market optimism

Fed meeting, Microsoft earnings  There was nothing in the list of flash PMI data released yesterday morning to make investors think that economic activity in Europe is doing fine. All numbers were in the red, they all missed expectations. German and French manufacturing plunged further in the contraction zone and German manufacturing PMI even plunged below 39, a number we have not seen since summer 2020, which was the heart of the pandemic. The war, the energy prices, and/or the European Central Bank (ECB) tightening are taking a toll on the German manufacturing. And even the German car sector is struggling. Tesla for example sold more cars in H1 than Volkswagen, BMW, Mercedes and Porsche combined. Cherry on top of the bad news, the Spanish PPI showed an 8% contraction versus -10% penciled in by analysts. The EURUSD plunged below the 1.11, the trend and momentum indicators turned negative hinting that the selloff in the runoff to Thursday's ECB meeting could extend toward the 1.10 mark, as the soft economic data brought forward the expectation that the ECB is certainly approaching the end the most aggressive tightening cycle of its relatively short history. But the softer-than-expected fall in Spanish PPI still keeps some hawks defending the idea that the ECB won't stop fighting inflation if inflation doesn't cool enough.     Don't look now, but across the Channel, the PMI numbers didn't look better. The UK manufacturing PMI fell to 45, while the composite PMI avoided the contraction territory by just a few points. Cable sold off to the lowest level in two weeks and is now testing the May to now ascending channel's base, as traders put more weight on the damage that the rising Bank of England (BoE) rates will do to the British economy, than on the good they might do to sterling holders.   Across the Atlantic Ocean, the picture was a little but more mixed. US manufacturing remained in the contraction zone but contracted much slower than expected by analysts, but services and overall activity grew more slowly than expected, still. The US dollar index gained for the 5th consecutive session and is consolidating above the 101 level at the time of writing, as investors continue positioning for the Fed meeting that starts today.   The Fed starts its two-day policy meeting in just a couple of hours from now, and will highly likely announce a 25bp hike on Wednesday. But what Fed officials will also do is to remind investors that the tightening cycle is probably not over and that there will probably be another rate hike on the US' horizon. So yes, there is a great chance that the Fed will spoil your mood if you are among those thinking that this week's rate hike will be the last for this tightening cycle in the US.     Markets  US stocks traded higher yesterday with the S&P500 adding 0.40% and Nasdaq 0.14% after its special rebalancing. The US 2-year yield advanced past 4.90% and fell this morning. While the VIX index shows no sign of a particular stress from equity traders, BoFA's MOVE index is close to 110 level, versus around the 60 level prior to the Q3 of 2021: bond traders remain very much uncertain about the number of additional rate hikes that the Fed could deliver. And there is no line in the sand, the Fed will continue hiking if the US jobs market, consumption and housing market remain resilient to interest rate hikes.    Microsoft earnings  Today, Microsoft is due to announce its Q2 earnings after the bell. Focus is on whether, and by how much Microsoft benefited from the AI craze and how much AI boosted growth for Azure – which was under pressure since a couple of quarters due to macro factors. On Friday, a Goldman Sachs analyst reiterated his buy rating for MSFT and revised his price target from $350 to $400 a share. But because  there is too much optimism in the market, it may be gently time to take profit, wait for the next bullish wave and rotate toward where the next action is expected to happen.  The Magnificent Seven thrived so far this year and the un-magnificent 493 other stocks remained mostly on the sidelines. What we see these days is that the un-magnificent other stocks are also catching up with the rally. Today, 70% of the S&P500 stocks trade above their 200-DMA. Morgan Stanley's Mike Wilson said that 'they were wrong' regarding their bearish stock market expectation this year, while JP Morgan's Kolanovic insists that a selloff is coming. And one day, he will be right!    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank 

Tips for trading ETH The price test at $1,677 coincided with the MACD indicator being in the negative zone, confirming the correct selling entry point for Ethereum. As a result, there was a drop to nearly the support level of $1,634, which was missed by a hair's breadth. It seems the pressure on Ethereum may persist, and we should anticipate further sharp declines in the trading instrument, given the decrease in buying incentives and market optimism since last week. The fact that ETH buyers missed out on $1,815 sooner or later had to lead to what we currently observe on the chart. It is better to be ready for the instrument's further decline, relying on scenarios 1 and 2.     Buy signal Scenario 1: One can buy Ethereum today at the entry point near $1,684 (green line on the chart), aiming for growth toward $1,707 (thicker green line on the chart). Near the level of $1,707, it is better to close long positions and open short ones. Ethereum is unlikely to grow today, especially following such a substantial sell-off that triggered numerous stop-loss orders. Important! Before buying ETH, make sure that the MACD indicator is above zero and just beginning to rise from it. Scenario 2: You can also buy Ethereum today in the case of two consecutive price tests at $1,673. This may limit the downward potential of the trading instrument and lead to an upward reversal. We can expect ETH to grow towards the opposite levels of $1,684 and $1,707.   Sell signal Scenario 1: You may sell Ethereum today after $1,673 is breached (red line on the chart), leading to a swift drop in the trading instrument. Bears see their key target at $1,654, where it is better to close short positions and open long ones. Pressure on Ethereum may surge at any moment. Important! Before selling ETH, make sure that the MACD indicator is below zero and just starting to decline from it. Scenario 2: One can sell Ethereum today in the case of two consecutive price tests at $1,684 when the MACD indicator is in overbought territory. This may limit the trading instrument's upward potential and trigger a downward reversal. We can also expect a decline toward the opposite levels of $1,673 and $1,654.     What's on the chart: Thin green line - entry price for buying the trading instrument. Thick green line - assumed price for placing take-profit orders or locking in profits manually, as further growth beyond this level is unlikely. Thin red line - entry price for selling the trading instrument. Thick red line - assumed price for placing take-profit orders or locking in profits manually, as further decline below this level is improbable. MACD Indicator. When entering the market, adhere to overbought and oversold zones.   Important Novice cryptocurrency market traders must exercise extreme caution when making market entry decisions. It is best to stay out of the market before significant fundamental reports to avoid being caught in sharp price fluctuations. If you choose to trade during news releases, always set stop orders to minimize losses. Without proper stop orders, you can quickly deplete your deposit, especially if you're not using money management and are trading with substantial volumes.   Remember that successful trading necessitates a clear trading plan, similar to the one outlined above. Spontaneously making trading decisions based on the current market situation is inherently a losing strategy for intraday traders.  

Dream JOLTS data By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     Yesterday was a typical 'bad news is good news' day. Risk sentiment in the US and across the globe was boosted by an unexpected dip in US job openings to below 9 mio jobs in July, the lowest levels since more than two years, and an unexpected fall in consumer confidence in August. The weak data pushed the Federal Reserve (Fed) hawks to the sidelines, and bolstered the expectation of a pause in September, and tilted the probabilities in favour of a no hike in November, as well. $    Note that the latest JOLTS data printed the ideal picture for the Fed: Job vacancies eased, but hiring was moderate and the layoffs remained near historically low levels. The data also suggested that the era of Great Resignation, where quit rates hit a record, could be over, as people quitting their jobs retreated to levels last seen before the pandemic. The US 2-year yield dived 15bp, the 10-year yield fell 8bp, while the S&P500 jumped nearly 1.50% to above its 50-DMA and closed the session at a spitting distance from the 4500 level. 90% of the S&P stocks gained yesterday; even the Big Pharma which had a first glance at which medicines will be subject to price negotiations with Medicare held their ground. But of course, tech stocks led the rally, with Nasdaq 100 closing the session with more than a 2% jump. Tesla was one of the biggest gainers of the session with a more than a 7.5% jump yesterday.    US and European futures suggest a bullish open amid the US optimism and news of upcoming deposit and mortgage rate cuts from Chinese banks.    On the data front, all eyes are on the US ADP report and the latest GDP update. The ADP report is expected to reveal below 200K new private job additions in August, while the US growth is expected to be revised from 2% to 2.4% for the Q2 with core PCE prices seen down from 4.90% to 3.80%. If the data is in line with expectations, we shall see yesterday's optimism continue throughout today. Again, what we want is to see – in the order of importance: 1. Slowing price pressure, 2. Looser, but still healthy jobs market, 3. Slowing but not contracting economy to ensure a soft landing. We will see if that's feasible.     In Europe, however, that slow landing seems harder to achieve. Today, investors will keep an eye on the latest inflation updates from euro-area countries, and business and sentiment surveys. We expect to see some further red flags regarding the health of the European economy due to tighter financial conditions in Europe and the energy crisis. German Chamber of Commerce and Industry warned yesterday that German businesses are cutting investments and move production abroad due to high energy prices at home. The EURUSD flirted with 1.09 yesterday, as investors trimmed their long dollar positions after the weak JOLTS data. The AUDUSD rebounded, even though the latest CPI print showed that inflation in Australia slowed below 5% in July, a 17-month low. In the UK, shop prices fell to a 10-month low. But it won't be enough for central bankers to cry victory just yet, because the positive pressure in energy prices remains a major concern for the months ahead. The barrel of American crude is pushing toward the $82pn level, with improved trend and momentum dynamics hinting that the bullish development could further extend.  

Mixed feelings By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) President Jerome Powell pushed back against the rate cut bets at his speech given in Atlanta last Friday. He is of course playing the card of 'high for long' rates to tame inflation, yet he hinted that the Fed will probably not hike rates when it meets this month. He said that the US monetary policy is 'well into restrictive territory' and that the fell of effect of higher rates to combat inflation is working its way through economy. 'We are getting what we wanted to get,' said Powell. And indeed, inflation is cooling, people start to spend less, and the job market loosens. But in parallel, the financial conditions are loosening fast, as well. Hence the market optimism and stocks/bond gains become increasingly vulnerable to hawkish Fed comments, and/or strong economic data. The US jobs data will take the center stage this week. Investors expect further fall in US jobs openings, less than 200'000 job additions last month with slightly higher pay on month-on-month basis. The softer the data, the better the chances of keeping the Fed hawks away from the market.   Unsurprisingly, the part of Powell's speech where he pushed back against rate cut expectations went fully unheard by investors on Friday. On the contrary, the Fed rate cut expectations went through the roof when it became clear that the Fed will stay pat again this month. The US 2-year fell to nearly 4.50% on Friday, the 10-year yield tipped a toe below the 4.20% mark. The S&P500 flirted with the summer peak, flirted with the 4600 level and closed the week a touch below this level, while the rate sensitive Nasdaq closed a few points below the 16000 and iShares core US REIT ETF jumped nearly 2.70% last Friday.   The SPDR's energy ETF, on the other hand, barely closed above its 200-DMA, as last week's OPEC decision to cut the production supply by another 1mbpd and to extend the Saudi cuts into next year barely impressed oil bulls – even less so given the apparent frictions at the heart of the group regarding this supply cut strategy when prices keep falling. The decline in oil prices continues this Monday. The barrel of US crude remained aggressively sold near the 200-DMA last week, and we are about to step into the $70/73pb region which should give some support to the market. With the clear deterioration of the positive trend, and the lack of any apparent boost to the oil market following last week's OPEC meeting, there is a chance that we will see oil finish the year below the $70pb mark. An increasingly shaky OPEC unity, record US production, a slowing global economy, deteriorating global demand outlook and efforts to shift toward cleaner energy sources weigh heavier than the supply worries. As such, the $100pb level becomes an increasingly difficult target to reach. And even though the COP28 president Mr. Al Jaber said last weekend that there is 'no science' behind demands for phase-out of fossil fuels – yes 70'000 people flew to Dubai to hear that there is no evidence that fossil fuel is destroying climate – efforts to phase-out fossil fuel continues at full speed with solar panel installation surpassing the most optimistic estimates according to Climate Analytics.  In the FX, the US dollar's positive attempt above the 200-DMA was halted by Powell's speech on Friday – or more precisely by investors' careful extraction of all the dovish elements in that Powell speech. Both the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) will likely keep their rates unchanged this week, but the RBA will certainly sound hawkish faced with worries of 'home-grown' inflation. The AUDUSD stepped into the bullish consolidation zone following a 6+% jump since the October dip and could gather further strength this week. The EURUSD, on the other hand, remains under growing selling pressure despite FX traders' hesitancy regarding what to do with the US dollar. The pair sank to 1.0830 on Friday and is preparing to test the 200-DMA, which stands near 1.0820, to the downside. The easing Eurozone inflation, along with slowing European economies, boost the dovish ECB expectations. The final PMI data will confirm further contraction in the Eurozone last month, as the Eurozone GDP read will likely confirm a 0.1% contraction last quarter. Coming back to the EURUSD, the pair will likely see a solid support near 1.0800/1.0820, which includes the 200-DMA and the major 38.2% Fibonacci retracement on October – November rebound. And clearing this support should pave the way for an extended selloff toward 1.0730.    

Indices trying to end 2023 on a high note Global stock markets seem to be headed for an end-of-year 'Santa rally' as traders and investors return to their desks after the Christmas break, gearing up for the final push into 2024. The ongoing optimism surrounding the prospect of central banks initiating interest rate reductions in 2024, with multiple cuts expected next year, continues to propel shares higher after the US stock market experienced gains in light trading, bringing the S&P 500 index to its highest intraday level in nearly two years.   This positions the S&P 500 just below 1% of its closing all-time high of 4,796.56 recorded in January 2022 with this rally reflecting investors' growing confidence in the ability of US policymakers to engineer a 'soft landing,' effectively curbing inflation without precipitating a recession with this sentiment gaining further traction after the recent US PCE index data revealed a deceleration in inflation last month. However, it is important to note that the situation in the UK is significantly more troubling after recently released data continues to indicate inflationary and economic issues in the economy as the Bank of England may have run out of moves.    

GBP/USD On the last working day of December, the GBP/USD pair closed below the level of 1.2745. Therefore, in order to confirm its intention to continue the upward movement (if the pound intends to do so), it needs to reverse and close above 1.2745. This will take time. As a result, even if it closes today's session with a white candle, this won't be a signal for an upward move.   We expect the main movement to take place tomorrow with the release of the ISM Employment and Manufacturing Indexes for December. The forecast for the ISM Manufacturing PMI is 47.1, compared to the previous 46.7. We believe that the data could bring optimism back to the markets and risk appetite. Therefore, we still expect the pound to rise towards the upper band of the price channel near the target level of 1.2930. The Marlin oscillator is already in negative territory but has not yet firmly settled there.     On the 4-hour chart, the price is progressing above both indicator lines. The Marlin oscillator is hovering around the neutral zero line. The price is waiting for an external impetus, possibly from the PMI data. We're waiting.