Sample Category Title
NZD Down after Poor Retail Sales, USD Extending Rally
Commodity currencies are experiencing selling pressure in Asian trading due to mild risk off sentiment. New Zealand Dollar is under added pressure following poor retail sales data. US Dollar and Japanese Yen are currently among the stronger currencies, with the latter showing little reaction to the dovish remarks made by the incoming BoJ Governor. Meanwhile, the European majors are showing a mixed performance, with Sterling having a slight advantage.
Technically, NZD/USD is extending the decline from 0.6537 and it's pressing key fibonacci level at 38.2% retracement of 0.5511 to 0.6512 at 0.6130. Strong support could be seen there to bring rebound, and break of 0.6261 resistance will indicate short term bottoming. However, sustained break of 0.6130 increase the likelihood of bearish reversal and lead to a deeper fall towards the 61.8% retracement at 0.5893.
In Asia, Nikkei closed down -0.11%. Hong Kong HSI is down -0.67%. China Shanghai SSE is down -0.23%. Singapore Strait Times is down -0.31%. Japan 10-year JGB yield is down -0.0011 at 0.504.
ECB Visco: If we need to be more restrictive, we'll be more restrictive
ECB Governing Council member Ignazio Visco told Bloomberg TV on Saturday, "I don't think that we can indicate now what the terminal rate will be, not even if it'll be 3.5%, 3.25% or 3.75%, because really it is data-dependent.
"Our objective is to go back to an inflation rate of 2% in the medium term. If we need to be more restrictive, we'll be more restrictive," he said.
Visco said "determined" steps are needed in Q2. "We have to be sure that core inflation isn't remaining at this high level... This may induce wage increases beyond what is compatible with a medium-term 2% inflation rate, which is our target. So that is why we are observing this with a lot of care — but I'm not worried."
BoJ Ueda: Benefits of current policy exceed the costs
Incoming BoJ Governor Kazuo Ueda told the upper house of parliament today, "there's still some distance for Japan to see inflation sustainably and stably meet the BoJ's 2% target."
"Big improvements must be made in Japan's trend inflation for the BoJ to shift towards monetary tightening," he said."It's not that I have no ideas on how to tweak the BoJ's current policy. But the desirable tweak will vary depending on economic changes at the time."
"In guiding monetary policy, central banks must weigh the benefits and costs of each step," Ueda said. "At present, the benefits of the BoJ's current policy exceed the costs."
"There are various side-effects emerging, but the BoJ's current policy is necessary and appropriate" to achieve its 2% inflation target, he said.
NZ retail sales volume dropped -0.6% qoq in Q4, value up 1.7% qoq
New Zealand retail sales volume dropped -0.6% qoq in Q4, below expectation of 0.2% qoq rise. Retail sales value rose 1.7% qoq.
By industry, the largest movements in sales volume were: electrical and electronic goods retailing (down -9.7%), motor vehicle and parts retailing (up 2.3%), food and beverage services (up 2.4%), fuel retailing (up 2.6%), furniture, floor coverings, houseware, and textile goods (down -5.2%).
Focuses turn back to economic data
Major focuses will turn back economic data this week. Most attention will be on US consumer confidence and ISMs, Eurozone CPI flash', Canada GDP, Australia CPI and GDP, New Zealand retail sales and business confidence, and. China PMIs
ECB minutes will also be watched closely. But they'll likely just repeat that March move would be a 50bps rate hike. Beyond that, the path will depend on incoming data and economic outlook, in particular the economic projections to be published at next meeting.
Here are some highlights for the week:
- Monday: New Zealand retail sales; Eurozone M3 money supply; Canada current account; US durable goods orders, pending home sales.
- Tuesday: Japan industrial production, retail sales, housing starts; New Zealand ANZ business confidence; Australia current account, retail sales; Germany import prices; France GDP, consumer spending; Swiss GDP, KOF economic barometer; Canada GDP, US goods trade balance, house price index, Chicago PMI; consumer confidence.
- Wednesday: New Zealand building permits; Australia GDP, CPI; Japan PMI manufacturing final; China PMIs, Caixin PMI manufacturing; Germany CPI flash; Swiss retail sales, PMI manufacturing; Eurozone PMI manufacturing final; UK PMI manufacturing final, mortgage approvals; Canada PMI manufacturing; US ISM manufacturing, construction spending.
- Thursday: Australia building approvals; Japan monetary base, capital spending, consumer confidence; Eurozone CPI flash, unemployment rate, ECB meeting accounts; US jobless claims.
- Friday: Japan Tokyo CPI, unemployment rate; China Caixin PMI services; Germany trade balance; France industrial production; Eurozone PMI services final, PPI; UK PMI services final; Canada building permits, labor productivity; US ISM services.
AUD/USD Daily Report
Daily Pivots: (S1) 0.6688; (P) 0.6756; (R1) 0.6793; More...
AUD/USD's fall from 0.7156 continues today and breaks 0.6721 support. Current development argues that near term trend could be reversing. Intraday bias stays on the downside. Deeper decline would be seen to 161.8% projection of of 0.6854 to 0.7028 from 0.6854 at 0.6539. On the upside, break of 0.6854 support turned resistance is needed to indicate completion of the fall, or risk will stay on the downside in case of recovery.
In the bigger picture, focus is now on 0.6721 structural support. Sustained break there will argue that whole rise from 0.6169 (2022 low) has completed at 0.7156, after rejection by 55 month EMA (now at 0.7179). Deeper decline would then be see back to 61.8% retracement of 0.6169 to 0.7156 at 0.6546, even as a corrective fall. Nevertheless, strong rebound from current level will retain medium term bullishness for another rise through 0.7156 later.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 21:45 | NZD | Retail Sales Q/Q Q4 | -0.60% | 0.20% | 0.40% | 0.60% |
| 21:45 | NZD | Retail Sales ex Autos Q/Q Q4 | -1.30% | 0.30% | 0.40% | 0.50% |
| 00:30 | AUD | Company Gross Operating Profits Q/Q Q4 | 10.60% | 1.50% | -12.40% | -11.50% |
| 09:00 | EUR | Eurozone M3 Money Supply Y/Y Jan | 4.20% | 4.10% | ||
| 10:00 | EUR | Eurozone Economic Sentiment Indicator Feb | 101 | 99.9 | ||
| 10:00 | EUR | Eurozone Industrial Confidence Feb | 2 | 1.3 | ||
| 10:00 | EUR | Eurozone Services Sentiment Feb | 12.4 | 10.7 | ||
| 10:00 | EUR | Eurozone Consumer Confidence Feb F | -19 | -19 | ||
| 13:30 | CAD | Current Account (CAD) Q4 | -11.0B | -11.1B | ||
| 13:30 | USD | Durable Goods Orders Jan | -4.00% | 5.60% | ||
| 13:30 | USD | Durable Goods Orders ex Transportation Jan | 0.00% | -0.20% | ||
| 15:00 | USD | Pending Home Sales M/M Jan | 0.90% | 2.50% |
BoJ Ueda: Benefits of current policy exceed the costs
Incoming BoJ Governor Kazuo Ueda told the upper house of parliament today, "there's still some distance for Japan to see inflation sustainably and stably meet the BoJ's 2% target."
"Big improvements must be made in Japan's trend inflation for the BoJ to shift towards monetary tightening," he said."It's not that I have no ideas on how to tweak the BoJ's current policy. But the desirable tweak will vary depending on economic changes at the time."
"In guiding monetary policy, central banks must weigh the benefits and costs of each step," Ueda said. "At present, the benefits of the BoJ's current policy exceed the costs."
"There are various side-effects emerging, but the BoJ's current policy is necessary and appropriate" to achieve its 2% inflation target, he said.
Technical Outlook and Review
USD/JPY:
Looking at the H4 chart, my overall bias for USDJPY is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. To add confluence to this bias, price is also along an ascending trendline.If this bullish momentum continues, expect the price to continue heading towards the 1st resistance at 137.657, where the overlap resistance is.
In an alternate scenario, price could possibly head back down to retest the 1st support at 134.650, where the overlap support intersects with the 23.6% Fibonacci line.
Areas of consideration:
- H4 time frame, 1st resistance at 137.657
- H4 time frame, 1st support at 134.650
DXY:
Looking at the H4 chart, my overall bias for DXY is bullish due to the current price crossing above the Ichimoku cloud, indicating a bullish market. To add confluence to this bias, price is also along an ascending trendline.If this bullish momentum continues, expect the price to possibly break the 1st resistance at 105.610, where the overlap resistance and 78.6% Fibonacci line is before heading towards the 2nd resistance at 107.207 which is the overlap resistance.
In an alternative scenario, price could head back down to retest the 1st support at 104.667, where the overlap support and 38.2% Fibonacci line is.
Areas of consideration:
- H4 time frame, 1st resistance at 105.610
- H4 time frame, 2nd resistance at 107.207
- H4 time frame, 1st support at 104.667
EUR/USD:
Looking at the H4 chart, my overall bias for EURUSD is bearish due to the current price crossing below the Ichimoku cloud, indicating a bearish market structure. To add confluence to this bias, price is also along a descending trendline.If this bearish momentum continues, expect the price to head towards the 1st support at 1.04818 which is the overlap support.
In an alternate scenario, price could possibly head back up to retest the 1st resistance at 1.05830, where the overlap resistance is.
Areas of consideration :
- H4 1st resistance at 1.05830
- H4 1st support at 1.04818
GBP/USD:
Looking at the H4 chart, my overall bias for GBPUSD is bearish due to the current price crossing below the Ichimoku cloud, indicating a bearish market. To add confluence to this bias, price is also along a descending trendline.If this bearish momentum continues, expect the price to head towards the 1st support at 1.18410, where the previous swing low is.
In an alternate scenario, price could head back up to retest the 1st resistance line at 1.19609 where the overlap resistance is.
Areas of consideration:
- H4 1st resistance at 1.19609
- H4 1st support at 1.18410
USD/CHF:
Looking at the H4 chart, my overall bias for USDCHF is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. To add confluence to this bias, price is also along an ascending trendline.If the current bullish trend continues, expect the price to possibly continue heading towards the 1st resistance at 0.94890 where the overlap resistance intersects with the 78.6% Fibonacci line.In an alternative scenario, price could possibly head back down to retest the 1st support at 0.93968, where the overlap support is
Areas of consideration
- H4 1st support at 0.93968
- H4 1st resistance at 0.94890
XAU/USD (GOLD):
Looking at the H4 chart, my overall bias for XAUUSD is bearish due to the current price being below the Ichimoku cloud, indicating a bearish market. To add confluence to this bias, price is also along a descending trendline.If this bearish momentum continues, expect the price to possibly continue heading towards the 1st support at 1782.920 where the overlap support intersects with the -61.8% Fibonacci expansion line.
In an alternative scenario, price could possibly head back up to retest the 1st resistance at 1824.515 where the overlap support is
Areas of consideration:
- H4 time frame, 1st resistance at 1824.515
- H4 time frame, 1st support at 1782.920
AUD/USD:
Looking at the H4 chart, my overall bias for AUDUSD is bearish due to the current price being below the Ichimoku cloud, and the price has broken the ascending trend line,a downward trend line has been created, indicating a bearish market.
The price could possibly go down towards the 1st support level at 0.67849 which is the recent overlap swing low. There is 2nd support at 0.65468 where the 61.8 % Fibonacci line is.
In an alternate scenario, The price could possibly go up towards the 1st resistance level at 0.66314 which is the recent overlap swing high, There is 2nd resistance at 0.70132 which is in line with the 23.6% Fibonacci retracement.
Areas of consideration
- H4. 2nd resistance at 0.70132
- H4. 1st resistance at 0.69188
- H4, 1st support at 0.67849
- H4, 2nd support at 0.65468
NZD/USD:
Looking at the H4 chart, my overall bias for NZDUSD is bearish, as the current price is below the Ichimoku Cloud. A descending trend line has been created, indicating a bearish market. Expecting the price to go down towards the 1st support at 0.61592 where the overlap swing low and 38.2% Fibonacci line are. The 2nd support is at 0.60168 where the 50% Fibonacci line is.
In an alternate scenario, price could possibly go up towards the 1st resistance level at 0.65158 which is the recent overlap swing high. There is a 2nd resistance at 0.66962 where the 78.6% Fibonacci line is.
Areas of consideration:
- H4 time frame, 2nd resistance at 0.66962
- H4 time frame, 1st resistance at 0.65158
- H4 time frame, 1st support at 0.61592
- H4 time frame, 2nd support at 0.60168
USD/CAD:
Looking at the H4 chart, my overall bias for USDCAD is bullish , as the current price is above the Ichimoku cloud. An ascending trend line has been created, indicating a bullish market. Expecting the current price to possibly break the 1st resistance at 1.37107 which is the overlap of the recent swing high, before it heads to the 2nd resistance at 1.38223 which is the previous swing high.
In an alternative scenario, the price could possibly drop to the 1st support at 1.32308 which is the previous swing low and also in line with the 61.8% Fibonacci retracement. The 2nd support is at 1.29584 where the 78.6% Fibonacci line is .
Areas of consideration:
- H4 time frame, 2nd resistance at 1.38223
- H4 time frame, 1st resistance at 1.37107
- H4 time frame, 1st support at 1.32308
- H4 time frame, 2nd support at 1.29584
OIL:
Looking at the H4 chart, my overall bias for BOC is bearish as the current price is below the Ichimoku cloud, and there is a descending trend line. Expecting the price to head down towards the 1st support level at 79.222 which is the recent overlap swing low, before the price drops to the 2nd support at 75.827.
In an alternate scenario, the price could possibly head up towards the 1st resistance level at 88.598 which is the recent swing high.
Areas of consideration:
- H4 time frame, 1st resistance at 88.598
- H4 time frame,1st support at 79.587
- H4 time frame, 2nd support at 75.827
Dow Jones Industrial Average:
On the H4 chart, the overall bias for DJI is bearish. To add confluence to this, the price is crossing below the Ichimoku cloud which indicates a bearish market.If this bearish momentum continues, expect the price to possibly continue heading towards the 1st support at 32504.04, where the 38.2% Fibonacci line and overlap support is.In an alternative scenario, price could possibly head back up towards the 1st resistance at 33380.95, where the 23.6% Fibonacci line is.
Areas of consideration:
- H4 time frame, 1st support at 32504.04
- H4 time frame, 1st Resistance at 33380.95
DAX:
Looking at the H4 chart, my overall bias for DAX is bullish. However price has crossed below the Ichimoku cloud which indicates a possible shift to bearish market structure.If this bearish momentum continues, expect the price to possibly head towards the 1st support line at 15030, where the overlap support intersects with the 38.2% Fibonacci line.In an alternative scenario, price could possibly head up to retest the 1st resistance at 15290 which is the overlap resistance.
Areas of consideration:
- H4 time frame, 1st resistance is at 15290
- H4 time frame, 1st support is at 15030
ETHUSD:
Looking at the H4 chart, my overall bias for ETHUSD is bullish, as there is a strong ascending trend line. The price may head back to retest the 1st support that intersects with the ascending trend line, before it goes up and break the 1st resistance line at 1783.72 before breaking the 2nd resistance line at 2013.26 which is the previous swing high.
In an alternate scenario, the price may retrace back to the 1st support line at 1509.50 which is the recent overlap support before it heads towards the 2nd support at 1173.56 which is in line with 78.6% Fibonacci retracement.
Areas of consideration:
- H4 time frame, 2nd resistance of 2013.26
- H4 time frame, 1st resistance of 1783.72
- H4 time frame, 1st support at 1509.50
- H4 time frame, 2nd support at 1173.56
BTCUSD:
Looking at the H4 chart, my overall bias for BTCUSD is bullish. As there is an ascending trend line, expect the price may head back to retest an the ascending trend line, before it goes up and break the 1st resistance at 24986.97 which is the overlap recent swing high, before it head up to the 2nd resistance 29432.80 where the 38.2% Fibonacci retracement is.
In an alternate scenario, The price may go down towards the 1st support line at 21553.01 which is in line with 38.2% Fibonacci retracement, before heading down towards the 2nd support at 19231.61 which is in line with 61.8% Fibonacci retracement.
Areas of consideration:
- H4 time frame, 2nd resistance 29432.80
- H4 time frame, 1st resistance 24986.97
- H4 time frame, 1st support at 21553.01
- H4 time frame, 2nd support at 19231.61
S&P 500:
Looking at the H4 chart, my overall bias for S&P500 is bearish due to the current price being below the Ichimoku cloud, indicating a bearish market.If this bearish momentum continues, expect the price to continue heading towards the 1st support at 3898.00 where the overlap support intersects with the 78.6% Fibonacci line.
In an alternative scenario, price could possibly head back up to retest the 1st resistance at 3973.25 which is the overlap resistance.
Areas of consideration:
- H4 time frame, 1st support at 3898.00
- H4 time frame, 1st resistance at 3973.25
NZ retail sales volume dropped -0.6% qoq in Q4, value up 1.7% qoq
New Zealand retail sales volume dropped -0.6% qoq in Q4, below expectation of 0.2% qoq rise. Retail sales value rose 1.7% qoq.
By industry, the largest movements in sales volume were: electrical and electronic goods retailing (down -9.7%), motor vehicle and parts retailing (up 2.3%), food and beverage services (up 2.4%), fuel retailing (up 2.6%), furniture, floor coverings, houseware, and textile goods (down -5.2%).
ECB Visco: If we need to be more restrictive, we’ll be more restrictive
ECB Governing Council member Ignazio Visco told Bloomberg TV on Saturday, "I don't think that we can indicate now what the terminal rate will be, not even if it'll be 3.5%, 3.25% or 3.75%, because really it is data-dependent.
"Our objective is to go back to an inflation rate of 2% in the medium term. If we need to be more restrictive, we'll be more restrictive," he said.
Visco said "determined" steps are needed in Q2. "We have to be sure that core inflation isn't remaining at this high level... This may induce wage increases beyond what is compatible with a medium-term 2% inflation rate, which is our target. So that is why we are observing this with a lot of care — but I'm not worried."
EUR/USD Slides Further As Dollar Gains Steadily
Key Highlights
- EUR/USD extended its decline below the 1.0600 support.
- A key bearish trend line is forming with resistance near 1.0580 on the 4-hours chart.
- GBP/USD could dive if it breaks the 1.1920 support.
- Gold price is at risk of a move below the $1,800 support.
EUR/USD Technical Analysis
The Euro started another decline after it failed to recover above 1.0800 against the US Dollar. EUR/USD extended its decline below the 1.0700 support zone.
Looking at the 4-hours chart, the pair settled below the 1.0650 support level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).
The decline gained pace below the 1.0620 and 1.0600 support levels. A low is formed near 1.0536 and the pair is now consolidating losses. On the upside, an immediate resistance is near the 1.0575 level.
There is also a key bearish trend line forming with resistance near 1.0580 on the same chart. The next major resistance is near the 1.0620 level. A clear move above the 1.0620 resistance might start a steady increase.
The next target could be near the 1.0700 level and the 100 simple moving average (red, 4-hours), where the bears might appear. Any more gains could open the doors for a move towards the 1.0800 level.
On the downside, an immediate support is near the 1.0540 level. The next major support is near the 1.0500 level, below which there is a risk of a move towards the 1.0450. Any more losses could open the doors for a drop towards 1.0380.
Looking at GBP/USD, the pair slowly declined below 1.2050 and there is a risk of more losses in the coming days.
Economic Releases
- Euro Zone Industrial Confidence for Feb 2023 – Forecast 2, versus 1.3 previous
- Euro Zone Economic Sentiment Indicator for Feb 2023 – Forecast 101, versus 99.9 previous.
- US Durable Goods Orders for Jan 2023 – Forecast -4% versus +5.6% previous.
NZ First Impressions: Retail Trade December Quarter 2022
Nominal spending levels are continuing to rise. However, increases in prices mean we’re getting less for each dollar we spend.
- Q4 real retail sales (volumes): -0.6% (Prev: +0.6%)
- Westpac f/c: -1.7%, Market +0.2%
- Q4 nominal sales level: +1.7% (Prev: +3.4%)
Detail
Households are splashing out more cash, but we’re getting less bang for our buck.
Nominal spending levels rose by 1.7% over the December quarter.
However, with prices rising rapidly, the actual amount of goods we’ve been purchasing has been going backwards. In fact, the volume of goods sold fell 0.6% in the December quarter.
And this isn’t just a one-off drop. The actual amount of goods we’re purchasing has been edging downwards for a year now, even as rapid price rises have pushed nominal spending levels higher.
Looking into the details of the December quarter retail spending report, we are seeing a rotation in spending appetites. We’re now spending less on durable items like electronics and recreational goods, with spending in these categories down 9% on this time last year. However, our spending on recreational activities, like dining out and accommodation, has been climbing rapidly. That’s a reversal of the trends we saw following the start of the pandemic, and we expect that pattern to continue going forward.
We’re also seen a large increase in spending on necessities like groceries (up 6.6% over the past year). However, that’s at the same time as grocery prices have risen by more than 10%.
Implications
Today’s report highlighted two big trends for the RBNZ. First, while spending levels have continued to rise, that’s mainly due to price increases, rather than households actually purchasing more items.
Second, even in the face of price rises, spending appetites have remained resilient. In fact, discretionary spending on items other than groceries has continued to rise despite the increases in prices and interest rates.
The RBNZ last week signalled that further interest rates increases are needed to dampen domestic demand and the current rampant price inflation. However, we think the end of the tightening cycle is coming into sight and are picking the cash rate will peak in May.
As we’ve highlighted before, monetary policy does work. But it takes time for interest rate increases to affect activity, especially given the extent of mortgage rate fixing in the New Zealand economy. Over the coming year, more than half of all fixed rate mortgages will come up for repricing, and many borrowers will face interest rate rises of 3% or more. Combined with the squeeze on spending power from higher prices, that will be a large drag on households’ disposable income and spending.
In terms of the upcoming December quarter GDP result (due for release on 16 March), today’s retail volumes result was above our forecasts. However, we’ll firm up our pick for GDP growth as other partial indicators are released over the next couple of weeks.
Australian Q4 Business Indicators Survey: Inventories, Sales, and Company Profits; First Impressions
Inventory levels decline, following a sharp run-up, confirming a large subtraction from Q4 growth. Sales reportedly stalled, pointing to sluggish conditions. Whereas profits rose strongly.
Inventories declined in the December quarter, contracting by 0.2%.
The Q4 fall in inventories was not as sharp as we anticipated, Westpac f/c -1.0% and market median flat (range, -1.0% to +1.4%).
However, incorporating revisions to Q3, the result confirms a large subtraction from Q4, an impact of -0.8ppts (-0.76ppts to decimal reports), broadly as we anticipated, a forecast -0.9ppts.
Recall that in Q3, inventories rose sharply.
We took the view that the Q3 rise was inflated by one-offs, namely: a jump in mining (transport links to ports disrupted) and a rise in retail, on an apparent bring forward to avoid supply chain disruptions.
In the event, both of those dynamics reversed, as we foreshadowed. Albeit a rise in wholesale inventories in Q4 cushioned the decline in overall inventories.
Sales stalled in the December quarter the Business Indicators (BI) survey reports, edging down by -0.1%.
While the BI sales measure provides only a broad guide to conditions (domestic demand and output) quarter to quarter (the fit is much better on annual basis), such a weak result shouldn’t be ignored.
Outside of lockdowns, that is the softest sales outcome since the second half of 2019.
As we foreshadowed in our GDP preview, on our figuring domestic demand potentially grew by only 0.3% in the December quarter – the weakest result outside of lockdowns since March 2019. We suspect that half of the economy (that is, excluding the consumer) may have been flat over the final months of 2022.
Company profits
The survey headline profit number (an accounting measure) posted a sizeable rise, up by 10.6%.
That was much stronger than expected, Westpac forecast +1.0%, market median +1.8% (range -2% to +6%).
As we highlighted previously, in the BI survey fluctuations in the value of inventories (due to price movements) is booked as a profit / loss – while the national accounts look through this.
Recall that in Q3, the BI survey reported an exaggerated fall in profits, down by -12.4% (revised to -11.3%), while the national accounts estimate declined by -4.7%.
For Q4, on an adjusted basis, company profits ex finance rose by around 6%. That is stronger than the -1% we anticipated on this basis.
A word of caution, the extent of unknowns on the Income side of the accounts is considerably greater than that for the Expenditure side – hence we are a little wary of taking our cue from this upside on profits.
Forex and Cryptocurrency Forecast
EUR/USD: FOMC Protocol Strengthens the Dollar
Macroeconomic statistics in both the US and the Eurozone look mixed. In both regions, inflation is slowing down (which is good), but GDP growth is also decreasing (which is bad for the economy). According to the US Department of Commerce, the pace of consumer spending growth in the country for Q4 was +1.4% after +2.3% in Q3 (forecasted at +2.1%). The US GDP growth rate on an annual basis, according to preliminary estimates, will be lower than expected, +2.7% (forecast and previous value +2.9%). However, despite this, labour market statistics look positive enough. The number of initial claims for unemployment benefits, forecasted at 200K, actually decreased from 195K to 192K. According to final data from Eurostat, inflation in the Eurozone slowed down to +8.6% YoY in January (+9.2% a month earlier). Things are becoming more difficult in Germany, the main locomotive of the European economy. According to January data, the annual inflation rate was +9.2% compared to +9.6% in December, but at the same time, the country's GDP also went down, with a decline of -0.4% (forecast and previous value -0.2%). The very fresh February CPI data did not please either, showing an increase from +8.1% to +8.7%.
Against this backdrop, market sentiment remains in favour of the US dollar. This is primarily due to the Federal Open Market Committee's (FOMC) meeting minutes, which were published on Wednesday, February 22 by the US Federal Reserve. The minutes did not bring any surprises. However, market participants saw once again that the regulator is not going to stop its fight against inflation.
United Overseas Bank (UOB) summarized the main conclusions from the minutes as follows: 1) Despite progress in the fight against inflation, it remains significantly above the target level of 2%. 2) All Committee members agreed that achieving inflation targets will require more interest rate hikes and keeping it at a high level until the Fed is confident that inflation is sustainably going down. 3) Although the FOMC voted in February to raise the rate by 25 basis points (bps), several participants wanted it to be increased by 50 bps. 4) The Fed is still more concerned about inflation than slowing economic growth.
US Treasury Secretary Janet Yellen confirmed these conclusions. She stated at the G20 finance ministers and central bank governors meeting on Friday, February 24 that "inflation is coming down, measured on a 12-month basis, but core inflation is still above 2%". According to Janet Yellen, a "soft landing" for the economy without a recession is possible thanks to the strong labour market and strong US balances.
All of the above has led to the US dollar index, DXY, continuing its rise, reaching a local high of 105.26 points, while EUR/USD ended the workweek at the level of 1.0546 (week low at 1.0535).
Most likely, the main factor determining the dynamics of the dollar until the next FOMC meeting on March 21-22 will be speculations on how far the regulator is willing to go in its "crusade" against inflation. According to UOB's forecast, the rate may be raised by 25 bps in March and May, ultimately reaching 5.25%, and remain at this level until the end of the year. According to some other estimates, the peak federal funds rate by July could be 5.38%.
According to specialists at ING, the largest banking group in the Netherlands, February and March are seasonally strong months for the dollar, and the rate of 4.50% for overnight deposits may still slightly support the dollar. However, according to their colleagues at Commerzbank, it will become increasingly difficult for the US currency to strengthen against the euro. Much has already been priced in, and there are no strong new drivers in sight. Especially since the ECB is not standing still in tightening its monetary policy. The final data on consumer prices in the Eurozone, which were revised upwards to 5.3% in the core index, published on February 23, will be the next stimulus for such QT.
At the time of writing this review (evening of February 24), 40% of analysts expect further strengthening of the dollar (half as many as a week ago), 50% expect a correction of EUR/USD to the north, and the remaining 10% have taken a neutral position.
All 100% of D1 oscillators are painted red, although a quarter of them are signalling the pair is oversold. Among trend indicators, 75% recommend selling and 25% buying. The nearest support for the pair is located in the zone of 1.5000-1.0525, then come levels and zones of 1.0440 and 1.0370-1.0400, 1.0300, 1.0220-1.0255. Bulls will encounter resistance in the region of 1.0560-1.0575, 1.0600-1.0620, 1.0680-1.0710, 1.0745-1.0760, 1.0800, 1.0865.
Events of the upcoming week include the publication of data on orders for capital goods and durable goods in the US on Monday, February 27. Wednesday, the first day of March, will bring a large volume of macro statistics from Germany. This includes the Harmonized Consumer Prices Index (CPI), the Purchasing Managers' Index (PMI) in the manufacturing sector, as well as the change in the number of unemployed in the country. In addition, the value of the PMI in the US manufacturing sector will be announced on this day. We are expecting the February CPI for the Eurozone, the ECB's statement on monetary policy, and data on unemployment in the US on Thursday, March 2. And there will be another portion of American statistics, including the Purchasing Managers' Index (PMI) in the service sector, at the very end of the workweek.
GBP/USD: Business Activity Grows, but the Pound Falls
The British pound is struggling to resist the advance of the dollar. Despite regular counterattacks, it is retreating step by step. Starting the week at 1.2040, GBP/USD reached a local peak at 1.2147, but then went down and ended the five-day period at 1.1942.
It is worth noting that the UK economy managed to avoid a recession at the end of 2022, and the data on business activity in the United Kingdom, published on Tuesday, February 21, is quite optimistic. The Composite PMI Index, with a forecast of 49.0, should grow from 48.5 to 53.0 points over the month. However, these are only preliminary data, with the final ones becoming available on March 1 and 3. At the same time, the confidence of British consumers is lower than during the financial crisis, the COVID-19 pandemic, and the recessions of the 1980s and 1990s.
Although inflation in the country is decreasing, it remains in double digits and is five times higher than the Bank of England's target rate. (CPI fell to +10.1% in January, with a forecast of +10.3%, and +10.5% in December). Inflation is being kept high in part due to the labour market, and there is currently no reason to believe that wage growth in the UK is slowing down.
The market expects that the Bank of England, like the Federal Reserve, will raise the key interest rate twice by 25 basis points in March and April, bringing it to a peak of 4.5%. However, many in the BoE leadership are very concerned that a significant increase in rates could overly slow down the economy. Therefore, the regulator's monetary policy, which is already ambiguous, could be adjusted at any time.
As for the median forecast of experts, 45% of them vote for further weakening of the pound, 25% expect GBP/USD to rise, and 30% prefer to refrain from making predictions. Among the trend indicators on D1, the balance of power is 85% to 15% in favour of the red. Among the oscillators, the red has a 100% advantage, 15% of which are in the oversold zone. The support levels and zones for the pair are 1.1900-1.1915, 1.1840, 1.1800, 1.1720, and 1.1600. If the pair moves north, it will face resistance at levels 1.1960, 1.1990-1.2025, 1.2075-1.2085, 1.2145, 1.2185-1.2210, 1.2270, 1.2335, 1.2390-1.2400, 1.2430-1.2450, 1.2510, 1.2575-1.2610, 1.2700, 1.2750, and 1.2940.
As for the economy of the United Kingdom, in addition to the final data on business activity (PMI) in the UK, which will be released on March 1 and 3, we can note the speech of the Governor of the Bank of England, Andrew Bailey, scheduled for Wednesday, March 1.
USD/JPY: Hopes for QT Are Weakening, but Still Remain
"It seems that the appointment of academic Kadsuo Wada as the new head of the Bank of Japan (BoJ) has not benefited the Japanese currency," we wrote in our previous review. And now, looking at the USD/JPY chart, we can only confirm this statement. In addition to the strengthening dollar, another blow to the yen was dealt by Kadsuo Wada himself. His speech on Friday, February 24, helped the pair to rise from the level of 134.04 to a height of 136.41. The comments of the future head of the central bank, who spoke in the lower house of the Japanese Parliament, in general corresponded to the current BoJ policy, and only exacerbated the disappointment of those who hoped for significant changes in the regulator's monetary policy. Investors could not discern in these comments a clear "hawkish" signal that would boost the resumption of speculative demand for the yen, which was already weakening against the backdrop of the rise of the DXY and the increase in the yield of 10-year treasuries. It should be reminded that there is a direct correlation between USD/JPY and U.S. Treasury bills. If the yield of securities rises, then the dollar rises against the Japanese yen.
We already wrote a week ago that some experts expect a serious strengthening of the Japanese currency in the future. For example, economists at Danske Bank predict that the USD/JPY rate will fall and reach the level of 125.00 in three months. BNP Paribas Research strategists hold a similar position. According to their forecasts, in the event of a tightening of monetary policy, positive yields in Japan may stimulate the repatriation of funds by local investors, resulting in USD/JPY falling to 121.00 by the end of 2023. But all of these are still quite shaky assumptions, although 75% of analysts share them. As for the near-term prospects, currently only 35% of experts expect a southward movement of the pair, while an equal number look in the opposite direction, and the remaining 20% remain neutral. Among the oscillators on the D1 chart, 100% indicate a northward movement (15% of which are in the overbought zone). Among the trend indicators, 75% point to the north and 25% to the south. The nearest support level is located in the 135.90 zone, followed by levels and zones of 134.90-135.15, 134.40, 134.00, 133.60, 132.80-133.20, 131.85-132.00, 131.25, 130.50, 129.70-130.00. Resistance levels and zones are at 136.70, 136.00, 137.50, 139.00-139.35, 140.60, 143.75.
No important macroeconomic statistics regarding the state of the Japanese economy are expected next week. However, Kadsuo Wada will give another speech on Monday, February 27, but it is unlikely to contain anything new and revolutionary.
CRYPTOCURRENCIES: Bitcoin Is Under Pressure, but It Doesn't Give Up. Not yet
Regarding the past week, we can say this: bitcoin is under pressure, but it is holding up. Among the main pressure factors, we can name the financial report of the Coinbase exchange for Q4 2022 and the strengthening of the dollar. Coinbase's revenue plummeted by 75% in the last quarter of last year, which was unusually difficult for the cryptocurrency market. The reason for such a collapse is clear: customer outflows due to a series of scandals and bankruptcies of major and not-so-major industry players. As a result, Coinbase's losses amounted to $2.46 per share. (For comparison, the profit per share of this crypto giant was $3.32 a year ago). It is unknown whether Coinbase will explode like FTX. But in any case, investors should not forget about the risks associated with this market.
As for the second pressure factor, it's all about the Federal Reserve System (FRS) of the United States, as always. Increased market expectations regarding the interest rate have strengthened the quoted currency in BTC/USD and, accordingly, weakened its base part. And it should be noted that bitcoin has shown itself to be a stronger asset in this situation than stock indices, with which it usually correlates. Thus, the S&P500 returned to mid-January values, and the Dow Jones even fell to December values, while the flagship cryptocurrency has grown by 40% since January 1, 2023.
Debate over the future of digital assets continues. Vice Chairman of legendary holding company Berkshire Hathaway and Warren Buffet's right-hand man, Charlie Munger, still calls on US authorities to completely ban cryptocurrencies. The 99-year-old billionaire called anyone who disagrees with him "idiots" and added, "I'm not proud of my country for allowing this filth. It's just ridiculous that anyone buys this [digital assets]. It's no good. It's crazy. It only does harm." Kevin O'Leary, investor, journalist, and host of the popular show Shark Tank recalled this as well. He said that "American financial regulators are tired" of watching waves of bankruptcies in the cryptocurrency industry. "These guys in Washington are very angry. The FTX collapse woke up the bear. It woke up in a rage. Senators are really tired of having to gather every six months when another major cryptocurrency firm collapses. They're tired of the industry being unregulated and anyone being able to issue their absolutely useless tokens," said the Canadian entrepreneur. His conclusion was much softer than Charles Munger's choking calls. O'Leary called on all industry participants to cooperate with the SEC and other government agencies and said that regulated companies would attract significantly more investment than their unregulated competitors.
Bitcoin quotes are mainly supported by small and medium investors at the moment. According to the analytics company Glassnode, the number of wallets with a volume of at least 1 BTC is constantly reaching new highs. Their number has increased by 20% over the past year, approaching 982,000. As for addresses with a balance of 1000 BTC or more, it has fallen from its peak in February 2021 (about 2,500) to levels in August 2019. And now (as of 20.02.2023) there are only 2,024 such whales. However, the number of addresses with a balance of 10,000 BTC or more (worth $240 million at current prices) has consistently remained near peak levels, corresponding to November 2022 and October 2018 values. Currently, there are 115 such "mega-whale" wallets.
According to co-founder of the Gemini crypto exchange Cameron Winklevoss, Asian investors may push bitcoin prices up. Winklevoss believes that the next phase of price growth will occur in the East, and the US will have to adapt to the new conditions. According to Chainalysis, the Asia-Pacific region already ranks third in the world in terms of cryptocurrency investment volume.
Several experts believe that it is crucial for the market for bitcoin to maintain levels above the intermediate resistance at $24,500. This will allow the coin to rise to $25,000 first and then to the $29,000-30,000 range. According to analysts at Matrix, the rise to $29,000 is possible by the summer, and BTC could reach $45,000 by the end of this year. However, they note that this will happen only if the pace of consumer inflation in the US continues to slow. Matrix analysts also point out that the cryptocurrency's price has already risen above $25,000 several times in recent days, despite negative news about tightening cryptocurrency regulations in the US and Europe, which they see as a positive sign.
Speaking of their forecast, Matrix also refers to the "January effect": a price success in the first month often determines the movement of the main cryptocurrency price for the entire year. In addition, experts note that historically, 12-15 months before the next halving, bitcoin's price tests its minimums. This time, such a period fell on December 2022 - March 2023.
Well-known analyst Plan B also suggests a possible rally, estimating that bitcoin may test the $42,000 level in March. As of the time of writing (Friday evening, February 24), BTC/USD is trading around $23,100. The total market capitalization of the crypto market is $1.059 trillion ($1.106 trillion a week ago). The Crypto Fear & Greed Index fell from 61 to 53 points over the week and returned from the Greed zone to the Neutral zone.