Swiss National Bank raises rate slower than others
The SNB raised its rate by 50 points to 1.0% after two hikes of 50 and 75 points at the previous two meetings. In an accompanying commentary, the NBS said it was countering rising inflationary pressures.
In the commentary, the central bank says that "further rate hikes are not ruled out". This is a milder formulation than other G10 central banks without Japan. However, the exact phrase was in the two previous decision comments, so we cannot speak of a softening tone in this case.
At the recent and previous meetings, the step-up was the same as for our colleagues from the Fed and the ECB: now by 0.5 percentage points, in September by 0.75. However, remember that SNB meetings are twice as rare, so Swiss policy tightening is less drastic. For the year Swiss central bank raised the rate by 175 points against 250 points for the ECB (including the expected +50 today), 340 (also including the forthcoming decision) for the Bank of England and 425 for the Fed.
The SNB raised its rate by 50 points to 1.0% after two hikes of 50 and 75 points at the previous two meetings. In an accompanying commentary, the NBS said it was countering rising inflationary pressures.
In the commentary, the central bank says that "further rate hikes are not ruled out". This is a milder formulation than other G10 central banks without Japan. However, the exact phrase was in the two previous decision comments, so we cannot speak of a softening tone in this case.
At the recent and previous meetings, the step-up was the same as for our colleagues from the Fed and the ECB: now by 0.5 percentage points, in September by 0.75. However, remember that SNB meetings are twice as rare, so Swiss policy tightening is less drastic. For the year Swiss central bank raised the rate by 175 points against 250 points for the ECB (including the expected +50 today), 340 (also including the forthcoming decision) for the Bank of England and 425 for the Fed.
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On the other hand, inflation is not as acute here, having retreated from a peak of 3.5% y/y to 3.0% in the last three months. The producer and import price index retreated to 3.8% y/y in November from 6.9% in June.
Historically, Switzerland has comparatively lower inflation which is the reason for the lower key rate. Therefore, the current slower pace of monetary policy tightening is not likely to fundamentally undermine the Swiss franc. By playing up the divergence in the speed of rate hikes, the USDCHF could develop a rebound without encountering significant resistance to 0.9400, which looks like a very modest pullback after a more than 9% decline since November 3.
Historically, Switzerland has comparatively lower inflation which is the reason for the lower key rate. Therefore, the current slower pace of monetary policy tightening is not likely to fundamentally undermine the Swiss franc. By playing up the divergence in the speed of rate hikes, the USDCHF could develop a rebound without encountering significant resistance to 0.9400, which looks like a very modest pullback after a more than 9% decline since November 3.
The ECB raised key rates by 50 points, bringing the key rate to 2.5% - the highest in 14 years, but promising not to stop there. In addition to the rate decision, the ECB will start selling assets off the balance sheet from March 2023, starting at 15bn per month, promising to revise the parameters regularly.
The commentary on the decision states upside risks for inflation and downside risks for the economy, expecting the economy to grow by 3.1% this year and 0.8% next year. This is noticeably better than the Fed's forecasts which expect GDP growth of 0.5% each in 2022 and 2023. A sharp cooling of GDP growth has not stopped the Fed and is unlikely to stop the ECB.
The US business cycle is often 2-3 quarters ahead of the European one, which is why the Fed was the first to rush with rates. But now the ECB is starting to sound more hawkish than the Fed. During the press conference, Lagarde predicted more 50-point rate hikes, while the Fed is expected to raise rates by +25 percentage points next.
The commentary on the decision states upside risks for inflation and downside risks for the economy, expecting the economy to grow by 3.1% this year and 0.8% next year. This is noticeably better than the Fed's forecasts which expect GDP growth of 0.5% each in 2022 and 2023. A sharp cooling of GDP growth has not stopped the Fed and is unlikely to stop the ECB.
The US business cycle is often 2-3 quarters ahead of the European one, which is why the Fed was the first to rush with rates. But now the ECB is starting to sound more hawkish than the Fed. During the press conference, Lagarde predicted more 50-point rate hikes, while the Fed is expected to raise rates by +25 percentage points next.
EURUSD is adding on major news for the third day in a row, strengthening by 1% after the US inflation release, regaining initial losses and rewriting semi-annual highs after the Fed, and strengthening by almost 0.5% after the ECB rate decision.
The EURUSD has been trading steadily above its 200-day average since the beginning of December, signalling a break in the downtrend. The pair has also crossed above the 61.8% mark of the declining amplitude from May 2021 to September 2022, and now it looks like it is about to start a long rally rather than a correction. The results of the most recent Fed and ECB meetings this year have underpinned this trend reversal by showing that the ECB is now catching up to the Fed. However, there is an essential technical test ahead at 1.0750-1.0800, where the 2020 lows are concentrated, a significant April-June consolidation area and local fatigue from an already past rally will accumulate.
The EURUSD has been trading steadily above its 200-day average since the beginning of December, signalling a break in the downtrend. The pair has also crossed above the 61.8% mark of the declining amplitude from May 2021 to September 2022, and now it looks like it is about to start a long rally rather than a correction. The results of the most recent Fed and ECB meetings this year have underpinned this trend reversal by showing that the ECB is now catching up to the Fed. However, there is an essential technical test ahead at 1.0750-1.0800, where the 2020 lows are concentrated, a significant April-June consolidation area and local fatigue from an already past rally will accumulate.
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#WaveAnalysis
#CHFJPY rising inside short-term impulse wave 3,
• Likely to rise to resistance level 149.0
CHFJPY continues to rise inside the short-term impulse wave 3, which previously broke the
resistance level 147.00 standing near the resistance trendline of the daily down channel from September.
The breakout of the resistance level 147.00 continues the clear multi-month uptrend inside which the pair has been moving from the start of this year.
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#CHFJPY rising inside short-term impulse wave 3,
• Likely to rise to resistance level 149.0
CHFJPY continues to rise inside the short-term impulse wave 3, which previously broke the
resistance level 147.00 standing near the resistance trendline of the daily down channel from September.
The breakout of the resistance level 147.00 continues the clear multi-month uptrend inside which the pair has been moving from the start of this year.
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#WaveAnalysis
#Gold formed daily Evening Star
• Likely to fall to support level 1750.00
Gold earlier reversed down strongly from the pivotal resistance level 1805.00 (which has been reversing the price from the middle of May).
The downward reversal from the resistance level 1805.00 created the daily candlesticks reversal pattern Evening Star.
Gold can be expected to fall further toward the next support level 1750.00 (forecast price for the completion of the active wave (ii)).
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#Gold formed daily Evening Star
• Likely to fall to support level 1750.00
Gold earlier reversed down strongly from the pivotal resistance level 1805.00 (which has been reversing the price from the middle of May).
The downward reversal from the resistance level 1805.00 created the daily candlesticks reversal pattern Evening Star.
Gold can be expected to fall further toward the next support level 1750.00 (forecast price for the completion of the active wave (ii)).
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#WaveAnalysis
• IBM reversed from major long-term resistance level
• Likely to fall to support level 143.00
IBM under the bearish pressure after the price reversed down from the major long-term resistance level 152.50 (which has been reversing the price from the end of 2018) coinciding with the upper weekly Bollinger Band.
The downward reversal from the resistance level 152.50 stopped the previous weekly upward impulse wave C.
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• IBM reversed from major long-term resistance level
• Likely to fall to support level 143.00
IBM under the bearish pressure after the price reversed down from the major long-term resistance level 152.50 (which has been reversing the price from the end of 2018) coinciding with the upper weekly Bollinger Band.
The downward reversal from the resistance level 152.50 stopped the previous weekly upward impulse wave C.
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#Bitcoin fell on Thursday by the most in 3.5 weeks amid a sharp decline in stock indices and a stronger US dollar. BTC rolled back to $17.4K, losing 1.3% overnight. Ethereum, which trades at $1270, shows the same decline amplitude.
Total crypto market capitalisation is down 0.7% to $852bn. The pressure on cryptocurrencies came from the stock market, so assets with more institutions are faring worse than others.
From a tech analysis perspective, Bitcoin has failed to latch on to levels above the 50-day moving average, causing it to now face speculative pressure. However, this kind of pressure usually lasts for a day or two unless backed by external reasons.
On the higher - weekly – timeframe, one can see the development of the current downward phase since the end of May. The RSI would form a bullish divergence, as new price lows correspond to higher levels in the index. This could signal exhaustion for the sellers or consolidation before the next leg down.
Total crypto market capitalisation is down 0.7% to $852bn. The pressure on cryptocurrencies came from the stock market, so assets with more institutions are faring worse than others.
From a tech analysis perspective, Bitcoin has failed to latch on to levels above the 50-day moving average, causing it to now face speculative pressure. However, this kind of pressure usually lasts for a day or two unless backed by external reasons.
On the higher - weekly – timeframe, one can see the development of the current downward phase since the end of May. The RSI would form a bullish divergence, as new price lows correspond to higher levels in the index. This could signal exhaustion for the sellers or consolidation before the next leg down.
Fed stops market rally again, but there is some hope
For the third time since April, the S&P500 index faces a sharp sell-off from the 200-day average. And all times, the fundamental reason is a more hawkish Fed policy than the markets had hoped for.
In June-August and October-December, the S&P500 started with a technical reversal after it oversold the market. Later buying was supported by signs of weakening inflation, which fed hopes that the Fed would soften its tone. However, Powell and co have been persistent in embedding the idea in the markets that the fight against inflation will be extended. About as insistent as assurances about the "transitory" nature of inflation in 2021.
Even if the Fed is wrong in its forecasts now, it can raise the rate so sharply that it will first put a heavy burden on the financial market and, through it, on the entire economy. It is believed that it takes several quarters before the effects of a change in monetary policy are fully reflected in the economy.
For the third time since April, the S&P500 index faces a sharp sell-off from the 200-day average. And all times, the fundamental reason is a more hawkish Fed policy than the markets had hoped for.
In June-August and October-December, the S&P500 started with a technical reversal after it oversold the market. Later buying was supported by signs of weakening inflation, which fed hopes that the Fed would soften its tone. However, Powell and co have been persistent in embedding the idea in the markets that the fight against inflation will be extended. About as insistent as assurances about the "transitory" nature of inflation in 2021.
Even if the Fed is wrong in its forecasts now, it can raise the rate so sharply that it will first put a heavy burden on the financial market and, through it, on the entire economy. It is believed that it takes several quarters before the effects of a change in monetary policy are fully reflected in the economy.
This is probably why the economy has continued to create jobs despite the most violent tightening cycle since the 1980s. More problems lie ahead, which is predicted by the Fed, expecting GDP growth of only 0.5% and a jump in unemployment from 3.7% to 4.6% over 2023.
However, we must remember that the market can be wrong too. The general expectation right now is that the developed world is suffering permanently from low inflation and that the current jump is due to an unfortunate concurrence of one-off factors, the effects of which are already wearing off. So far, we saw a pullback in ship container costs to pre-covid-19 'normal' levels and Crude Oil return to 12-month lows. However, low unemployment and de-globalisation can keep inflationary pressures markedly above the Fed's target for the foreseeable future.
However, this week's dynamics are worrying if one looks out of context and only at the charts. After the inflation release, the almost 3% surge in S&P 500 futures was trashed in less than 3 hours.
However, we must remember that the market can be wrong too. The general expectation right now is that the developed world is suffering permanently from low inflation and that the current jump is due to an unfortunate concurrence of one-off factors, the effects of which are already wearing off. So far, we saw a pullback in ship container costs to pre-covid-19 'normal' levels and Crude Oil return to 12-month lows. However, low unemployment and de-globalisation can keep inflationary pressures markedly above the Fed's target for the foreseeable future.
However, this week's dynamics are worrying if one looks out of context and only at the charts. After the inflation release, the almost 3% surge in S&P 500 futures was trashed in less than 3 hours.
The strong selling since Wednesday is very similar to what we saw in April and August reversals. On top of that, the index flew over the 61.8% Fibonacci mark of the rise since the beginning of October during the fall. In Thursday's trading, the S&P500 fell helplessly out of the up-trending trading channel that has been neatly forming over the past two-plus months.
In theory, a sharp rebound is possible today due to the large-scale quarterly expiry of futures and options. However, a likely increase in trading volumes today could work for both bulls and bears. In addition, we note that still the Fed has lowered the rate hike step and did not dismiss the idea that the next hike could be 0.25 points.
We also continue to see bullish signals in related markets. The Dow Jones index remained above its 200-day average and drew a "golden cross" to start the week. EURUSD and GBPUSD have crossed their 200-day averages and attracted buyers on the dip.
In theory, a sharp rebound is possible today due to the large-scale quarterly expiry of futures and options. However, a likely increase in trading volumes today could work for both bulls and bears. In addition, we note that still the Fed has lowered the rate hike step and did not dismiss the idea that the next hike could be 0.25 points.
We also continue to see bullish signals in related markets. The Dow Jones index remained above its 200-day average and drew a "golden cross" to start the week. EURUSD and GBPUSD have crossed their 200-day averages and attracted buyers on the dip.
Bitcoin may be near the bottom, but years from the next FOMO
#Bitcoin is down 1.3% over the past seven days, remaining just below $17K since Saturday. Ethereum lost 5.3% to $1180. Other leading altcoins in the top 10 fell 8.8% (XRP) to 17.1% (Dogecoin). The intensified selling at the end of the week clearly showed that the market remains in the clutches of bears, capable of stopping the rise and sending the price lower.
Bitcoin ends the year near the same levels where it traded two years earlier and where it was at the end of 2017, raising doubts that the coin's limited supply is enough for a permanent bull market.
Higher interest rates also raise the bar for other asset classes for new investors. Nevertheless, the currently reduced volatility after a sell-off of more than a year often serves as a good starting point for long-term investors, although it has yet to promise them quick profits. We are probably years away from a new wave of FOMO for cryptocurrencies, not days and months.
#Bitcoin is down 1.3% over the past seven days, remaining just below $17K since Saturday. Ethereum lost 5.3% to $1180. Other leading altcoins in the top 10 fell 8.8% (XRP) to 17.1% (Dogecoin). The intensified selling at the end of the week clearly showed that the market remains in the clutches of bears, capable of stopping the rise and sending the price lower.
Bitcoin ends the year near the same levels where it traded two years earlier and where it was at the end of 2017, raising doubts that the coin's limited supply is enough for a permanent bull market.
Higher interest rates also raise the bar for other asset classes for new investors. Nevertheless, the currently reduced volatility after a sell-off of more than a year often serves as a good starting point for long-term investors, although it has yet to promise them quick profits. We are probably years away from a new wave of FOMO for cryptocurrencies, not days and months.
German business quickly recovers from the shock
Germany's business sentiment index rose in December for the third month, returning to August levels on the back of more optimistic expectations, while assessment of the current situation has improved just slightly. Ifo Business Climate Index for Germany jumped from 86.4 to 88.6 in December, better than the 87.6 expected. In a commentary on the publication, the President of the ifo Institute notes that “business is entering the holiday season with a sense of hope”.
Market participants closely follow the Ifo index because of its strong predictive power for the economy. But even more interesting is that the strong reversal from decline to growth coincided with the turnaround in the German indices.
The rise in German business sentiment may also be good news for EURUSD buyers. In 2020 and 2009, EURUSD accompanied the index’s recovery for the first several months. However, breaking the multi-year downtrend may take a fundamental change.
Germany's business sentiment index rose in December for the third month, returning to August levels on the back of more optimistic expectations, while assessment of the current situation has improved just slightly. Ifo Business Climate Index for Germany jumped from 86.4 to 88.6 in December, better than the 87.6 expected. In a commentary on the publication, the President of the ifo Institute notes that “business is entering the holiday season with a sense of hope”.
Market participants closely follow the Ifo index because of its strong predictive power for the economy. But even more interesting is that the strong reversal from decline to growth coincided with the turnaround in the German indices.
The rise in German business sentiment may also be good news for EURUSD buyers. In 2020 and 2009, EURUSD accompanied the index’s recovery for the first several months. However, breaking the multi-year downtrend may take a fundamental change.
The #EURUSD appears locally tired after its two-and-a-half-month rally and in a tactically overbought condition. The Euro has been losing ground against the USD during the last two trading sessions, retracing from 1.0730 to 1.0600. Still, it is the only major currency that has managed to break above the 200-day MA, which many consider a technical change in the long-term trend.
The bullish trend in the single currency might continue if the ECB's decisiveness in fighting inflation does not negatively impact business sentiment.
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The bullish trend in the single currency might continue if the ECB's decisiveness in fighting inflation does not negatively impact business sentiment.
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#WaveAnalysis
#AUDCHF reversed from support level 0.6220
• Likely to rise to resistance level 0.6350
AUDCHF recently reversed up from the major support level 0.6220 (which stopped the sharp downtrend in October), coinciding with the lower daily Bollinger Band.
The upward reversal from the support level 0.6220 runs counter to the strong multi-month downtrend inside which the pair has been trading from April.
Given the clear bullish divergence on the daily Stochastic indicator, AUDCHF can be expected to rise further toward the next resistance level 0.6350.
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#AUDCHF reversed from support level 0.6220
• Likely to rise to resistance level 0.6350
AUDCHF recently reversed up from the major support level 0.6220 (which stopped the sharp downtrend in October), coinciding with the lower daily Bollinger Band.
The upward reversal from the support level 0.6220 runs counter to the strong multi-month downtrend inside which the pair has been trading from April.
Given the clear bullish divergence on the daily Stochastic indicator, AUDCHF can be expected to rise further toward the next resistance level 0.6350.
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#WaveAnalysis
#AUDJPY reversed from pivotal support level 91.00
• Likely to rise to resistance level 93.00
AUDJPY under the bullish pressure after the price reversed up from the pivotal support level 91.00 (which has been reversing the price from the start of July), coinciding with the lower daily Bollinger Band and the 38.2% Fibonacci correction of the upward impulse from February.
The upward reversal from the support level 91.00 stopped the previous downward impulse wave C from the middle of November.
AUDJPY can be expected to rise further toward the next resistance level 93.00 (which stopped wave (iv) earlier this month)).
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#AUDJPY reversed from pivotal support level 91.00
• Likely to rise to resistance level 93.00
AUDJPY under the bullish pressure after the price reversed up from the pivotal support level 91.00 (which has been reversing the price from the start of July), coinciding with the lower daily Bollinger Band and the 38.2% Fibonacci correction of the upward impulse from February.
The upward reversal from the support level 91.00 stopped the previous downward impulse wave C from the middle of November.
AUDJPY can be expected to rise further toward the next resistance level 93.00 (which stopped wave (iv) earlier this month)).
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💴 USDJPY fell 3.5% to 133.3📉 after BoJ surprisingly eases yield curve policy. What is your attitude towards USDJPY for this week?
Anonymous Poll
52%
Bullish 📈
48%
Bearish 📉
Buying-the-dip has supported Bitcoin
The crypto market is waking up from a complete lull. Down just over 1% yesterday in the $16.5K area, #Bitcoin hit lows since late November, triggering a wave of stop orders during the early Asian session that dragged the price to $16.25K at one point. This was followed by a buying spree, gradually bringing the price to $16.8K.
The relatively small moves so far have not changed the centre of gravity by historical standards, leaving the first cryptocurrency to range narrowly for the past month and a half.
During the bull market in cryptocurrencies, a lack of growth was often seen as a precursor to declines. Now, interest in buying on declines may signal interest from long-term buyers. Of course, this is only true for the current fundamental picture.
The crypto market is waking up from a complete lull. Down just over 1% yesterday in the $16.5K area, #Bitcoin hit lows since late November, triggering a wave of stop orders during the early Asian session that dragged the price to $16.25K at one point. This was followed by a buying spree, gradually bringing the price to $16.8K.
The relatively small moves so far have not changed the centre of gravity by historical standards, leaving the first cryptocurrency to range narrowly for the past month and a half.
During the bull market in cryptocurrencies, a lack of growth was often seen as a precursor to declines. Now, interest in buying on declines may signal interest from long-term buyers. Of course, this is only true for the current fundamental picture.
Bank of Japan surprise - another sign of a global dollar reversal
The Bank of Japan made a surprise move on Tuesday morning, extending the permissible yield range of 10-year government bonds.
The central bank of Japan said at the end of its regular meeting that it would switch from a 0.25% yield target to a 0.0-0.50% target range instead. As yields had been held at 0.25% solely due to BoJ purchases, the range extension immediately sent yields to the upper end of the range. This decision meant that the BoJ would print fewer yen to buy government bonds for the FX market, strengthening the currency.
Strictly speaking, the Bank of Japan has made monetary policy less accommodating.
However, the difference with key rates of other countries remains disastrous, as it is the only one keeping rates negative with an active QE phase.
On the other hand, the signal from the softer central bank itself is definite and could be a trial balloon for a fundamental policy reversal. Bank of Japan meetings are no longer boring.
The Bank of Japan made a surprise move on Tuesday morning, extending the permissible yield range of 10-year government bonds.
The central bank of Japan said at the end of its regular meeting that it would switch from a 0.25% yield target to a 0.0-0.50% target range instead. As yields had been held at 0.25% solely due to BoJ purchases, the range extension immediately sent yields to the upper end of the range. This decision meant that the BoJ would print fewer yen to buy government bonds for the FX market, strengthening the currency.
Strictly speaking, the Bank of Japan has made monetary policy less accommodating.
However, the difference with key rates of other countries remains disastrous, as it is the only one keeping rates negative with an active QE phase.
On the other hand, the signal from the softer central bank itself is definite and could be a trial balloon for a fundamental policy reversal. Bank of Japan meetings are no longer boring.
The interventions of the Japanese Ministry of Finance in November stopped the USDJPY rising and confirmed the reversal in the pair thanks to a decisive move down on a break-down of the 50-day moving average.
Throughout December, we saw a three-week consolidation of the pair just above the 200-day MA. The decisive move down after the extended consolidation has been reinforced by the fact that during the lull in the pair, the stop orders pulled closer to the market and are now triggered in droves.
A sharp pullback of the pair under its 200 SMA often signals the reversal of the long-term trend.
In addition, the fall of the USDJPY below 133 was below the 61.8% retracement of the entire momentum of the pair from the beginning of 2021 to the peak in October 2022. Market participants' conviction of a hawkish reversal of BoJ policy could trigger a new round of decline to levels near 127. This is where the 50% level of the mentioned last rally and the support area in May of the year gone by are concentrated.
Throughout December, we saw a three-week consolidation of the pair just above the 200-day MA. The decisive move down after the extended consolidation has been reinforced by the fact that during the lull in the pair, the stop orders pulled closer to the market and are now triggered in droves.
A sharp pullback of the pair under its 200 SMA often signals the reversal of the long-term trend.
In addition, the fall of the USDJPY below 133 was below the 61.8% retracement of the entire momentum of the pair from the beginning of 2021 to the peak in October 2022. Market participants' conviction of a hawkish reversal of BoJ policy could trigger a new round of decline to levels near 127. This is where the 50% level of the mentioned last rally and the support area in May of the year gone by are concentrated.