As the New Year steps in, the investment market turns its heads to the IMF’s New Year speech. The International Monetary Fund’s first speech of the year is known to be of great importance within the trading markets. Within the first speech of the year, the managing director normally gives the institution’s predictions for the next 12-months. As most economists had expected, the outlook remained pretty grim.
Kristalina Georgieva advised that at least ⅓ of the global economy will remain or fall into a recession. Mrs. Georgieva, also advised that the China economy had specifically slowed, but the US and EU had also shown a slowdown. However, such news has not triggered any bearish price movements in Crude and Brent Oil. On the other hand, Natural Gas continues to significantly decline, but this has mainly been triggered by unusually high temperatures in Europe.
The US Dollar starts the new year slightly higher than last week’s market close. However, it is too early to confirm whether there is an increased demand for safe haven currencies. There has definitely been a spike in the price of Gold which has increased by 2% since yesterday. Over the past week, the US Commodity Futures Trading Commission has confirmed that the spread between buyers and sellers is widening in favor of the price increase. Currently, the price of gold is at a 28-week high.
Over the past 24 hours, the US Dollar is declining against most of its competitors apart from the GBP/USD. The Pound has specifically been under pressure after local strikes putting significant pressure on the UK economy. The railway workers have announced another strike which will run until the end of the week. However, traders should keep in mind that the Dollar is attempting a full-price correction against most currencies this morning.
The price of DAX is again on the rise this morning increasing by over 1% but is still underperforming compared to the French CAC which has increased almost 2%. The German index significantly increased during October up to mid-December, but then came under pressure from a hawkish Fed and an extremely aggressive European Central Bank. The DAX specifically encountered pressure at previous resistance levels which formed last spring (March 2022 - June 2022).
The price over the past 2-days has been positive but traders should note that the order flow books are currently showing low volume. This means the price movement cannot be certain and can easily change direction or spike further upwards. Also, the first week of January is known to be optimistic with no real fundamental drive.
In terms of technical analysis, the instrument is showing signs of bullish price movement on short to medium-term timeframes. For example, the price has crossed above the 80-day exponential MA which had previously acted as a trendline in December. Moving Averages have also formed bullish crossovers, again providing a further bullish signal, while the RSI has not yet indicated an overbought price.
The price of the DAX has been supported by a few factors such as the approaching earning season which is due to start in 2 weeks, the January effect and lowering Natural Gas prices. However, this can be endangered if the European Central Bank proceeds with the previously shown hawkishness.
The ECB 3-weeks ago advised they would continue to hike interest rates in 2023. At the December meeting, the ECB unexpectedly saw over ⅓ of their members actually vote for a 75 basis point hike. Economists are expecting the regulator to stick to their 50 basis point hike and to increase rates for a further 2 months before halting. Though this cannot be certain without knowing new inflation and employment figures. Nonetheless, further interest rate hikes can pressure German equities such as the DAX.
German investors are also monitoring their largest partner in trade, the Chinese economy. A weakening Chinese economy or recession can have a strong impact on the German economy and investor sentiment. The Chinese economy has slumped over the past few months and remains under pressure from high COVID-19 cases and restrictions. This is something that investors will monitor throughout the next 2 months, but in the meantime, investors are likely to focus on economic data such as inflation and definitely the upcoming earning reports from German companies.