sideway consolidation after hitting 98.56 last month. For now, near term outlook will stay bullish as long as 96.01 support holds. Firm break of 98.56 will resume the rise from 86.04 to 61.8% projection of 86.04 to 97.66 from 93.00 at 100.18. Let's see if the upside breakout would happen this week.

In Europe, at the time of writing, FTSE is down -0.48%. DAX is up 0.10%. CAC is down -0.29%. Germany 10-year yield is down -0.004 at 2.356. Earlier in Asia, Nikkei fell -0.60%. Hong Kong HSI fell -1.09%. China Shanghai SSE fell -0.29%. Singapore Strait Times fell -0.20%. Japan 10-year JGB yield fell -0.0095 to 0.691.

ECB's de Guindos warns against early celebration of inflation slowdown

ECB Vice-President Luis de Guindos acknowledged the recent slowdown in CPI, which eased to 2.4% last month, describing it as "a positive surprise." However, he cautioned that it was "too early to declare victory."

De Guindos emphasized the influence of factors on slowing inflation like "base effect" and warned the potential inflationary impact of withdrawing government measures.

Additionally, he mentioned that "Unit labor costs are increasing in Europe and that is one of the concerns regarding the future evolution of inflation."

Addressing market expectations, de Guindos observed the anticipation of a soft landing and a prolonged disinflation process in Eurozone. However, he warned, "Such an assumption may not be confirmed in reality due to high uncertainty."

Eurozone Sentix rose to -16.8, cautious optimism amid inflation outlook

Eurozone Sentix Investor Confidence Index's latest update offers a mixed but cautiously optimistic view of the region's economic outlook. In December, the index rose from -18.6 to -16.8, slightly below the expected -16 but marking its highest level since May. Current Situation Index improved from -26.8 to -23.5. More notably, the Expectations Index inched higher from -10.0 to -9.8, reaching its peak since February.

The consecutive rise in the Expectations Index for the third month is a signal that some economists might interpret as the beginning of a trend reversal. However, Sentix cautions against over-optimism, noting "The still weak overall momentum and the lack of a certain amount of international support speak against this."

Despite these reservations, Sentix identifies potential for significant improvement at the start of the new year, largely due to positive shifts in the inflation outlook. The Sentix inflation barometer, which tracks expectations about inflation, has shown improvement for the fifth consecutive time, reaching 16.25.

Sentix elaborated on this, stating, "From this positive view of inflation, investors not only deduce an end to the central banks' prolonged cycle of interest rate hikes, but now also expect positive support from monetary policy." The corresponding theme barometer, reflecting this optimism, has ascended to 14.25, the highest since April 2021.

Swiss CPI slows to 1.4%, import prices turn negative

Swiss CPI fell -0.2 mom in November, below expectation of -0.1% mom. Core CPI (excluding fresh and seasonal products, energy and fuel), was flat at 0.0% mom. Domestic products prices was flat at 0.0% mom. Imported product prices fell -1.1% mom.

Annually, CPI slowed from 1.7% yoy to 1.4% yoy, below expectation of 1.6% yoy. Core CPI slowed from 1.5% yoy to 1.4% yoy. Domestic products prices slowed from 2.2% yoy to 2.1% yoy. Imported product prices turned negative from 0.4% yoy to -0.6% yoy.

BoJ's Noguchi: Just only beginning to envision inflation target achievement

BoJ board member Asahi Noguchi emphasized the need for continuing ultra-loose monetary policy in Japan.

Noguchi acknowledged on Saturday the impact of global inflation on Japan, stating, "It's true the impact of elevated global inflation is reaching Japan's economy with consumer inflation exceeding the BOJ's 2% target since the spring of 2022."

However, Noguchi differentiated the nature of Japan's inflation from that of the West, pointing out that, "the rise is mostly due to cost-push factors amid higher import prices," contrasting with the wage-driven price increases in US and Europe. This distinction is crucial in understanding BoJ's monetary policy approach.

To effectively meet the BoJ's inflation target, Noguchi emphasized "we must see price rises backed by sustained wage increases."

Despite significant wage hikes in this year's spring wage negotiations, Noguchi believes that Japan is only at the beginning of its journey to reach its inflation target, stating, "we've only just reached a stage where the possibility of achieving our target has come into sight."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.8657; (P) 0.8713; (R1) 0.8746; More....

Intraday bias in USD/CHF remains neutral for the moment. Another fall is in favor as long as 0.8769 minor resistance holds. Below 0.8665 will resume the decline from 0.9243 to 161.8% projection of 0.9243 to 0.8886 from 0.9111 at 0.8533, which is close to 0.8551 low. However, break of 0.8769 minor resistance should indicate short term bottoming, and turn bias back to the upside for stronger recovery.

In the bigger picture, price actions from 0.8551 are currently seen as part of a corrective pattern to the decline from 1.0146 (2022 high). Fall from 0.9243 is seen as the second leg for now. Deeper decline could be seen to 0.8551 low but strong support should be seen there to bring rebound. For now, this will remain the favored case as long as 0.8886 support turned resistance holds.

Economic Indicators Update

ECB Vice-President Luis de Guindos acknowledged the recent slowdown in CPI, which eased to 2.4% last month, describing it as "a positive surprise." However, he cautioned that it was "too early to declare victory."

De Guindos emphasized the influence of factors on slowing inflation like "base effect" and warned the potential inflationary impact of withdrawing government measures.

Additionally, he mentioned that "Unit labor costs are increasing in Europe and that is one of the concerns regarding the future evolution of inflation."

Addressing market expectations, de Guindos observed the anticipation of a soft landing and a prolonged disinflation process in Eurozone. However, he warned, "Such an assumption may not be confirmed in reality due to high uncertainty."