<p>Market picture</p><p class=“MsoNormal“>Bitcoin
failed to break the $17K mark on Wednesday and has rolled back to $16.77K at
the time of writing. Price fluctuations remain more than subdued. BTC remains
slightly above its 50-day moving average (50-DMA). As capturing a critical
trending level has yet to encourage more buyers, it is worth looking cautiously
at the dynamics of the coming days.</p><p class=“MsoNormal“>Bitcoin was
able to touch a bottom at $16,000, signalled by a rise in the number of losing
addresses on the network, which exceeded 50% by the end of December, according
to a Coinbase report. The situation was similar in January 2015 and 2019, which
saw BTC bottom in previous cycles of decline.</p><p class=“MsoNormal“>The
situation in Ethereum is more optimistic, as it rallied powerfully yesterday on
a break of its 50-day average and is maintaining most of those gains on
Thursday morning. In addition, in ETHUSD, the 200 and the 50 SMA have already
turned upwards, which is one of the signs that the trend is changing. However,
we still need confirmation.</p><p>News background</p><p class=“MsoNormal“>Ripple CEO
Brad Garlinghouse expressed hope that US regulators will achieve regulatory
clarity on cryptocurrency regulation in 2023. In his view, the main problem is
that the US reference various past bills, but it is better to start from
scratch.</p><p class=“MsoNormal“>Sam
Bankman-Fried, the founder of failed cryptocurrency exchange FTX, has refused
to plead guilty to eight charges. Bloomberg notes that refusing to plead guilty
will give Bankman-Fried more information about the evidence against him. A
trial is set for October.</p><p class=“MsoNormal“>The world’s
second cryptocurrency exchange Coinbase will pay a $100 million fine.
Regulators note that the KYC requirement was followed formally by the exchange
and that the information provided by the user was not correctly verified when registering
a new client.</p><p class=“MsoNormal“>This article was written by <a target=“_blank“ href=“https://www.fxpro.com/“ target=“_blank“ rel=“follow“>FxPro’</a>s Senior Market Analyst Alex
Kuptsikevich.</p>

This article was written by FxPro FXPro at www.forexlive.com.

<ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/germany-december-preliminary-cpi-86-vs-91-yy-expected-20230103/“ target=“_blank“ rel=“follow“>Germany December preliminary CPI +8.6% vs +9.1% y/y expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/france-december-preliminary-cpi-59-vs-64-yy-expected-20230104/“ target=“_blank“ rel=“follow“>France December preliminary CPI +5.9% vs +6.4% y/y expected</a></li></ul><p style=““ class=“text-align-justify“>The saying is that central banks will look to stick with their prevailing argument/narrative for as long as they can get away with it, and that will apply again to the ECB as we kick start the new year. I mean, you don’t have to look too far back to be reminded of how stubborn they were in insisting that inflation was „transitory“. Ah, those were much simpler times.</p><p style=““ class=“text-align-justify“>The softer German and French (as well as Italian) consumer price inflation reports this week does make for an argument that perhaps the ECB might not have to be too hawkish, that is if inflation pressures are starting to cool.</p><p style=““ class=“text-align-justify“>But it is best to be reminded that a lot of this is helped by milder weather conditions in Europe during the winter and also the fact that energy prices have come off the boil and sunk back to levels before the whole Russia-Ukraine conflict – at least for now.</p><p style=““ class=“text-align-justify“>That said, this development will take time to make its way back to more core measures of inflation and with that being more sticky and overall inflation being well above the ECB’s 2% target still, policymakers have very good reason to keep pursuing their current stance.</p><p style=““ class=“text-align-justify“>The window might be closing for the ECB considering the rise in recession risks but the recent softness in energy prices have certainly helped to minimise the severity of the downturn towards the end of last year.</p><p style=““ class=“text-align-justify“>That will provide some comfort and added flexibility for policymakers to keep running with the ongoing hawkish theme, so don’t expect the latest set of inflation numbers this week to materially change that.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>We’re seeing more tentative tones after the flow-driven moves to start the new year, with broader market sentiment also not hinting at much today. The dollar moved up a little to start the session but is now sitting little changed and more mixed as we slowly move towards North America trading.</p><p style=““ class=“text-align-justify“>USD/JPY is flat at around 132.57 following a run up to 132.90 earlier while GBP/USD is still down 0.3% to 1.2020 but off its earlier low of 1.2000 at least. Elsewhere, AUD/USD is down 0.1% to 0.6825 after having touched 0.6800 earlier and USD/CAD is up 0.2% to 1.3500 but off the high of 1.3527 earlier.</p><p style=““ class=“text-align-justify“>The euro continues to be more resilient, with EUR/USD up 0.1% to 1.0611 though the change is not anything significant.</p><p style=““ class=“text-align-justify“>Looking at other markets, equities are tepid with US futures flat and European indices marginally lower on the day. A lack of drive in the bond market also isn’t helping with 10-year Treasury yields flattish at around 3.71% at the moment.</p><p style=““ class=“text-align-justify“>As mentioned earlier, it seems like we do have to wait until after tomorrow’s US non-farm payrolls for markets to sort out their feet and get settled in – following the hustle and bustle in the past two days.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior -2.9%</li><li>PPI +27.1% vs +27.5% y/y expected</li><li>Prior +30.8%</li></ul><p style=““ class=“text-align-justify“>The drop in producer prices in November was largely to do with the energy sector (-2.2%) with intermediate goods (-0.4%) also showing a marginal decline. Elsewhere, the prices for durable consumer goods (+0.2%), capital goods (+0.3%) and non-durable consumer goods (+0.6%) all moved higher. If you exclude energy, prices for the total industry actually increased by 0.1%.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Composite PMI 49.0 vs 49.0 prelim</li></ul><p style=““ class=“text-align-justify“>Little change to the initial figures as the UK services sector flatlining more or less with overall business activity marginally lower in the final month of last year. The good news is that price pressures are lower but they do remain high from a historical perspective. S&P Global notes that:</p><p style=““ class=“text-align-justify“>“UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economic outlook sapped demand. Overall levels of business activity fell only fractionally, despite an exceptionally challenging business environment and spending cutbacks due to cost of living difficulties. </p><p style=““ class=“text-align-justify“>“Stalling recruitment and lower backlogs of work added to signs that service sector companies are now experiencing fewer capacity pressures. Business optimism has recovered from the lows seen in the wake of last September’s ‚mini Budget‘, but many firms are braced for a sustained period of subdued demand in 2023. </p><p style=““ class=“text-align-justify“>“Around 40% of the survey panel expect a rise in business activity over the next 12 months, while 16% forecast a decline. Survey respondents commented on squeezed disposable incomes, elevated recession risks and a housing market downturn as key factors likely to constrain demand in the year ahead. Although service providers widely noted concerns about global economic headwinds and stubbornly high <a target=“_blank“ href=“https://www.forexlive.com/terms/i/inflation/“ target=“_blank“ id=“ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa_1″ class=“terms__main-term“>inflation</a>, there were also many reports citing positivity about factors within their control, including forthcoming product launches, expansion into new markets and planned business investment.“</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior +0.9%</li><li>Market index 184.5 vs 212.5 prior</li><li>Purchase index 160.2 vs 182.5 prior</li><li>Refinance index 310.9 vs 371.4 prior</li><li>30-year mortgage rate 6.58% vs 6.34%</li></ul>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>That is the second time in a matter of weeks that the firm has upgraded its assessment on the Chinese economy. This time arguing that while an estimated 40% jump of Covid infections will have impacted China’s growth in Q4 last year, the post-reopening recovery phase has shifted forward by roughly three months at least.</p><p style=““ class=“text-align-justify“>“The earlier recovery storyline leads to an upward revision to our 2023 full-year growth forecast to 4.4% (previously: 4.3%).“</p><p style=““ class=“text-align-justify“>It’s not so much about the number in the projection but there is growing sentiment across broader markets that China is very well positioned for a stronger and positive outlook this year.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>The dot plots revealed that the Fed was seeing a more hawkish outlook for interest rates and it will be interesting to see what is it in the meeting minutes to reveal such sentiment. Especially when we are seeing inflation pressures cool off, not just in the US but also in Europe now. That said, we are still of course a long way from the desired 2% target – it is best to be reminded of that as well.</p><p style=““ class=“text-align-justify“>Besides that, it will be interesting to take a look at what policymakers are feeling about labour market conditions and the economy. And will there be any murmurs from certain quarters that they are worried about potentially overtightening policy? That will be one that risk trades will definitely be scrutinising later today.</p><p style=““ class=“text-align-justify“>The Fed minutes will be released later at 1900 GMT.</p>

This article was written by Justin Low at www.forexlive.com.

<p class=“MsoNormal“>As the Fed came out more
hawkish than expected, the market sold off on higher risks of
overtightening and a worse than expected recession, bringing the Russell 2000 index into focus.</p><p class=“MsoNormal“>Bear Market Headwinds for Broader Market, Russell 2000</p><p class=“MsoNormal“>These are two of the
worst possible things for the stock market and should result in a
continuation of the bear market. The <a target=“_blank“ href=“https://www.forexlive.com/news/china-takes-the-final-step-to-embrace-living-with-covid-20221227/“ target=“_blank“ rel=“follow“>China
reopening news</a> during the Christmas holidays can have two
implications:</p><p class=“MsoListParagraphCxSpFirst“>·
It may help with global growth and reduce the
chances of a hard landing.</p><p class=“MsoListParagraphCxSpLast“>·
Increase inflationary pressures.</p><p class=“MsoNormal“>Both the options though, lead
to the Fed possibly being forced to go higher than their expected terminal rate,
which brings us back to the original risks: overtightening and deep recession.</p><p class=“MsoNormal“>RUSSELL
2000 Technical Analysis</p><p class=“MsoNormal“>In the
daily chart above, we can see how the Russell 2000 price, after falling off a cliff out of
the FOMC meeting, pulled back to the nearest swing low <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a> area at 1788-1798. </p><p class=“MsoNormal“>That looks
like a strong barrier as we saw several tests without successful breaks. If the buyers manage to breach
that level, the next possible upside target may be in the 1880-1900 region. If
the price fails though, the October low at 1642 will be the clear target.</p><p class=“MsoNormal“>In the 1-hour chart above, we
can see more closely the current rangebound price action with a <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a> near the 1800 handle and a
support at 1730. Ideally, you would want to stay out of such a market and
wait for a clear breakout before deciding what to do next. </p><p class=“MsoNormal“>Nevertheless,
one can try to play the Russell 2000 range selling at <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a> and buying at <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>support</a> until the game stops.</p><p class=“MsoNormal“>Drilling down to the 15 minutes
chart, we can see that there’s a <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a> turned <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>support</a> at the moment (orange line). This level should define
where the price may be headed next. In the first scenario, the price may
retest the level and run to the upside testing again the resistance. In the
second scenario, the price breaks down and falls to the support.</p>

This article was written by ForexLive at www.forexlive.com.

<p style=““ class=“text-align-justify“>Not quite the case in its entirety with oil being down by nearly 2% on the day, but it applies to almost everything else in broader markets. Equities are higher with European stocks leading the way, helped out by softer German and French inflation numbers this week. US futures are also slightly higher, so the overall market mood today is keeping steadier.</p><p style=““ class=“text-align-justify“>Meanwhile, bonds are also continuing their good form as a result with 10-year Treasury yields down to 3.70% from the open at around 3.83% yesterday. In Europe, 10-year German bund yields are down to 2.31% and that is a far cry from the peak at the end of last week at 2.56%.</p><p style=““ class=“text-align-justify“>As for the dollar, it is down across the board with some of the losses outpacing the gains from yesterday among major currencies. EUR/USD is up 0.8% to 1.0630 with GBP/USD up 0.9% to 1.2070 and pushing past its 200-day moving average, seen at 1.2027. USD/JPY is also being pinned lower by 0.5% to 130.30 levels after running into another test of 130.00 at the start of the session.</p><p style=““ class=“text-align-justify“>But the standout performer is the aussie, which is up by over 2% against the dollar with buyers pushing for a technical break as outlined earlier <a target=“_blank“ href=“https://www.forexlive.com/news/audusd-up-over-2-as-dollar-fumbles-after-yesterdays-hot-start-20230104/“ target=“_blank“ rel=“follow“>here</a>.</p>

This article was written by Justin Low at www.forexlive.com.