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Key Highlights

• Bitcoin price is consolidating above the $23,000 support zone.
• BTC broke a major bearish trend line at $23,500 on the 4-hours chart.
• Gold price climbed higher above the $1,830 resistance zone.
• EUR/USD extended its recovery above the 1.0640 resistance zone.

Bitcoin Price Technical Analysis

Bitcoin price found support near the $22,800 zone after a major decline. BTC/USD traded as low as $22,823 and recently started an upside correction.

Looking at the 4-hours chart, the price climbed higher above the $23,400 resistance zone. Besides, there was a break above a major bearish trend line with resistance at $23,500 on the 4-hours chart.

There was a break above the 23.6% Fib retracement level of the downward move from the $25,243 swing high to $22,823 low. On the upside, the price is facing resistance near the $24,050 resistance zone.

The 50% Fib retracement level of the downward move from the $25,243 swing high to $22,823 low is also near the $24,050 level. A close above the $24,050 level may perhaps start another steady increase in the coming sessions.

In the stated case, the price could rise towards the $24,650 level. Any more gains could set the pace for a move towards the $25,000 level.

On the downside, the price is stable above the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). An initial support sits near the $23,400 level. The main breakdown support sits near the $22,850 zone.

If there is a downside break and close below $22,850, bitcoin might start another decline in the coming days. In the stated case, it could revisit the $22,200 support or even test $21,500.

Economic Releases

• Eurozone Consumer Price Index for Feb 2023 (YoY) – Forecast +8.2%, versus +8.6% previous.
• Eurozone Consumer Price Index for Feb 2023 (MoM) – Forecast -0.3%, versus -0.2% previous.
• US Initial Jobless Claims - Forecast 197K, versus 192K previous.

• FTSE 100 reversed from key support level 7850.00
• Likely to rise to resistance level 8000.00

FTSE 100 index recently reversed up from the key support level 7850.00 (former resistance from January, which has been supporting the price from the start of last month, after was broken).

The support level 7850.00 was further strengthened by the nearby support trendline of the daily up channel from October and by the 38.2% Fibonacci correction of the upward impulse from January.

FTSE 100 index can be expected to rise further toward the next round resistance level 8000.00 (which reversed the price earlier this month).

• EURCHF broke key resistance level 0.9920
• Likely to rise to resistance level 1.0045

EURCHF recently broke the key resistance level 0.9920 (upper border of the narrow sideways price range inside which the pair has been moving from the start of February).

The breakout of the resistance level 0.9920 accelerated the C-wave of the active upward ABC correction 2 from the start of February.

EURCHF can be expected to rise further toward the next resistance level 1.0045 (which stopped the earlier waves (C), (2) and (ii)).

Lifting the lockdown and the end of the Lunar New Year celebrations led to a strong rebound in Chinese economic activity. The manufacturing PMI jumped to 52.6 in February from 50.1 the previous month, according to an official release from the CFLP. MarkIt’s manufacturing PMI (which conducts similar surveys worldwide) rose from 49.2 to 51.6 last month.

In both cases, we see a move from stagnation or a slight contraction to a growth rate that the official report has not seen since 2017. This can easily be explained by a low base, as the survey assesses the dynamics of the reporting month compared to the previous month.

The acceleration in the services sector is also impressive. The non-manufacturing PMI jumped to 56.3 in February, up from 54.4 in January. Growth in the services sector was the fastest since March 2021.

While China’s main challenge will be maintaining this growth rate, such a sharp turnaround surprised economists. They had expected a much smoother return to growth.

Markets have also underestimated China’s ‘vibrant’ reopening, with the renminbi up 1.4% against the dollar today, its strongest since late November.

The rise in the Yuan is important from a technical point of view, as it sets the USDCNH up for further declines. The pair’s rally in February from 6.70 to 6.99 appears to have been a corrective bounce from the October high of 7.35. Since the beginning of this week, the pair has fallen from the 61.8% Fibonacci retracement level and failed to reach the psychologically important 7.0 level, where it had a prolonged consolidation in December.

A complete realisation of the above formation implies that USDCNH would fall to 6.28-6.30. This is the crucial area of the cyclical lows of February last year and April 2018. In both cases, the USD/Yuan reversed to the upside on the back of cooling rhetoric from the US and European authorities towards China and an impressive revision of the country’s economic outlook. It would be premature to bet on a return of the renminbi to those heights. A return to 6.7, where the pair was a month ago, may be challenging for the renminbi bulls.

However, the 200 SMA indicates that it could change its trend, as we could see an abrupt move below this line today, which would be a strong sign that the USD buyers will capitulate from this critical level that the big banks are looking for. The Yuan is working very dutifully through the 200 SMA. Consolidation below 6.9 today (now 6.86) could repeat the situation in mid-2020 when such a breakout was a prologue for a big dip.

There is also a counterexample from February 2019, when a break of this support line led to a horizontal consolidation but not the trend reverse. Macroeconomic data and some dollar weakness in recent days suggest that the renminbi will continue to strengthen in the coming weeks and test 6.7 by the end of March, leaving the potential for a move lower.

The February ISM manufacturing index registered 47.7, slightly below expectations calling for a 48.0 print. The index rose 0.3 percentage points (pp) from January's reading of 47.4.

New orders rose 4.5 pp to 47.0, while new export orders were relatively flat, rising slightly to 49.9.

The backlog of orders sub-index rose to 45.1, up 1.7 pp from January's 43.4 print.

The production index fell 0.7 pp to 47.3, extending its decline, while the employment index edged down 1.5 pp to 49.1.

The supplier deliveries sub-index fell to 45.2 from 45.6 in January. Meanwhile, the prices index rose a sharp 6.8 pp to 51.3 in February – indicating rising raw materials prices.

Only 4 of 18 manufacturing industries reported growth in February. The industries reporting growth are Apparel, Leather & Allied Products; Transportation Equipment; Petroleum & Coal Products; and Electrical Equipment, Appliances & Components.

Key Implications

As expected, the ISM manufacturing index showed the sector contracted in February. This really isn't all that surprising given the circumstances – a one-two punch of high interest rates and a rotation of consumer spending back to services. Looking at some of the details, the new orders subindex continues to show declining demand – albeit at a noticeably slower pace than in January.

Our recent work has highlighted the multitude of headwinds facing the manufacturing sector as 2023 rolls along. The confluence of higher rates, slowing demand in key trading partners, and consumers that have spent the last few years stocking up on stuff are making for a challenging medium-term landscape for goods producers. However, several factors such as pent-up auto demand, rising military spending, and large investments in the automotive and semiconductor space should help keep a floor under the manufacturing sector as it goes over the latest bump.

Atlanta Fed President Raphael Bostic said Fed should hike by 50bps to 5.00-5.25%, and hold it at that level until well into 2024. "We must determine when inflation is irrevocably moving lower," he wrote in an essay. "We're not there yet."

"That's why I think we need to raise the federal funds rate to between 5-5.25% and leave it there well into 2024. This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance and thus lower inflation."

"If we are going to get inflation back in the range of our target, the breadth of inflation will have to narrow considerably," Bostic wrote. "When inflation is no longer top of mind, our mission will largely be accomplished. We are clearly not there yet. But I—and the Committee—are committed to doing all we can to ensure that we get there as soon as possible."

Minneapolis Fed President Neel Kashkari he is "open-minded" on either a 25bps or a 50bps rate hike at the March meeting. But he also noted, "I think my colleagues agree with me that the risk of under-tightening is greater than the risk of over-tightening

Karikari also said, "what's more important is what we signal in the dot plot... At this point I haven't decided what my dot is, but I would lean towards continuing to push up my rate and policy path,"

"Given the data in the last month — the inflation report and strong jobs report — these are concerning data points suggesting we're not making progress as fast as we'd like," Kashakri said. "At same time we don't want to overreact."

Markets

The 10-y Bund yield yesterday decisively cleared the key 2.55%/2.57% resistance on higher-than-expected French and Spanish CPI data. Today, German CPI only reinforced the case for further follow-through gains. German HICP also printed at a higher-than-expected 1.0% M/M and 9.3% Y/Y (9.2% in January), signalling upside risks also for the EMU-figure to be released tomorrow. German yields again add between 7 bps (5-y) and 5 bps (30-y). Markets ever more embrace the scenario that the ECB will (have to) raise its policy rate to 4.0% rather than 3.75%. Comments from ECB members Villeroy and Nagel at least didn’t contradict market pricing. Villeroy said that as core inflation continues to rise ‘no one can any longer deny that monetary policy can react and must react’. He also repeated that it is desirable for the ECB to reach its cycle terminal/peak rate by September. Buba president Nagel stated that the ‘the interest step announced for March will not be the last. Further significant interest rate steps might even be needed afterwards’. He also advocated an accelerated roll-off of the ECB balance sheet in July from €15bn to €20bn per month. The rise in US yields again lags the EMU, with US yields up by less than 2-4 bps across the curve, as investors await the outcome of the US manufacturing ISM after finishing this report. BoE governor Bailey in a speech kept a balanced tone. He indicated that further rate increases might be needed. However nothing has been decided yet. At the February policy meeting, the BoE indicated that rates might be raised further if it saw more evidence of persistent inflationary pressures. Better UK eco data of late already caused markets to position for an additional 75 bps of rate hikes. Bailey’s balanced comments apparently made investors ponder whether they have discounted enough tightening for now. Gilts outperformed Treasuries and Bund with yields easing up to 7 bps (2-y). Expectations for a prolonged period of tight monetary conditions (especially in the US and Europe) still don’t hurt the bid for risky assets in a profound way. Unexpectedly strong Chinese PMI’s this time supported equity resilience even as positive momentum ebbed as US traders joined. The Euro Stoxx 50 gains 0.3%. US indices open little changed. Cyclical commodities like copper gain on strong China PMIs/growth prospects. Energy prices (Brent oil $83 p/b, gas) hardly gain.

A higher interest rate differential combined with ongoing (European) equity market resilience favour the likes of the euro over the US dollar. EUR/USD rebounded from 1.0575 this morning to currently 1.0675. A break above EUR/USD 1.0803 would call off the euro correction/USD rebound. DXY also drifts lower to currently 104.30. Balanced comments of BoE’s Bailey and lower UK yields obviously disappointed sterling bulls. EUR/GBP jumped sharply from the 0.88 area this morning to currently trade near 0.8885.  

News Headlines

Bank of England figures showed that mortgage approvals fell to 39.6k (from 40.5k) in January, the lowest level since June 2020. Apart from the Covid-pandemic, it’s the lowest monthly number since January 2009. Weaker mortgage approvals stem for the rapid rise in interest rates and the drop in disposable income during the current cost-of-living crisis. First-time buyers have to spend around 45% of their pay check to mortgage payments (assuming rate of 5.5%), which is a level that prevailed ahead of the financial crisis. Earlier today, the Nationwide Building Society reported a 0.5% M/M decline in nationwide house prices (-1.1% Y/Y, first negative number since December 2012). Today’s data reinforce the view of a shaky UK housing market.

The Czech manufacturing PMI fell from 44.6 to 44.3 in January. Details showed another monthly fall in output and a steeper contraction in new orders. Domestic and foreign client demand continued to contract amid pressure on spending from energy costs, inflation and economic uncertainty. The outlook for the next 12 months remains subdued. Inflationary pressures softened notably as rates of increase in input costs and selling prices eased to the slowest since September 2020 and February 2021, respectively. The Polish manufacturing PMI rose from 47.5 to 48.5. New orders and production continued to decline, but a slower rate while cost inflation shifted down notably.

US ISM Manufacturing PMI rose from 47.4 to 47.7 in February, below expectation of 47.9. Looking at some details, new orders rose from 42.5 to 47.0. Production dropped from 48.0 to 47.3. Employment dropped from 50.6 to 49.1. Prices jumped from 44.5 to 51.3.

ISM said: "This is the fourth month of slow contraction and continuation of a downward trend that began in June 2022...

"The past relationship between the Manufacturing PMI and the overall economy indicates that the February reading (47.7 percent) corresponds to a change of minus-0.3 percent in real gross domestic product (GDP) on an annualized basis."

Full release here.