The week before Christmas tends to be relatively quiet in terms of economic announcements, but volatility remains high, and markets are still digesting last week’s data. The global monetary policy continued to influence investors. The Federal Reserve’s decision and guidance were as expected with a lower hike of 0.50% but a more hawkish tone.
The main shock came from the European Central Bank and the Bank of England. The ECB saw many members opt for a 75 basis point rate hike, which would be one of the first times the regulator hikes more than the Fed. However, the Doves were slightly higher and the central bank chose to hike 0.50%. Nonetheless, the hawkishness significantly supported the currency.
The Bank of England unexpectedly saw 2 out of 9 members voting to keep interest rates at the same level. Traders consider this as a signal of potential pivots in the near future. For this reason, the EUR/GBP significantly increased to a 1-month high. All European stocks and futures are higher this morning, but traders should note that volumes are likely low due to Christmas. Therefore, traders should be cautious of the order flow and sharp changes in price movement.
Bob Parker from CBP has advised that the Dollar reign may be over. According to the expert, the Dollar has already declined significantly so the price may not necessarily continue to decline at the same speed. However, he does not see the US Dollar Index climbing above 110.00 again in the near future.
EUR/USD
The price of the EUR/USD has increased in value during this morning’s Asian and European sessions after 2 days of declines. Even with the price increase this morning, the instrument is still trading within lower highs and lows. This can be considered a bearish signal but may fade if the price increases above 1.06630.
The price at the moment is indicating bullish price movements in the form of a retracement but not a trend. Therefore, traders should be watchful for a price correction back to 106.0610. If the price increases above 1.06375, then moving averages and stochastic oscillators will provide bullish indications.
The price of the Euro throughout the day has increased in value against all its main competitors but especially against the Pound and Dollar. The exchange rates continue to be influenced by the ECB’s monetary policy and their unexpected hawkish comments. The main concern for the Eurozone is the current energy crisis which is expected to worsen in February.
Lastly, the price of the Euro has also been influenced by the better-than-expected Purchasing Managers’ Index. Both the German and French PMI reports read generally better than in previous months but still remained in the economic contraction zone. On the other hand, the US PMI reports both under-achieved and also remained in the contraction zone. PMI reports are split into 2 reports, the Services and Manufacturing PMI.
NASDAQ
The NASDAQ is slightly higher this morning, similar to European stocks. Though traders should note the price has declined by 5.30% over the past 3 trading sessions. The decline has brought the price down to a 6-week low and most technical indicators are signaling a further decline in the medium to longer term.
The price over the recent days has been affected by the Central Bank comments and rate changes. The next piece of news which may affect the price is the Bank of Japan’s rate statement and press conference. If the central bank also takes a hawkish tone, which it has not so far this year, the NASDAQ may come under more pressure as demand from foreign investors declines.
Last week’s economic data continues to spread fear that the level of consumer confidence and demand may decline in the first quarter of 2023. A specific concern for traders was the US Retail Sales and PMI reports.
Among the index’s strongest declines was Moderna which declined by more than 6.7%, Tesla declined by 4.72% and Illumina by 3.82%. As the price declines, traders should be cautious of the below support levels.
Support levels: $11,080 & $10,630.
Summary:
- The Euro increases in value against most competitors while the US Dollar index struggles.
- Investors digest the latest hawkish comments by the ECB and a potential pivot for the Bank of England.
- US PMI reports read lower than expected while European PMI reports significantly improve.
- The NASDAQ declines by 5.30% within 3 days but sees limited climbs on Monday’s futures market.
