2023 Market Forecast by Solid ECN

EURUSD

EURUSD has been trading lower since the beginning of February. The main currency pair pulled back almost 4% off the daily high reached on February 2, 2023. Outperformance of USD over EUR can be reasoned with monetary policy. Both ECB and Fed are committed to continuing tightening their policies. However, while it is widely believed that the ECB will continue to tighten, it was not so sure for the Fed. The Fed has slowed the pace of rate hikes to 25 basis points at the latest meeting. However, the message sent by Powell during the press conference was hawkish and a streak of better-than-expected US data since the latest FOMC meeting has further boosted expectations that Fed is not done yet. Moreover, FOMC minutes released yesterday showed that a number of Fed members saw a need for another 50 bp rate hike. Having said that, the outlook for ECB policy has not changed while the outlook for Fed policy got more hawkish and this is driving declines in EURUSD.



Taking a look at EURUSD chart at D1 interval, we can see that the main currency pair broke below the lower limit of the Overbalance structure at 1.0660 earlier this week. In theory, this mean that EURUSD trend has reversed bearish. Should we see declines deepen, the nearest support level to watch on the pair are 1.0575 (100-day EMA) and 1.0470 (38.2%  retracement of the upward move launched in September 2022. On the other hand, should we see buyers regain control, it would be prudent  for traders to wait to see whether EURUSD breaks back above the 1.0660-1.0702 zone before taking action.

Oil

This week marks the first anniversary of the Russian invasion of Ukraine. While the conflict was expected to be short-lived, the reality turned out to be quite different. Ukraine defends itself thanks to its determination, support from the West and numerous sanctions imposed on Russia. Meanwhile, the invader is still not willing to retreat despite several defeats. Financial markets, meanwhile, have changed markedly over the last 12 months, although some of the price movements were rather surprising. Price movements on many markets reached several dozen or even several hundred percent in the past few months. However, currently the situation stabilized and earlier moves are being reversed on several markets.


Energy commodities

Russia was one of the largest suppliers of energy resources not only for Europe, but also for many nations around the world. Global community feared that outbreak of the conflict at the end of February 2022 would halt exports of key commodities from Russia. The Kremlin itself decided to use gas as a tool to blackmail Europe. However, after initial price shock on gas, oil and coal markets, prices fell and stabilized as Europe found other suppliers of these key commodities. Putin wanted Europe to freeze over the winter but reduced consumption, supplier diversification and warmer than expected weather pushed the prices below pre-war levels.

• TTF natural gas: -42% y/y
• US natural gas: -57% y/y
• Brent: -17% y/y
• ARA coal: +8% y/y

This week marks the first anniversary of the Russian invasion of Ukraine. While the conflict was expected to be short-lived, the reality turned out to be quite different. Ukraine defends itself thanks to its determination, support from the West and numerous sanctions imposed on Russia. Meanwhile, the invader is still not willing to retreat despite several defeats. Financial markets, meanwhile, have changed markedly over the last 12 months, although some of the price movements were rather surprising. Price movements on many markets reached several dozen or even several hundred percent in the past few months. However, currently the situation stabilized and earlier moves are being reversed on several markets.


Energy commodities

Russia was one of the largest suppliers of energy resources not only for Europe, but also for many nations around the world. Global community feared that outbreak of the conflict at the end of February 2022 would halt exports of key commodities from Russia. The Kremlin itself decided to use gas as a tool to blackmail Europe. However, after initial price shock on gas, oil and coal markets, prices fell and stabilized as Europe found other suppliers of these key commodities. Putin wanted Europe to freeze over the winter but reduced consumption, supplier diversification and warmer than expected weather pushed the prices below pre-war levels.

• TTF natural gas: -42% y/y
• US natural gas: -57% y/y
• Brent: -17% y/y
• ARA coal: +8% y/y

Lockheed Martin and BP gained following the outbreak of the Russia-Ukraine war. Lockheed gained over 20% while shares of BP rallied over 40%.


Sanctions, economy, inflation and China

Conflict between Russia and Ukraine is still ongoing. The West is providing massive support for Ukraine, by providing it with weapons, training for its military personnel as well as economic relief. Apart from that, a number of sanctions have been levied on the Russian finance sector and key export commodities. The Russian economy has benefited from sky-high energy commodity prices and it has allowed it to experience a smaller hit than the Ukrainian economy.

Commodity price increases and shutdown of some communications lines boosted inflation around the world. However, it should be said that inflation was on an uncontrolled, upward trajectory even before the outbreak of war. It seems that central banks have achieved at least a partial success but it should be said that a bulk of current deceleration in price growth is driven by a drop in commodity prices.

One should not also forget about China, whose ambition it is to change the direction of dependence on Russia. Current Russian commodity sales revenue is generated mostly via sales to Asia. On the other hand, China has not decided on a similar move as the Russian and refrained from invading Taiwan as it could be a massive disruption to global supply chains.

Will the end of war trigger a market bull run?

Investors have been hoping for months for any signals suggesting a potential cease fire or peace negotiations. Currently, such a scenario seems neither quick, nor likely. Markets got used to war. One cannot rule out the possibility of Russia further restricting flows of energy commodities given that numerous countries embrace price caps that Russia opposes. On the other hand, it does not seem to be the base case scenario. The end of the war would be good news primarily for Ukraine but would unlikely be a breakthrough from a market point of view. However, it could pave the way for a quicker solution to issues like inflation or risk of economic recession. On the other hand, financial markets have been flooded with negative news as of late and such good news like the end of the Russia-Ukraine war could be a trigger for the return of the bull market.

US500 Reverses Early Gains!

US equities at new session lows, while 💲 strengthens amid broad risk off sentiment.

Major Wall Street indices launched Thursday's session higher, however upbeat sentiment faded away later on and stock resumed recent downward correction, while the dollar index firmed up near 104.7, hovering near its strongest levels in seven weeks. 

Investors remained cautious as recent US economic data pointed to a still-tight labor market. At the same time, minutes of the Federal Reserve?s last meeting showed that US policymakers largely agreed to keep fighting inflation with more interest rate hikes.  Also rising geopolitical tensions weigh on market sentiment. Ahead of  the first anniversary of the Russian invasion of Ukraine, NATO Chief Stoltenberg said that the alliance has observed indications that China is perhaps considering sending weapons to Russia. Meanwhile Germany?s Chancellor Scholz informed Chinese representatives that sending weapons to Russia is not acceptable.



US500 fell below psychological support  at 4000 pts and is trading at its lowest level since the end of January. If current sentiment prevails, next support to watch can be found at 3920 pts, which is marked with previous price reactions and 200 SMA (red line).



EURUSUD pair extends downward move and is currently testing crucial support at 1.0570, which coincides with 38.2% Fibonacci retracement of downward wave launched in May 2021. Break lower may provide additional  fuel for the bears.

Crude Oil - The price is in a correction and may grow.

If the assumption is correct, the asset will grow to the area of 85.00?93.60. In this scenario, critical stop loss level is 73.50.

EURUSD - Real estate sales skyrocket in the US

On Friday, Q4 2022 data on the gross domestic product (GDP) was released: the indicator slowed down by 0.4% compared to the previous period, which was worse than analysts expected ?0.2%, while the annual value fell to 0.3% from 0.5% YoY, confirming the negative trend in the economy, which is likely to enter into a recession soon. Today at 12:00 (GMT+2) the data on indexes of business expectations and sentiments in the manufacturing sector will be published, and the indicator of consumer confidence may reach ?19.0 points, as well as a month earlier.

For the first time since the beginning of December, the American currency exceeded 105.000 in the USD Index, having started trading this week around 105.200. One of the main factors of positive dynamics was Friday's data on new home sales, which reflected a correction in January by 670.0K after 625.0K earlier against the forecast of a decline to 620.0K.



On the daily chart, the trading instrument continues its corrective movement, having returned to the recent ascending corridor with dynamic boundaries 1.0380?1.0810, and the technical indicators have given a sell signal.

Resistance levels: 1.06, 1.074 | Support levels: 1.048, 1.032

GBPUSD

UK Prime Minister Rishi Sunak met at Windsor with European Commission President Ursula von der Leyen today to discuss Brexit. more precisely, to discuss the so-called Northern Ireland protocol. This is one of the final outstanding issues preventing the Brexit chapter from closing. Rishi Sunak is set to deliver a statement on discussions to the UK Chamber of Commons at 6:30 pm GMT. However, there is a lot of confusion around the outcome of talks.

Steve Baker, British Minister of State for Northern Ireland and a Brexit hardliner, asked by reporters as he left Downing Street 10 said that Prime Minister Sunak was at a cusp of securing a fantastic deal. Later, the media reported that Democratic Unionist Party (DUP) of Northern Ireland liked the deal and is ready to accept it soon. However, this optimism was put under question later on when DUP leader Donaldson told reporters that he is neither positive, nor negative on the outcome of talks and that his party will need to take time to analyze the proposal and how it answers DUP's concerns.



Having said that, there is a lot of uncertainty and the statement from Sunak at 8:30 pm GMT today may be simply an update rather than an announcement. Nevertheless, GBP has traded higher throughout the day and is the best performing G10 currency at press time. Taking a look at GBPUSD chart at D1 interval, we can see that the pair bounced off the support zone marked with 38.2% retracement of the downward move launched in mid-2021. However, it should be said that a bulk of this move was driven by USD weakening following disappointing durable orders data for January at 1:30 pm GMT.

EURUSD

EUR appreciated strongly against USD during the European session, however bullish momentum lost its steam in the evening as markets digested fresh comments from ECB's Vujcic.

• Markets are right to price in 50 bps for the March meeting.
• Rates are about to enter restrictive territory.
• Labor markets are likely to remain strong.
• We must persevere as long as core inflation remains high.
• We must consider both headline and core inflation
• Headline inflation is set to fall.
• The role of the ECB is not to determine where the terminal rate should be.

The market is pricing in a 44% chance of 75 bps at the ECB March meeting.



EURUSD retreated sharply from session high at 1.0620, erasing a large chunk of today's gains. Nevertheless as long as the pair sits above local support at 1.0580 another upward move may be launched.