The strengthening of the pound against the euro by 4% and the dollar by 12% over the year is also not helping the economy. The combination of deteriorating global demand and the appreciating pound is suppressing exports, which were 24% lower in October than a year earlier. Imports are also falling in the wake of commodity and energy prices and are now 18% below their peak in August last year, but the year-on-year fall is a modest 6%.
The UK economy needs stimulus in the form of a weaker GBP exchange rate, which would support the country's global competitiveness and lower interest rates to boost production and domestic consumption. On the other hand, UK prices and wages are rising at the fastest rate among major economies, which prevents the Bank of England from its easing policy.
The UK economy needs stimulus in the form of a weaker GBP exchange rate, which would support the country's global competitiveness and lower interest rates to boost production and domestic consumption. On the other hand, UK prices and wages are rising at the fastest rate among major economies, which prevents the Bank of England from its easing policy.
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This combination of factors leaves the Bank of England no choice but to declare the end of the rate hike cycle and dutifully wait for the shrinking economy to bring inflation down to acceptable levels to start the easing policy.
The British pound has a long-standing downward trend against the dollar, dating back to the times of the global financial crisis. In July and recent weeks, GBPUSD has made its way to resistance. Technically, we can see both a breakdown of this multi-year trend and a reversal to growth, as well as the formation of a powerful downward impulse. The latest macroeconomic data package gives more chances for the second – a pessimistic – scenario.
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The British pound has a long-standing downward trend against the dollar, dating back to the times of the global financial crisis. In July and recent weeks, GBPUSD has made its way to resistance. Technically, we can see both a breakdown of this multi-year trend and a reversal to growth, as well as the formation of a powerful downward impulse. The latest macroeconomic data package gives more chances for the second – a pessimistic – scenario.
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The total capitalisation of #crypto has declined by almost 2% to $1.54 trillion in the past 24 hours. This is still a move in the opposite direction relative to the US and European indices, which are rising. Given that the current year is marked by impressive growth in cryptocurrencies, profit-taking looks like a logical end to it.
#Bitcoin has gained more than 170% from the start of the year to its peak last week. The levels of $38K and $34K look like potential targets for a full-fledged correction. At the same time, locally, Bitcoin is being actively bought back at levels above $40.5K, clearly protecting a significant round level. A failure under it is likely in case of a reversal of stock indices and a widespread thrust from risky assets, which has not been observed yet. The Fed has a chance to influence the situation later on Wednesday with its rate decision, which could determine demand for days and weeks to come.
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#Bitcoin has gained more than 170% from the start of the year to its peak last week. The levels of $38K and $34K look like potential targets for a full-fledged correction. At the same time, locally, Bitcoin is being actively bought back at levels above $40.5K, clearly protecting a significant round level. A failure under it is likely in case of a reversal of stock indices and a widespread thrust from risky assets, which has not been observed yet. The Fed has a chance to influence the situation later on Wednesday with its rate decision, which could determine demand for days and weeks to come.
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Weak PPI Is Another Excuse for the Fed to Stay Pat
US producer prices came out weaker than expected, increasing speculation that the Fed may soon turn to policy easing, causing pressure on the dollar.
The overall and core producer price indices showed zero change for November and slowed from 1.2% to 0.9% and 2.3% to 2.0% year-over-year, respectively. This is below expectations and comes as a surprise after the slightly stronger consumer inflation data (which are usually closely correlated).
Producer inflation went to a level that does not worry the Fed and supports a wait-and-see approach. The here and now is a reason for the market to build up risk appetite, suppressing the risks of further rate hikes. But it would be reckless to lose sight of the bigger picture, in which falling commodity and manufacturing prices are a sign of demand problems. And that's bad news for buyers of equities at current levels.
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US producer prices came out weaker than expected, increasing speculation that the Fed may soon turn to policy easing, causing pressure on the dollar.
The overall and core producer price indices showed zero change for November and slowed from 1.2% to 0.9% and 2.3% to 2.0% year-over-year, respectively. This is below expectations and comes as a surprise after the slightly stronger consumer inflation data (which are usually closely correlated).
Producer inflation went to a level that does not worry the Fed and supports a wait-and-see approach. The here and now is a reason for the market to build up risk appetite, suppressing the risks of further rate hikes. But it would be reckless to lose sight of the bigger picture, in which falling commodity and manufacturing prices are a sign of demand problems. And that's bad news for buyers of equities at current levels.
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Have Markets Reached a Peak? Probably Not Yet
The Fed expectedly kept the key rate at the highest level in 22 years in the 5.25%-5.50% range but kicked off a powerful rally in equities and dollar sell-off with a dramatic change in rhetoric. Despite the tight monetary conditions, it gave key indices fuel for a rally. The Dow Jones hit an all-time high above 37200, while Nasdaq100 futures were only 0.5 per cent off their peak set just over two years ago as of Thursday morning.
The rally in stocks that started last Thursday added more than 5.5% to the Nasdaq100 and about 3.5% to the Dow Jones. Confirmation of the Fed’s dovish shift gave additional strength to buyers, and liquidation of short positions by bears caught off guard gave additional amplitude to the move.
The Fed expectedly kept the key rate at the highest level in 22 years in the 5.25%-5.50% range but kicked off a powerful rally in equities and dollar sell-off with a dramatic change in rhetoric. Despite the tight monetary conditions, it gave key indices fuel for a rally. The Dow Jones hit an all-time high above 37200, while Nasdaq100 futures were only 0.5 per cent off their peak set just over two years ago as of Thursday morning.
The rally in stocks that started last Thursday added more than 5.5% to the Nasdaq100 and about 3.5% to the Dow Jones. Confirmation of the Fed’s dovish shift gave additional strength to buyers, and liquidation of short positions by bears caught off guard gave additional amplitude to the move.
The reason for the rally was the change in the FOMC forecasts, according to which the committee expects three rate cuts from current levels next year, although it had previously forecast one more rate hike this year and two cuts in 2024. That’s precisely what the markets, on average, were expecting several weeks ago. However, encouraged by the reversal in rhetoric, futures are now pricing up for five rate cuts over the next year.
Over the past two years, the market has methodically built a softer stance into expectations, and the Fed has worked to ‘manage expectations’ by cooling the bulls. But it hasn’t done so now. If, indeed, the market has switched into a phase where the tail wags dog, it is worth preparing for a cycle of high volatility in the years ahead.
Over the past two years, the market has methodically built a softer stance into expectations, and the Fed has worked to ‘manage expectations’ by cooling the bulls. But it hasn’t done so now. If, indeed, the market has switched into a phase where the tail wags dog, it is worth preparing for a cycle of high volatility in the years ahead.
Powell’s fresh momentum has taken the Dow Jones index further into overbought territory on the RSI to the 85 level. Since late 2007, we have seen the index hit a similar overbought scale only three times: precisely seven years ago, in December 2016, in October 2017, and in January 2018. In the first two cases, the spike was followed by more than a month of horizontal consolidation and a subsequent spurt upward. It was only in the third case that a subsequent 2% rise in five sessions turned into a 12% correction.
In other words, despite the extremes and apparent overbought in stocks, investors should be cautious about betting on a near-term decline in the indices: we may see both a prolonged consolidation and a renewal of the highs.
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In other words, despite the extremes and apparent overbought in stocks, investors should be cautious about betting on a near-term decline in the indices: we may see both a prolonged consolidation and a renewal of the highs.
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Bank of England Hawks Extend the Pound's Rally
The Fed's dovish attitude, for now, hasn't extended too far into Europe. The Bank of England kept its key rate unchanged at 5.25%, with three of the nine members voting in favour of a quarter-point hike.
In a commentary on the decision, the Bank of England emphasised that it is not yet certain that inflation will return to normal through strong wage growth in the economy and higher prices for services.
The Fed's dovish attitude, for now, hasn't extended too far into Europe. The Bank of England kept its key rate unchanged at 5.25%, with three of the nine members voting in favour of a quarter-point hike.
In a commentary on the decision, the Bank of England emphasised that it is not yet certain that inflation will return to normal through strong wage growth in the economy and higher prices for services.
The Fed is almost invariably at the forefront of the monetary policy cycle. Hence, the dollar tends to rise against its peers at the start of policy tightening and fall at the first hints of an easing reversal. GBPUSD's reaction to the Fed and Bank of England meetings is a colourful illustration of this rule.
The willingness to ease the Fed’s policy soon weakens the USD, while the willingness to increase further strengthens the GBP. Both factors worked in the same direction within 16 hours, and as a result, GBPUSD rallied 1.7%, exceeding 1.27 - a sharp return to the highs seen a fortnight ago.
The pair has now found itself in the territory of meaningful resistance since August. In addition, the latest rally looks somewhat stretched, and the currency market may go into consolidation or correction mode until the end of the year.
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The willingness to ease the Fed’s policy soon weakens the USD, while the willingness to increase further strengthens the GBP. Both factors worked in the same direction within 16 hours, and as a result, GBPUSD rallied 1.7%, exceeding 1.27 - a sharp return to the highs seen a fortnight ago.
The pair has now found itself in the territory of meaningful resistance since August. In addition, the latest rally looks somewhat stretched, and the currency market may go into consolidation or correction mode until the end of the year.
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#WaveAnalysis
#WTI reversed from support level 68.00
Likely to rise to resistance level 73.35
WTI crude oil recently reversed up from the major long-term support 68.00 (which has been repeatedly reversing the price from March) coinciding with the lower daily Bollinger Band.
The upward reversal from the support 68.00 is likely to form the daily candlesticks reversal pattern Morning Star – strong buy signal for this instrument.
Given the strength of the support 68.00 and the oversold daily Stochastic, WTI crude oil can be expected to rise to the next resistance level 73.35 (former support from November).
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#WTI reversed from support level 68.00
Likely to rise to resistance level 73.35
WTI crude oil recently reversed up from the major long-term support 68.00 (which has been repeatedly reversing the price from March) coinciding with the lower daily Bollinger Band.
The upward reversal from the support 68.00 is likely to form the daily candlesticks reversal pattern Morning Star – strong buy signal for this instrument.
Given the strength of the support 68.00 and the oversold daily Stochastic, WTI crude oil can be expected to rise to the next resistance level 73.35 (former support from November).
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#WaveAnalysis
#GBPAUD reversed from support level 1.8945
Likely to rise to resistance level 1.9200
GBPAUD currency pair recently reversed up from the strong support level 1.8945 (which has been repeatedly reversing the pair from the start of July) intersecting with the lower daily Bollinger Band.
The support level 1.8945 was strengthened by the 38.2% Fibonacci correction of the sharp extended uptrend from last February.
Given the clear daily uptrend, GBPAUD currency pair can be expected to rise to the next resistance level 1.9200 (which stopped the previous wave 1 and b).
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#GBPAUD reversed from support level 1.8945
Likely to rise to resistance level 1.9200
GBPAUD currency pair recently reversed up from the strong support level 1.8945 (which has been repeatedly reversing the pair from the start of July) intersecting with the lower daily Bollinger Band.
The support level 1.8945 was strengthened by the 38.2% Fibonacci correction of the sharp extended uptrend from last February.
Given the clear daily uptrend, GBPAUD currency pair can be expected to rise to the next resistance level 1.9200 (which stopped the previous wave 1 and b).
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Greed remains the main driver of the crypto market. Its cap has risen by 0.3% in the last 24 hours. Bitcoin has seen about zero change, with trampling around $42.8K.
#Ethereum has given up 0.2%, retreating deep under $2300. Within a broad ascending channel, the upper boundary of which the second cryptocurrency touched last week. The lower boundary of this range passes through the levels of $1700-1750.
The movement was provided by the top ten altcoins, following #Solana (+9%). This is one of the few altcoins that managed to hit the highs since May 2022 in the last hours. At the $78 level, it has a chance to hit resistance. Here, we saw significant support for the declines in the first half of 2022, and its overcoming triggered a solid downward momentum.
So even now, we should be ready for a prolonged recharge with a potentially deep correction down to $55. But this is only possible against the backdrop of a widespread sell-off in traditional financial markets - a very risky bet right now.
#Ethereum has given up 0.2%, retreating deep under $2300. Within a broad ascending channel, the upper boundary of which the second cryptocurrency touched last week. The lower boundary of this range passes through the levels of $1700-1750.
The movement was provided by the top ten altcoins, following #Solana (+9%). This is one of the few altcoins that managed to hit the highs since May 2022 in the last hours. At the $78 level, it has a chance to hit resistance. Here, we saw significant support for the declines in the first half of 2022, and its overcoming triggered a solid downward momentum.
So even now, we should be ready for a prolonged recharge with a potentially deep correction down to $55. But this is only possible against the backdrop of a widespread sell-off in traditional financial markets - a very risky bet right now.
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The Dollar made a crucial technical breakdown this week following a public admission from the Fed of a policy reversal. The Fed’s comments and subsequent press conference pressed the Dollar index under its 200-day moving average. The decline continued on Thursday as neither the Bank of England nor the ECB acknowledged that they were ready to cut rates as the Fed.
As a result, the dollar index collapsed 2% in two days, the sharpest sell-off since July. Back then, it was the final chord of the Dollar’s fall before the start of a long climb. There is no slight chance that a bottom will begin to form in the Dollar near current levels and a subsequent reversal to growth.
As a result, the dollar index collapsed 2% in two days, the sharpest sell-off since July. Back then, it was the final chord of the Dollar’s fall before the start of a long climb. There is no slight chance that a bottom will begin to form in the Dollar near current levels and a subsequent reversal to growth.
The fundamental reason for the dollar’s sell-off was a powerful reassessment of interest rate expectations. As soon as the Fed agreed with the markets to build 3 rate cuts into the forecasts in 2024, the markets demanded twice as many - six rate cuts. According to FedWatch, futures are pledging a 15% chance of a rate cut on 31 January and an 80% chance on 20 March 2024. Two months ago, when the dollar index was forming a peak, it assumed a 40% chance rate would be higher than current rates in March and a 50% chance in January.
Six rate cuts are hard to justify against a background of an economy growing beyond expectations: retail sales are increasing, wages are rising faster than inflation, and jobs are being created at a healthy pace.
Six rate cuts are hard to justify against a background of an economy growing beyond expectations: retail sales are increasing, wages are rising faster than inflation, and jobs are being created at a healthy pace.
It’s more likely that the ‘rate expectations’ are the result of technical factors at work, as too many investors sold US government bonds before October but have found them attractive in recent weeks. The speed of recovery in US equity and bond markets has created an environment of not just FOMO but shorts’ destruction, intensifying amplitude, and helping markets jump above headwinds or reasonable macroeconomic valuations.
We may well see a normalisation of expectations in the coming days and weeks, which will work for the Dollar and probably deflate excessive optimism from the equity market. Added to this is the difference between how badly Europe is doing (except for the pace of wage growth) and how well the US is doing (except for housing sales). The current situation can be compared to the recovery from the financial crisis, when the chronically weak growth of the Eurozone crystallised with the very buoyant growth of America, forming a long-term trend of strengthening the dollar index since 2011.
We may well see a normalisation of expectations in the coming days and weeks, which will work for the Dollar and probably deflate excessive optimism from the equity market. Added to this is the difference between how badly Europe is doing (except for the pace of wage growth) and how well the US is doing (except for housing sales). The current situation can be compared to the recovery from the financial crisis, when the chronically weak growth of the Eurozone crystallised with the very buoyant growth of America, forming a long-term trend of strengthening the dollar index since 2011.
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#WaveAnalysis #UK100
FTSE 100 reversed from resistance level 7700.00
Likely to fall to support level 7500.00
FTSE 100 index under the bearish pressure after the index reversed down from the resistance level 7700.00 (which has been reversing the index from June) standing above the upper daily Bollinger Band.
The resistance level 7700.00 was strengthened by the coinciding 61.8% Fibonacci correction of the downward impulse from April.
Given strength of the resistance level 7700.00 and the overbought daily Stochastic, FTSE 100 can be expected to fall further to the next support level 7500.00.
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FTSE 100 reversed from resistance level 7700.00
Likely to fall to support level 7500.00
FTSE 100 index under the bearish pressure after the index reversed down from the resistance level 7700.00 (which has been reversing the index from June) standing above the upper daily Bollinger Band.
The resistance level 7700.00 was strengthened by the coinciding 61.8% Fibonacci correction of the downward impulse from April.
Given strength of the resistance level 7700.00 and the overbought daily Stochastic, FTSE 100 can be expected to fall further to the next support level 7500.00.
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