Diminishing Great Britain retail sales
As if the political storm hitting the UK was not enough, macroeconomic data is also not encouraging markets, adding pressure to the country's assets. GBPUSD is losing more than 1.4% since the start of the day on Friday, back below 1.1060, and 2.4% from Thursday's peak news of Liz Truss stepping down as prime minister.
Great Britain retail sales for September were down 1.4%, and down 1.5% excluding fuel, after falling 1.7% a month earlier. Sales were down 10% from their April 2021 peak and 10.7% ex-fuel, having lost for almost the whole of the last year and a half.
As if the political storm hitting the UK was not enough, macroeconomic data is also not encouraging markets, adding pressure to the country's assets. GBPUSD is losing more than 1.4% since the start of the day on Friday, back below 1.1060, and 2.4% from Thursday's peak news of Liz Truss stepping down as prime minister.
Great Britain retail sales for September were down 1.4%, and down 1.5% excluding fuel, after falling 1.7% a month earlier. Sales were down 10% from their April 2021 peak and 10.7% ex-fuel, having lost for almost the whole of the last year and a half.
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Falling consumer activity makes it harder for the Bank of England to find a balance sheet. Today's disappointing sales data is a strong case for the monetary dove camp. The weakness in the economy, as seen through the prism of falling sales and industrial production, can deter the Bank of England from raising its key rate more decisively, which is harmful to the Pound.
Should GBPUSD fall below 1.09 in the coming days, a retest of the 1.03-1.05 historic low area will be an issue, even though recently it seemed that the worst for the Pound is over.
Should GBPUSD fall below 1.09 in the coming days, a retest of the 1.03-1.05 historic low area will be an issue, even though recently it seemed that the worst for the Pound is over.
China is under pressure
After a delay, China published a batch of monthly and quarterly statistics, which caused mainly disappointing reactions from analysts.
GDP added 3.9% in the third quarter compared to a year earlier against expectations of 3.5%. In the three quarters, the economy added 3.0% over the same period a year ago against 2.5%, the first-rate increase in more than a year.
Also among the positive signals was a jump in industrial production by 6.3% y/y in September compared to 4.2% the month before and the expected 4.9%.
A trade surplus is also higher than expected, but an essential reason for its growth was a fall in imports rather than increased exports, which is not good macroeconomic news.
A very alarming signal was the cooling of retail sales from 5.4% to 2.5% (3.1% expected). Chinese government officials declare a further commitment to a zero covid expansion policy, potentially preventing economic activity from getting firmly back on the growth track.
After a delay, China published a batch of monthly and quarterly statistics, which caused mainly disappointing reactions from analysts.
GDP added 3.9% in the third quarter compared to a year earlier against expectations of 3.5%. In the three quarters, the economy added 3.0% over the same period a year ago against 2.5%, the first-rate increase in more than a year.
Also among the positive signals was a jump in industrial production by 6.3% y/y in September compared to 4.2% the month before and the expected 4.9%.
A trade surplus is also higher than expected, but an essential reason for its growth was a fall in imports rather than increased exports, which is not good macroeconomic news.
A very alarming signal was the cooling of retail sales from 5.4% to 2.5% (3.1% expected). Chinese government officials declare a further commitment to a zero covid expansion policy, potentially preventing economic activity from getting firmly back on the growth track.
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An additional worrying factor for Asian markets is the reappointment of Xi Jinping for a third term. Investors are selling off Chinese assets on this news, suggesting a further course of austerity in the country, escalating tensions around Taiwan and anti-market reforms.
Contrary to the famous adage, markets have not been "selling the fact" of Xi's unprecedented third term, for which they have been preparing in recent months. The Chinese yuan has rewritten lows against the dollar since 2008, and the offshore USDCNH exchange rate has surpassed 7.30. Key Chinese stock indexes are losing about 7% on Monday, pushing the Hang Seng index to lows since 2009 and the China H-share to 2005.
Contrary to the famous adage, markets have not been "selling the fact" of Xi's unprecedented third term, for which they have been preparing in recent months. The Chinese yuan has rewritten lows against the dollar since 2008, and the offshore USDCNH exchange rate has surpassed 7.30. Key Chinese stock indexes are losing about 7% on Monday, pushing the Hang Seng index to lows since 2009 and the China H-share to 2005.
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US indices are tired of falling
The S&P500 index closed last week with a powerful rally, rebounding from its 200-week moving average. By the start of trading in New York, index futures managed to overcome the initial weakness caused by the fall in Chinese equities.
We also note that in the previous three weeks, the indices were pulled upwards on declines below this line. This buying spree represents the intention of market participants to remain within the paradigm set up over the last couple of decades.
The last time the index was persistently under this line was in March 2020 due to high covid uncertainty. Before that, the S&P500 dipped under it in June 2008 and in May 2001. In all those cases, the US economy ended up in a recession and the monetary authorities aggressively eased policies to put the economy back on a growth path.
However, if the S&P500 is now the best the market can hope for, it is a slowdown in the pace of policy tightening.
The S&P500 index closed last week with a powerful rally, rebounding from its 200-week moving average. By the start of trading in New York, index futures managed to overcome the initial weakness caused by the fall in Chinese equities.
We also note that in the previous three weeks, the indices were pulled upwards on declines below this line. This buying spree represents the intention of market participants to remain within the paradigm set up over the last couple of decades.
The last time the index was persistently under this line was in March 2020 due to high covid uncertainty. Before that, the S&P500 dipped under it in June 2008 and in May 2001. In all those cases, the US economy ended up in a recession and the monetary authorities aggressively eased policies to put the economy back on a growth path.
However, if the S&P500 is now the best the market can hope for, it is a slowdown in the pace of policy tightening.
So, on Friday, the markets were turned around by a WSJ article that the Fed, after a 75-point rate hike in November, is further prepared to put on breaks on rate hiking. This is important news as the WSJ often acts as the Fed's informal mouthpiece.
Without any negative macroeconomic surprises, the markets will probably continue their gradual recovery in the coming weeks.
Not only is the 27% market decline on the bullish side, but it has made a great many companies attractive for buying. There is also a bullish divergence in price and RSI on the weekly charts, setting the stage for further gains.
Cautious buyers would be wise to wait for the S&P500 to get above 3820, where the 61.8% level of the August-October decline coincides with the highs of early October.
But the recovery is too fresh and fragile, and the current bounce could easily stall. If that is the case, we should be prepared for markets to move to new lows in the coming weeks. But this is an alternative scenario, not the main one.
Without any negative macroeconomic surprises, the markets will probably continue their gradual recovery in the coming weeks.
Not only is the 27% market decline on the bullish side, but it has made a great many companies attractive for buying. There is also a bullish divergence in price and RSI on the weekly charts, setting the stage for further gains.
Cautious buyers would be wise to wait for the S&P500 to get above 3820, where the 61.8% level of the August-October decline coincides with the highs of early October.
But the recovery is too fresh and fragile, and the current bounce could easily stall. If that is the case, we should be prepared for markets to move to new lows in the coming weeks. But this is an alternative scenario, not the main one.
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#WaveAnalysis
#NZDUSD reversed from resistance level 0.5785
• Likely to fall to support level 0.5600
NZDUSD recently reversed down from the resistance level 0.5785 (top of the previous wave (iv) from the start of October).
The resistance level 0.5785 was further strengthened by the upper daily Bollinger Band and by the 38.2% Fibonacci correction of the downward impulse from September.
Given the strong daily downtrend, NZDUSD can be expected to fall further toward the next support level 0.5600 (low of the previous wave (b)).
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#NZDUSD reversed from resistance level 0.5785
• Likely to fall to support level 0.5600
NZDUSD recently reversed down from the resistance level 0.5785 (top of the previous wave (iv) from the start of October).
The resistance level 0.5785 was further strengthened by the upper daily Bollinger Band and by the 38.2% Fibonacci correction of the downward impulse from September.
Given the strong daily downtrend, NZDUSD can be expected to fall further toward the next support level 0.5600 (low of the previous wave (b)).
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#WaveAnalysis
#USDJPY reversed from support level 145.75
• Likely to rise to resistance level 151.85
USDJPY currency pair recently reversed up from the support level 145.75 (former monthly high from September).
The support level 145.75 was strengthened by the support trendline of the daily up channel from August and by the 50% Fibonacci correction of the upward impulse from September.
Given the overriding uptrend on the daily and the weekly charts, USDJPY can be expected to rise further toward the next resistance level 151.85 (top of the previous impulse wave (i)).
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#USDJPY reversed from support level 145.75
• Likely to rise to resistance level 151.85
USDJPY currency pair recently reversed up from the support level 145.75 (former monthly high from September).
The support level 145.75 was strengthened by the support trendline of the daily up channel from August and by the 50% Fibonacci correction of the upward impulse from September.
Given the overriding uptrend on the daily and the weekly charts, USDJPY can be expected to rise further toward the next resistance level 151.85 (top of the previous impulse wave (i)).
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#Bitcoin remains near $19.3K, unchanged over the past 24 hours, remaining painfully immovable by cryptocurrency standards. Ethereum is adding 0.3% to $1347, while the entire crypto market is making minimal moves. Total crypto market capitalisation rose 0.15% overnight to $931bn, according to CoinMarketCap estimates.
Although US stock indices overcame the initial decline on Monday, Bitcoin continued to sell off from its 50-day average. This passivity of cryptocurrency buyers is causing some wariness. This apathy towards the positive news backdrop could manifest as an internal caution about risk demand.
According to CoinShares, investments in crypto funds declined slightly last week.
Outflows amounted to $5m compared to inflows of $12m a week earlier. Bitcoin investments increased by $5 million, Ethereum investments decreased by $3 million and investments in funds that provide shorts on bitcoin decreased by $7 million. The leader in inflows of funds in altcoins was XRP ($1 million).
Although US stock indices overcame the initial decline on Monday, Bitcoin continued to sell off from its 50-day average. This passivity of cryptocurrency buyers is causing some wariness. This apathy towards the positive news backdrop could manifest as an internal caution about risk demand.
According to CoinShares, investments in crypto funds declined slightly last week.
Outflows amounted to $5m compared to inflows of $12m a week earlier. Bitcoin investments increased by $5 million, Ethereum investments decreased by $3 million and investments in funds that provide shorts on bitcoin decreased by $7 million. The leader in inflows of funds in altcoins was XRP ($1 million).
German Business Climate: steadily grim
The Ifo Business Climate Index from Germany was above expectations in October - slightly down from 84.4 a month earlier to 84.3. The index components’ current situation and business expectations also marginally changed. But the overall level shows that the climate remains gloomy.
The expectations index rose from 75.3 to 75.6 for the month, while the assessment of current conditions fell 0.4 points to 94.1.
Economists are watching the business expectations component most closely as its sharp rise from the lows of the previous crises (2009 and 2020) signalled the start of a recovery in the German economy.
The Ifo Business Climate Index from Germany was above expectations in October - slightly down from 84.4 a month earlier to 84.3. The index components’ current situation and business expectations also marginally changed. But the overall level shows that the climate remains gloomy.
The expectations index rose from 75.3 to 75.6 for the month, while the assessment of current conditions fell 0.4 points to 94.1.
Economists are watching the business expectations component most closely as its sharp rise from the lows of the previous crises (2009 and 2020) signalled the start of a recovery in the German economy.
For traders on the foreign exchange and stock markets, the substantial rise of this index signalled the start of a rally in EURUSD and euro-region equities. Thus, supported by a strongly rising index in May 2020, EURUSD began its 10% rally in the following two months, pushing sentiment sideways. The index had previously reached its low point in December 2008, but only a powerful jump in March 2009 coincided with a general reversal of the markets and a subsequent 8-month rise in the pair of around 20%.
Today's publication did not provide a meaningful signal of improvement in the German economy, so it is unlikely that the release is slightly better than expected. Traders will take the stoppage of the decline as a signal that the German economy has passed its low point.
Today's publication did not provide a meaningful signal of improvement in the German economy, so it is unlikely that the release is slightly better than expected. Traders will take the stoppage of the decline as a signal that the German economy has passed its low point.
EURUSD tries to break the downtrend
EURUSD continues to draw an almost perfect downward trend. Since the end of February, the 50-day moving average has repeatedly acted as resistance. This week we see another test of this line, which has fallen to the area of 0.9900.
It is still difficult to find hard data supporting a reversal, but there is no such thing as a no-trend in the key currency pairs, so forex traders are keeping a close eye on various reversal signals.
On Tuesday, EURUSD broke above 0.99, where the 50-day moving average is located. And now all eyes are on whether it will manage to stay above this signal line.
The bulls also have a local rising trend that has been formed in the pair since the end of September. The daily charts clearly show how the buyers support the EUR from higher and higher levels.
EURUSD continues to draw an almost perfect downward trend. Since the end of February, the 50-day moving average has repeatedly acted as resistance. This week we see another test of this line, which has fallen to the area of 0.9900.
It is still difficult to find hard data supporting a reversal, but there is no such thing as a no-trend in the key currency pairs, so forex traders are keeping a close eye on various reversal signals.
On Tuesday, EURUSD broke above 0.99, where the 50-day moving average is located. And now all eyes are on whether it will manage to stay above this signal line.
The bulls also have a local rising trend that has been formed in the pair since the end of September. The daily charts clearly show how the buyers support the EUR from higher and higher levels.
Another important signal of a trend break is the 1.0 level, which is a psychologically crucial round level, the area of the highs in early October and a significant support area from mid-July to the end of September.
A return of the EURUSD above parity would signal a strong start of a full-scale correction (at least), with a potential target of 1.06 (61.8% of the May 2021-September 2022 decline). This is also a significant breakout area for the pair in March 2020 and May-June 2022.
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A return of the EURUSD above parity would signal a strong start of a full-scale correction (at least), with a potential target of 1.06 (61.8% of the May 2021-September 2022 decline). This is also a significant breakout area for the pair in March 2020 and May-June 2022.
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#WaveAnalysis
#USDCHF reversed from resistance level 1.0050
• Likely to fall to support level 0.992
USDCHF recently reversed down from the key multi-month resistance level 1.0050 (which has been reversing the price from May), intersecting with the upper daily Bollinger Band and the resistance trendline of the daily up channel from August.
The downward reversal from the resistance level 1.0050 started the active short-term corrective wave (ii).
USDCHF can be expected to fall further toward the next support level 0.992 (low of the previous minor correction (iv))).
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#USDCHF reversed from resistance level 1.0050
• Likely to fall to support level 0.992
USDCHF recently reversed down from the key multi-month resistance level 1.0050 (which has been reversing the price from May), intersecting with the upper daily Bollinger Band and the resistance trendline of the daily up channel from August.
The downward reversal from the resistance level 1.0050 started the active short-term corrective wave (ii).
USDCHF can be expected to fall further toward the next support level 0.992 (low of the previous minor correction (iv))).
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#WaveAnalysis #NatGas
• Natural gas reversed from support level 5.370
• Likely to rise to resistance level 6.500
Natural gas recently reversed up from the support level 5.370 (previous multi-month low from July), standing near the lower daily Bollinger Band.
The upward reversal from the support level 5.370 created the daily candlesticks pattern Piercing Line, which started the active impulse wave 3.
Natural gas can be expected to rise further toward the next resistance level 6.5000 (former support from the start of October).
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• Natural gas reversed from support level 5.370
• Likely to rise to resistance level 6.500
Natural gas recently reversed up from the support level 5.370 (previous multi-month low from July), standing near the lower daily Bollinger Band.
The upward reversal from the support level 5.370 created the daily candlesticks pattern Piercing Line, which started the active impulse wave 3.
Natural gas can be expected to rise further toward the next resistance level 6.5000 (former support from the start of October).
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Bitcoin completes consolidation, but no FOMO on the horizon
#Bitcoin has added 4.4% in the past 24 hours to $20.2K, with the primary growth momentum during the NY session. Interestingly, growth did not pick up in early trading in Asia as it frequently does. On the contrary, there was a trend of cautious profit-taking.
Now on the daily charts of BTCUSD, there is a bullish picture, which we warned about earlier. The descending triangle has resolved with a growth impulse on higher volumes. As a result, the price surpassed and closed the day above the 50-day moving average and previous local highs at $19.6K.
However, bulls should be aware that the current situation is more like February 2019, when the cyclical bottom has been passed. Still, a FOMO rally is not yet on the horizon, as it was in October 2020, the last time we saw the start of a broad bullish rally in cryptocurrencies.
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#Bitcoin has added 4.4% in the past 24 hours to $20.2K, with the primary growth momentum during the NY session. Interestingly, growth did not pick up in early trading in Asia as it frequently does. On the contrary, there was a trend of cautious profit-taking.
Now on the daily charts of BTCUSD, there is a bullish picture, which we warned about earlier. The descending triangle has resolved with a growth impulse on higher volumes. As a result, the price surpassed and closed the day above the 50-day moving average and previous local highs at $19.6K.
However, bulls should be aware that the current situation is more like February 2019, when the cyclical bottom has been passed. Still, a FOMO rally is not yet on the horizon, as it was in October 2020, the last time we saw the start of a broad bullish rally in cryptocurrencies.
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Tech companies that have acted as growth drivers for stock markets in recent years are increasingly losing their leading positions. The initial reaction to the reports of Microsoft and Alphabet makes it seem more like a threat to the recovery of the Nasdaq and S&P500 indices. Shares of both giants are losing around 6.6% on the post-market.
Microsoft's revenue and profit beat expectations, but investors see more negative numbers in the dynamic (-3.4% QoQ on revenue and -14.4% YoY on profit).
Alphabet noted a tough time in the ad market, with an overall profit fall of 26.6% y/y despite revenue growth of 6.6% y/y. The latter is the lowest rate in 9 years.
Experienced traders have long noticed that companies are likely to present the situation to industry analysts, so they make low projections. And easily beat them shortly after in ¾ of the cases. It is, therefore, not uncommon for neutral numbers or a slight overperformance to lead to a share price slump.
Microsoft's revenue and profit beat expectations, but investors see more negative numbers in the dynamic (-3.4% QoQ on revenue and -14.4% YoY on profit).
Alphabet noted a tough time in the ad market, with an overall profit fall of 26.6% y/y despite revenue growth of 6.6% y/y. The latter is the lowest rate in 9 years.
Experienced traders have long noticed that companies are likely to present the situation to industry analysts, so they make low projections. And easily beat them shortly after in ¾ of the cases. It is, therefore, not uncommon for neutral numbers or a slight overperformance to lead to a share price slump.
Also, in growth sectors, markets are paying increased attention to companies' forecasts. And they have been disappointed. Both Microsoft and Alphabet cited falling PC and ad sales. And that's bad news for the future.
On a more general level, the simple rule of thumb remains that the IT sector is inversely correlated with interest rate movements and is more vulnerable during the economic downturn for which many are now preparing.
Choosing from major US indices - the Dow Jones, S&P 500, and Nasdaq - the first looks the most promising, including more manufacturing companies and a smaller weighting on the IT sector. This driver change can already be seen in that the Dow Jones made its lows in early October, while the other two made their lows on 13 October.
Nonetheless, while two from this trio stay more than 20% below the peak and the US Fed forwarding market expectations to slower rate hikes, it looks like the bottom is already behind us.
On a more general level, the simple rule of thumb remains that the IT sector is inversely correlated with interest rate movements and is more vulnerable during the economic downturn for which many are now preparing.
Choosing from major US indices - the Dow Jones, S&P 500, and Nasdaq - the first looks the most promising, including more manufacturing companies and a smaller weighting on the IT sector. This driver change can already be seen in that the Dow Jones made its lows in early October, while the other two made their lows on 13 October.
Nonetheless, while two from this trio stay more than 20% below the peak and the US Fed forwarding market expectations to slower rate hikes, it looks like the bottom is already behind us.