Forex Updates by Solid ECN

[Solid ECN]

Oil​

Oil prices have made an almost complete U-turn, recovering the majority of losses made earlier today. While there was no specific news driving the rebound, Reuters survey based on secondary sources suggested that OPEC countries were over complying with pledged output cuts. While countries like Saudi Arabia, Kuwait and United Arab Emirates were mostly in-line with pledged cuts, there were a number of countries that have cut more than pledged. Iraq and Nigeria are of note here as they are significant oil producers and their compliance with pledged cuts stood at 151% and 448% respectively. Combined output of 13 OPEC countries was 460k bpd lower in May than in April. Moreover, output data for April was revised lower by 150k bpd.

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Taking a look at OIL.WTI chart at H1 interval, we can see that price plunged to $67.00 area earlier today, where early-May lows are located. However, buyers took over control afterwards and a strong upward move was launched. While OIL.WTI is still trading around 1% lower on the day, it has been dropping as much as 4% earlier. Continuation of the upward move will, however, depend on whether buyers manage to push the price above the $69.45-69.65 area, where the upper limit of a local market geometry can be found.​

 

[Solid ECN]

US30​

US indices launched this week's trading on the back foot and moved lower on Tuesday and Wednesday. However, tides turned yesterday as it became more and more likely that Fed will keep rates unchanged at June meeting (13-14 June, 2023). Comments from Fed Harker and Jefferson signaling that FOMC is in position to skip a rate hike at the June meeting led to a slump in rate hike bets on money markets. Currently, markets price in just a 25% chance of 25 basis point rate hike at June meeting while those odds were as high as 70% following release of JOLTS data on Wednesday. NFP report for May, which is scheduled to be released at 1:30 pm BST today, will be watched closely but it seems that Fed members have already made up their minds when it comes to the June decision and therefore jobs data may not have too much of an impact.

Taking a look at Dow Jones futures (US30) at D1 interval, we can see that the index made another test of the 32,900 pts support zone and has once again failed to break below. The aforementioned support zone is marked with previous price reactions, 200-session moving average (purple line), upward trendline and the 50% retracement of the downward move launched at the beginning of 2022. Positive demand-side reaction to this hurdle suggests that the index may be set for a bigger recovery move. The first resistance zone to watch should current gains extend can be found in the 33,700 pts area, marked with 61.8% retracement.​

 

[Solid ECN]

Crude Oil​

Weekend meeting of OPEC+ group was watched closely but was not expected to result in any changes to the level of agreed output cuts. This turned out to be partially true. While OPEC+ decided not to deepen output cuts, it has agreed to extend the current output cut agreement through 2024. However, Saudi Arabia announced that it will make a voluntary output cut of 1 million barrels per day. The cut was announced for July only but Saudi officials already warned that it may be extended if the situation requires it.

Baseline production levels were adjusted for 2024 and it could be seen as somewhat bearish. This is because production quotas were redistributed from countries that struggled to meet production targets to countries that have spare production capacity. As a result, it may lead to better compliance with production targets across the group and, in turn, to higher combined production.

Taking a look at WTI chart (OIL.WTI) at D1 interval, we can see that the price launched a new week with a big bullish price gap. While Brent (OIL) jumped around 1.7% at the beginning of a new week, WTI opened with an around-4% price gap. OIL.WTI jumped above the $73-74 per barrel resistance zone and tested 50-session moving average (green line). However, bulls failed to break above it and gains started to be erased as the Asian session progressed. Price has almost completely filled the bullish price gap but has bounced off the daily lows since.​

 

[Solid ECN]

USDTRY​

The Turkish lira is failing to halt its ongoing powerful downward momentum (-0.82% against USD today), and the factor that added fuel to the sell-off today was a slightly higher-than-expected CPI inflation reading.

Inflation in Turkey fell to its lowest level since 2021, with consumer prices rising by 39.6% year-on-year in May, slightly lower than forecast (39.2%) and compared to 43.7% in the previous month. On a monthly basis, inflation was close to zero for the first time in four years.

Despite the good tone of the headline reading itself, investor sentiment is still spoiled by the underlying reading, which no longer shows this downward dynamic.

Core inflation surprised analysts with a much higher reading than expected, which, coupled with Erdogan's uncertain policy, puts tremendous pressure on the Turkish lira.

On the other hand, however, and in the matter of Erdogan's policies themselves, we may see some information suggesting a change in the authorities' attitude towards inflation. Mehmet Simsek, Turkey's new Treasury and Finance Minister (and former BofA Merill Lynch strategist), said on Sunday that "the main goal will be to fight inflation rationally". Investment banks also seem to have a different view of the lira. Goldman Sachs predicts a further weakening of the lira against the dollar. On the other hand, Societe Generale recommended a short position on the USDTRY pair in view of the stretched positioning and the high positive carry/aggressive market valuation of the lira's depreciation in futures.​

 

[Solid ECN]

Massive Crypto Sell-Off!​

Binancecoin loses almost 10% and Bitcoin falls by more than 5% amid the problems of the Binance exchange in the US

Cryptocurrencies are clearly in a downturn. Bitcoin is losing over 5%, and Binance Coin is down nearly 10% following the news that the SEC was planning to sue the largest cryptocurrency exchange, Binance, due to uncovered irregularities. Binance is accused of violating securities market regulations, conducting unregistered securities sales (the SEC considers cryptocurrencies as securities), and operating an unregistered securities exchange in the United States. Additionally, the SEC reportedly indicated that the exchange was managing its clients' funds, including secretly transferring funds to an entity controlled by the company's founder.

It is important to note that this is not the first time U.S. authorities have sued Binance. The CFTC had previously taken similar action. The United States likely wants to prevent investments in cryptocurrencies through the Binance exchange as quickly as possible.

In response to these reports, we are witnessing significant drops in cryptocurrencies and, above all, a breakout from the recent sideways trend. As we can see, positive sentiments in the U.S. stock market or commodity market no longer have a positive impact on cryptocurrencies.

Binancecoin is at its lowest since early March, as is Bitcoin. On the other hand, we are seeing further increases on the US100.​

 

[Solid ECN]

USDTRY​

Turkish lira is taking a massive hit this morning. Turkey's currency is dropping over 5% against the US dollar and euro. TRY slump was puzzling at first as its size was abnormal even for such a volatile asset as lira and there was no news that accompanied it. However, news justifying the move began to surface later on.

Bloomberg reported that Turkish state banks have given up on defending lira. Traders are reporting that Turkish banks halted dollar sales that were aimed at supporting TRY. As a result, an important source of TRY demand vanished and the currency began to freefall.

However, those news may not be as bad as they look at first glance. Turkish President Erdogan appointed a Wall Street veteran as a new treasury and finance minister - Mehmet Simsek, who is a former Merrill Lynch strategist. Given that FX interventions are costly and they do not bear fruit if there is no confidence in the currency (like it was the case with TRY), the decision to abandon them could be a wise move. Of course, this is only true if Turkish authorities take some other actions instead that could help stem capital outflow. Abandoning interventions and not engaging in any new actions could doom TRY to plunge further.​

 

[Solid ECN]

US500 - Trade of the day​

Facts:​

• US500 has broken out of the downward trend channel​
• Currently, there is consolidation around the resistance zone​
• The end of the hike cycle is near​

Recommendation:​

• Position: long on US500​
• Target Price: 4384, 4437​
• Stop Loss: 4230​

Justification:

The US500 index has broken out of the downward trend that has been ongoing since the end of 2021. The index's breakout occurred at a price of 4200 points. After overcoming resistance, the index price gained up to the level of 4250 points, after which it retested support at the level of 4200 points. The following days brought a decisive rebound, and the previous week the US500 index ended on a solid plus. The price clearly broke above the support line, indicating a strong move. It is currently in consolidation around 4300 points, increasing the chances of a possible further breakout.

Next week, investors are awaiting key inflation data and the FED's decision on interest rates. Currently, the market estimates no hikes and hopes for a signal of the end of the cycle. The lack of a hike at this meeting may lead to euphoria on the indices in the hope of ending the cycle and a "soft landing". Although such a scenario is rather unlikely, it may lead to increases in the valuations of risky assets in the short term. This may be a sufficient reason for the US500 to continue the strong upward trend and break above 4300 points in the short term. However, if the price does not break above 4300 points, we recommend setting a stop loss close enough to minimize losses.​

 

[Solid ECN]

US2000​

The Russell 2000 Index of U.S. smaller-cap companies (US2000) has been on an upward surge for several days. In yesterday's session, it rose nearly 1.8% against a 1.7% decline in the Nasdaq, weakness in the S&P500 and the Dow index. Driven by oversold regional bank stocks in recent weeks, the benchmark has risen less than 7% since the beginning of the year, a weak performance against the major indexes. By comparison, it has gained nearly 8% in the past five days alone. Today's claims reading at 2:30 pm could mean additional volatility for the index.

For now, the market is reassuring itself that the US economy remains quite strong (although industry is sending signals of weakness) with a strong labor market, and in view of consumer strength, revenues of listed companies are not in danger of collapsing at least in the foreseeable period. The increases in the major indexes are thus 'spilling over' slowly to smaller companies that have been bypassed for months, which is also helped by the Fed's rate hike cycle coming to an end. The Russell sub-index, which includes energy companies and banks, has recently lagged behind the sub-index linked to growth stocks (the largest disparity in more than 20 years) - primarily due to the frenzy related to AI and the strength of the largest BigTech companies (a situation reversed in comparison to 2022). In recent days, value companies from the Russell especially bank shares, have closed the gap somewhat by driving the benchmark.

US2000 broke out above the 38.2 Fibonacci retracement of the March 2020 upward wave and a rise above 1900 points could open the way for the bulls to reach the psychological resistance of 2000 and 2100 points, where the 23.6 Fibonacci retracement is visible. The index has formed a strong base near 1750 points, the strength of which has been 'tested' by the price several times - each time the bulls have managed to bounce higher. In the bearish scenario 1750 - 1800 points zone may be tested again.​

 

[Solid ECN]

JAP225​

After a two-day decline from a 33-year peak, Japan's Nikkei share average rebounded on Friday. The Nikkei index surged 1.61% to 32,149.76 by midday, recovering nearly 4% from Wednesday's 33-year high. Index is on track to complete a nine-week advance, marking its longest winning streak in over five years. Since June 2, it has climbed nearly 2%, extending its advance since April 7 to 17%.

From the fundamental perspective, Nikkei performance is boosted by Japanese GDP data, which showed a growth at an annualized rate of 2.7% in the first quarter of the year, surpassing the earlier estimates of 1.6% made last month.

The two consecutive days of decline were likely just profit-taking from investors after a solid period of index appreciation. Now, with the indexes rebounding, it is a positive sign that bulls are still in power and set the stage for a continuation in the next week. Today, significant contributors to the Nikkei's performance included Uniqlo brand owner Fast Retailing, which jumped 3.85%, and air-conditioning maker Daikin Industries, which rose 3.09%.

The Nikkei 225 (JAP225) index is currently showing a strong bullish momentum, with its price standing at 32,159 points. This comes after the index rebounded from a significant support level at 31,500 points, which indicates a bullish sentiment in the market. If the bullish momentum maintains its strength, we could see the index aiming to test the recent peak at 32,770 points. However, it's important to consider potential downside risks as well. If the bullish momentum weakens, we could see a correction towards the next lower level of 30,600 points.​

 

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[Solid ECN]

Palladium​

Palladium prices have been falling for quite some time - the main reason being an expected oversupply of the metal next year. One of the world's largest producers of the metal, Russian giant Nornickel estimates that the palladium market will reach a surplus of up to 300,000 ounces in 2024 against an estimated 200,000 ounce deficit in 2023. The company accounts for 40% of global palladium production. Among other things, palladium is used to reduce exhaust fumes in automobiles.

According to Nornickel, 80% of the world's palladium supply is absorbed by the automotive industry, where demand for palladium is expected to grow by 1% y/y in 2023. On the other hand, however, electric cars where palladium is not used because they do not emit exhaust fumes are growing in popularity. In addition, manufacturers are increasingly replacing palladium with cheaper substitutes. Increased consumption of palladium in 2022 and 2023 has resulted in the sale of accumulated stocks by automotive companies, but these sales are expected to end in the second half of the year as companies potentially empty their inventories. Nornickel also expects 180,000 tons of surplus nickel in 2024.

PALLADIUM is slipping towards $1,300 per ounce and has fallen below the 71.6 Fibonacci retracement of the upward wave from January 2016. From this level, declines may deepen even to $1100 per ounce where previous price reactions are located.​

 

[Solid ECN]

Quadruple Bottom on Oil?​

Crude oil continues its declines in another week of June. In addition, new Goldman Sachs forecasts for crude have emerged. GS is now pointing to a level of $86 per barrel for Brent at the end of 2023, against a previous forecast of $95 per barrel. Why the forecast cut?​

• Higher production from Russia and Iran offsets the impact of an additional cut from Saudi Arabia​
• The market should be balanced after the AS cut, but there will not be a deficit​
• GS expects higher production growth this year and next year from countries outside of key OPEC members​
• Uncertainty about China​

Technically, however, there is a potential signal of a quadruple bottom. The price would still have to fall a few tens of cents, but this is a very important test for oil. Usually the fourth test of support leads to a breakout, so the emergence of very negative news on, for example, demand from China or the continuation of hikes by the Fed could lead to a breakout from the consolidation. On the other hand, if oil survives this test, it seems that the trend should eventually reverse and lead to a breakout to price ranges, probably to levels of $80-90 per barrel.

The recent lows associated with the triple/quadruple bottom formation are near $71.5 per barrel. If a rebound from this area were successful, then, with a breakout of the neckline near $78 per barrel, the range of the formation would point to around $85 per barrel, where the retracement of 23.6 currently holds.​

 

[Solid ECN]

BTCUSD​

Bitcoin is currently consolidating within a range of 25,300 to 26,000. The key support level is at 25,300, which has shown significant reactions in the past few months. If the bullish momentum fails to sustain this level, a potential further decline may be expected.

 

[Solid ECN]

Ripple​

Cryptocurrency RIPPLE gains 5% as fintech lawyers await to get access to internal SEC correspondence in court later today. Ripple has been fighting the SEC for nearly 2 years according to which the cryptocurrency is a security, and the company behind it has committed illegal sales. The cryptocurrency has proved surprisingly resilient to the crypto crisis of recent days.​

• The dossier due to arrive in court today is expected to include messages exchanged by SEC members after former director Hinman's speech. The one contrary to Gensler's position indicated that cryptocurrencies could be commodities. Potentially inconsistent comments could undermine the SEC's authority and increase Ripple's chances of winning in court.​
• The Federal Trade Commission (CFTC) has long been in dispute with the U.S. Securities and Exchange Commission (SEC) over whether cryptocurrencies should be considered commodities or securities. Over the years, there has still been no consistent position on the issue. This regulatory mess could be exploited by lawyers;​

A look at the chart​

In recent weeks, which have been very weak for crypto, the price of Ripple has managed to rise unexpectedly. The chart below shows the divergence between Binancecoin (yellow chart) testing the December minima, and Ripple - this one has been gaining since late May. In contrast to Bitcoin and most cryptocurrencies. The market is taking a positive view of the chances of winning in court, with the judge allowing evidence of the Commission's internal correspondences into the case despite the SEC's protest.

RIPPLE is climbing in the vicinity of 0.56 USD, and potentially breaking the psychological resistance of previous peaks at 0.57 USD may open the way to 0.68USD where the price may encounter the first significant resistance (past price action).​

 

[Solid ECN]

Gold - Chart of the Day​

Gold traded lower yesterday after the publication of CPI data, with its price falling to $1941 per ounce. Today, gold traded calmly as investors await the Fed's interest rate decision later today. While many expect the rates to remain unchanged, some anticipate a more hawkish stance given the high core CPI, prompting some to exit the gold market. This has added to the caution in the market, causing a slide in gold prices.

From a technical standpoint, gold is still viewed as being in a bullish uptrend channel, suggesting also a potential upward movement in the medium time frame. However, recent price action has been rejected several times from a short-term descending trend line, suggesting that gold might be at a crucial turning point. Support is around the 1920 - 1940 area, where the 100-day SMA currently lies. A break below these levels could unfold further bearish momentum. On the upside, if gold can manage to move above the 2000 level, it could suggest a resumption of bullish momentum.​

 

[Solid ECN]

USDJPY​

USDJPY is on the move today with Japanese yen being the worst performing G10 currency while US dollar is one of the top performers. USDJPY is up almost 1% on the day. USD strengthening is driven by yesterday's FOMC meeting, which in spite of a pause in rate hikes, turned out to be very hawkish. This is because the new dot-plot showed a median rate expectation at 5.6% for end-2023, an increase from 5.1% in March dot-plot. This also means that FOMC members see two more 25 basis point rate hikes this year while market expectations prior to the meeting were for one more hike yesterday or at the July meeting before ending the cycle. Hawkish message sent by Fed led to a major repricing in market expectations with swap market no longer pricing in Fed rate cuts this year.

This hawkish turn from Fed is not only supporting USD but also putting pressure on JPY. This is because it signals that divergence between Fed and BoJ policies will continue to grow. Bank of Japan will announce its next monetary policy decision on Friday but no change to the level of rates or other monetary policy settings is expected.

Taking a look at the USDJPY chart at D1 interval, we can see that the pair is trading in an upward channel. Pair broke above a local high from late-May 2023 and is now trading at the highest level since late-November 2022. USDJPY is approaching a mid-term resistance zone in the 142.00 area. Note that the upper limit of the channel can be found slightly above this resistance.​

 

[Solid ECN]

US100​

US100 index, currently trading at 15354 points, has shown strong bullish momentum by breaking a significant resistance level at 15220 points seamlessly. This upward movement also led to a break above the upward trending channel, indicating a potential continuation of the bullish trend. The next significant resistance level is around 15654 points. However, traders should be cautious as the recent rally may trigger profit-taking activities. In that case the index may decline to the last consolidation zone between 14500-14600 points.

 

[Solid ECN]

Oil​

Brent (OIL) launched new week's trading with a bearish price gap as new on rising Iranian exports as well as cuts to Chinese growth forecasts created downward pressure on prices. OIL tested 200-period moving average at H4 interval this morning (purple line) but bulls managed to defend the area.

 

[Solid ECN]

AUDUSD​

The Australian dollar is one of the worst performing G10 currencies at the beginning of a new week. While there was no major news coming out from Australia over the weekend, there was some worrisome news relating to China - Australia's largest trading partner. A number of large financial institutions - including Goldman Sachs, UBS and Nomura - decided to cut their 2023 GDP growth forecasts for China. Goldman Sachs explained its decision saying that fiscal and monetary stimulus in China will not be enough to generate a strong growth impulse.
​

China, 2023 GDP growth forecasts​

• Goldman Sachs: 5.4% vs 6.0% previously​
• Nomura: 5.1% vs 5.5% previously​
• UBS: 5.2% vs 5.7% previously​

RBA minutes are scheduled for release tomorrow at 2:30 am BST and will be a potential mover for AUD. RBA delivered an unexpected rate hike at its latest meeting and traders will look for a hints on whether this means that more rate hikes are coming. There is a feeling that recent upbeat data as well as the more hawkish stance of other central banks will encourage RBA to deliver another rate hike at July meeting as well.

Taking a look at AUDUSD at D1 interval, we can see that the pair halted an advance after reaching the 0.6885 resistance zone recently. Pair experienced a massive, almost-7% rally in the first half of June and given how steep those gains were, a correction or a period of profit taking cannot be ruled out. However, should the ongoing pullback deepen, the first support level to watch will be zone marked with 38.2% retracement of the upward impulse launched in October 2022.​

 

[Solid ECN]

AUDUSD​

• The Reserve Bank of Australia (RBA) considered its last interest rate hike as a finely balanced decision.​
• There is increasing frustration due to the lack of stimulus in China.​

The Australian dollar (AUD) has become more volatile following the release of RBA minutes and the People's Bank of China (PBoC) interest rate decision. The RBA's minutes revealed a balanced stance in votes regarding interest rates, which dampened expectations of further tightening in the near future. However, the RBA remains committed to achieving its target range for inflation. Furthermore, the AUD's performance has been influenced by concerns about the Chinese economy's recovery after the COVID-19 pandemic. As investors worry about China's economic outlook, the Australian dollar, often seen as a liquid proxy for the Chinese yuan, has declined. The absence of new policy stimulus from Beijing has led to frustration in the markets, affecting the AUD's performance alongside a drop in the Chinese yuan.

From the technical perspective, AUDUSD price is 0.6% lower at 0.6810. The price attempted to break above a resistance level at 0.6887 but faced rejection, resulting in a retracement towards the support zone around 0.6793. Currently, the price consolidates and if it fails to hold above this 0.6793 level, the next support zone can be found around 0.6707. On the other hand, if the price manages to bounce back, it can potentially come back towards 0.6887.​