Swiss Franc Falls from 12-Year High

Solid ECN – The Swiss franc dropped to 0.85 against the US dollar, down from a 12-year peak of 0.841. The DXY's recovery influenced this change. Last year, the franc gained 8.5% versus the dollar, reflecting differing interest rate policies of the Swiss National Bank and the Federal Reserve. The Fed's latest meeting hinted at a cautious approach, further affected by US inflation slowing down.

Despite this, the Swiss National Bank sees reasons for higher rates due to potential inflation increases. Currently, inflation in Switzerland is at 1.4%, but predictions show it might reach the 2% goal in mid-2024. This has led investors to believe that the Swiss National Bank will cut rates later than the Fed. Additionally, the franc reached a new high against the Euro, reflecting ongoing high rate expectations from the Swiss National Bank.

Euro Stabilizes Amid Eurozone Inflation and Strong US Job Market

Solid ECN - The euro maintained a steady value near $1.09. This happened as market players absorbed new information. The Eurozone showed an increase in its inflation rate. At the same time, the US job market was doing well. These developments reduced the need for the European Central Bank and the US Federal Reserve to lower interest rates.

In December, the Euro Area saw its inflation rate go up to 2.9%. This was just below the expected 3%. The main reason for this increase was the cost of energy. The core inflation rate, which excludes energy, also slowed down. It reached 3.4%, the lowest since March 2022.

In the US, the job scene was positive. There were 216,000 new jobs added last month. This was more than the expected 170,000. The unemployment rate stayed the same at 3.7%. However, there was a slight dip in the activity rate. It fell to 62.5%, the lowest since February.

Libya's Oil Halt Boosts WTI Above $72

Solid ECN – WTI crude futures rose above $72.5 per barrel on Wednesday, extending gains from the previous session as escalating geopolitical tensions in the Middle East and halted oil production in Libya continued to support oil prices. Libya's Sharara oilfield has stopped oil production since last week due to political protests, removing approximately 300,000 barrels per day from the market.

A prolonged war in Gaza and Houthi attacks on ships in the Red Sea also stoked fears of a broader conflict in the region that could disrupt supply further. Moreover, industry data showed that US crude inventories declined by 5.215 million barrels last week, way above market expectations for a 1.2 million barrel drop. Meanwhile, US gasoline stockpiles rose by 4.9 million barrels, while distillate inventories gained 6.9 million. Investors now look ahead to US EIA data later on Wednesday and the International Energy Agency's monthly market report next week.

GBPUSD Tests Ichimoku Cloud, Eyes Rise

Solid ECN – The GBPUSD currency pair has tested the Ichimoku cloud in today’s trading session. The pair is currency trading at 1.2721 while the awesome oscillator bars turned green. The RSI indicator stayed above 50, another signal for the bullish trend’s resumption.

If the bulls can maintain the price above the cloud, the price will likely rise. But the first hurdle is 1.2776. Should this level be breached, the following target can be 1.2826.

The bullish scenario is invalid if the bears close below the cloud. In this case, the lower band of the bullish flag would be the next resistance.

Gold: Bearish Channel and Fibonacci

Solid ECN – The XAUUSD currently ranges between 61.8% and 38.2% Fibonacci levels. Interestingly, the Average Directional Index (ADX) lines hover below the 20 level, indicating market uncertainty. Despite this, gold continues to trade within the bearish channel. As a result, we can consider the current market trend as bearish.

Given this outlook, we might expect the bears to exert more pressure. This could lead to a continued decline towards the lower band of the bearish flag. However, this scenario would be invalidated if the gold price closes above the 38.2% Fibonacci resistance.

USDCNH Tests Support; Bulls vs. Bears in Market Tug

Solid ECN – The USDCNH pair is testing the 7.1631 support level on the 4-hour chart. Meanwhile, the Stochastic oscillator is gradually stepping outside the oversold area, signaling a potential change in momentum. If the bulls maintain the price above this support, we can reasonably expect the USDCNH price to experience a new bullish wave.

Consequently, the market might surge to the 7.1898 area in such a scenario.

On the flip side, should the bears successfully breach the support, the decline would likely extend to the 38.2% Fibonacci support level.

UK Manufacturing Growth Rises in November 2023

Solid ECN – In November 2023, the UK's manufacturing production increased by 0.4%. This was a change after four months of falling numbers. The growth almost matched the predictions of a 0.3% increase. The most significant boost to the yearly rate was from essential pharmaceuticals and preparations. Their production grew 4.8%, a recovery from a 3.4% drop in October.

Another significant growth was in food, beverages, and tobacco. This sector saw a rise of 1.4%, compared to only 0.1% in the previous month. Looking at the yearly data, manufacturing output grew by 1.3%. This improved from October's 0.2% but fell short of the expected 1.7%.

Oil Prices Rise Amid Global Tensions

Solid ECN – WTI crude futures experienced an upward trend, reaching nearly $73 per barrel at the start of the week. This marked the third consecutive session of gains, primarily influenced by military actions in the Red Sea region. US and UK forces conducted air and sea operations aimed at halting Houthi rebels in Yemen, who were reportedly targeting maritime vessels. These developments heightened concerns over potential disruptions in oil supplies. Several tankers altered their courses last Friday in response to the military strikes.

The Houthi group issued a warning on Sunday, promising a robust and decisive reaction against the United States. Libya's oil and gas sectors also faced threats of closure at two more facilities following the recent shutdown of the Sharara field, which reduced 300,000 barrels of oil per day from the market. Concurrently, the surge in oil production from non-OPEC nations, notably the United States, and the ongoing uncertainties surrounding China's crude oil demand continue to exert pressure on global oil prices.

GBPUSD Analysis

Solid ECN – The GBPUSD currency pair trades within the bullish flag's lines, while the awesome oscillator indicator signals divergence in the daily chart.

The resistance that stopped the price from rising further is the 1.2827 mark. If the divergence signal comes into play, we can expect the GBPUSD price to fall and initially target the 38.2% Fibonacci support—the lower band of the envelopes indicator and the Ichimoku cloud further back up this support level.

Conversely, the bulls must break above the 1.2827 resistance for the uptrend to continue.

Indian Bond Yields Hit 4-Month Low: A Closer Look.

Solid ECN – In January, something notable happened in India's financial market. The yield on the 10-year Indian government bond dropped to 7.15%. This was its lowest point in almost four months. What caused this decline? A mix of positive economic trends and encouraging corporate news played a significant role.

First, let's look at the broader picture. Indian government securities (G-Secs) with a one-year maturity period saw a significant boost. This happened when Bloomberg suggested adding Indian bonds to its index for emerging market local currencies. JPMorgan had already taken a similar step by including Indian bonds in its emerging market debt index. These inclusions are crucial. They make foreign investors more interested in Indian sovereign bonds. When foreign demand goes up, bond yields typically go down.

Now, let's dive into the details. Core inflation is a crucial indicator of economic health. In December, reports from private banks revealed a substantial slowdown in core inflation. This slowdown sparked optimism. Many started anticipating that the Reserve Bank of India (RBI) might cut interest rates within the year. It's important to note that overall headline inflation, as the official statistics office reported, had increased.

Despite this mixed inflation scenario, the RBI seems set to maintain its current policy stance. It's likely to continue the 'Withdrawal of Accommodation' policy in the upcoming meetings. This policy involves gradually reducing monetary support to the economy. While this move might limit the upswing in bond prices, the overall outlook remains cautiously optimistic.

EURUSD Pair Falls Amid Mixed ECB Rate Views

Solid ECN – The euro recently dipped below the $1.09 mark, reaching its lowest since mid-December. This decline is primarily attributed to the strengthening of the US dollar as investors reevaluate their expectations regarding interest rate cuts. Critical discussions at the Davos conference shed light on the varied perspectives of European Central Bank (ECB) officials regarding monetary policy and interest rates amidst ongoing high inflation.

Joachim Nagel, an ECB official, expressed at Davos that it is premature to consider reducing interest rates given the current inflationary pressures. Echoing this sentiment, Robert Holzmann from Austria suggested that rate cuts in 2024 seem highly unlikely. In contrast, France's Francois Villeroy de Galhau took a slightly different stance. While he agreed that the ECB is not in a position to declare victory over inflation yet, he hinted that a rate cut could be on the cards later in the year. Adding to these diverse viewpoints, Finnish policymaker Tuomas Valimaki advocated a more cautious approach, recommending patience and advising against premature policy actions.

Peso Weakens Amid Banxico Policy Outlook

The Mexican peso recently experienced a notable depreciation, crossing the 17.15 per USD threshold, a level not seen in the past month. This weakening of the peso is primarily a result of the strengthening of the U.S. dollar, which has been influenced by market speculations regarding the future monetary policy of the Bank of Mexico (Banxico). This situation reflects the broader economic trends and monetary policy decisions impacting currency values.

A significant factor contributing to the peso's decline is the latest industrial production data from Mexico. November saw a 1% contraction in industrial output compared to the previous month, marking the first decrease in nine months and the most rapid decline over two years. This industrial production downturn indicates the challenges posed by Banxico's record-high interest rates, which are currently at 11.25%. These high rates, while aimed at controlling inflation, seem to be exerting considerable pressure on the country's economic activity.

Some policymakers within Banxico have suggested that these conditions might warrant loosening financial conditions in the upcoming quarters. This perspective stems from the need to balance the tight monetary policy with the demands of sustaining economic growth.

Simultaneously, the strength of the U.S. dollar is being fueled by shifts in investor expectations regarding the Federal Reserve's monetary policy. Initially, there was anticipation of early easing by the Fed, but recent developments have led to a reevaluation of these expectations. Furthermore, ongoing geopolitical conflicts have increased the demand for safe-haven assets like the U.S. dollar, which traditionally benefits in times of global uncertainty.