EUR/USD Faces Key Psychological Support Level 1.07000

Zi Cheng

Traders' Opinions

Forex

Summary:

The EUR/USD has declined for the third consecutive day and appears susceptible to further downward movement.

Fundamental Analysis

Fresh sellers are drawn to the EUR/USD pair causing it to retreat closer to a two-month low in the European session on Tuesday. The initial market response to an unexpected surge in Germany's Factory Orders diminishes rapidly amid speculation that the European Central Bank could initiate interest rate cuts by April due to declining inflation in the Eurozone. This creates a challenging environment for the euro, compounded by the prevailing bullish sentiment surrounding the US Dollar, which adds to the downward pressure on the currency pair.

Eurostat's latest report reveals a 1.1% decrease in retail sales in the Eurozone for December 2023 compared to November, slightly below expectations. Similarly, the European Union saw a 1% decline in retail trade volume during the same period. On a yearly basis, retail sales dropped by 0.8% in the euro area and 0.7% in the EU.

EUR/USD Faces Key Psychological Support Level 1.07000_1

Breaking down the month-on-month data, sales of food, drinks, and tobacco in the Eurozone fell by 1.6%, non-food products by 1%, and automotive fuels by 0.5%. Yearly comparisons indicate a significant 6.2% decrease in retail trade for automotive fuels and a 1% decline for food, drinks, and tobacco, while non-food products experienced a marginal 0.1% growth.

The USD Index, which gauges the Greenback against a basket of currencies, remains sturdy near its highest point since November 14, driven by anticipations that the Federal Reserve will prolong higher interest rates. Recent US economic indicators indicate continued strength in the economy, leading investors to fully eliminate early expectations of Fed rate reductions. Additionally, geopolitical tensions and concerns over decelerating economic growth in China, the world's second-largest economy, bolster demand for the safe-haven dollar, underscoring the likelihood of further downside for the EUR/USD pair.

Technical Analysis

The EUR/USD sell off continues today after the release of Eurozone Retail Sales turns out to be a negative data for the Euro currency, weakening it. EUR/USD has been moving in a short term downtrend since the start of the year and have crossed the 200 Day Moving Average last week confirming the short term downtrend will continue possibly for this month.

Currently, EUR/USD is at a strong support level and also a psychological level priced at 1.07000. If this current level does not hold EUR/USD, it is likely that we will see a lower EUR/USD, possibly the next support level which is priced at around 1.05000.

However, if I were to switch my bias to taking long trades, I would want to see EUR/USD being able to cross above the 200 Day Moving Average and also breaking the downtrend channel which gives an extra confirmation that buyers have stepped in to push EUR/USD back towards the upside.

EUR/USD Faces Key Psychological Support Level 1.07000_2

Risk Warnings and Disclaimers

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Chandan Gupta

Traders' Opinions

Economic

Stocks

Fundamental Analysis

The S&P 500 started the week on a rather calm note, reflecting the lack of significant economic announcements on Monday. Early in the trading session, the index displayed a tranquil demeanor, unsurprising given the absence of catalysts to drive market activity for the day. Traders are currently assessing the market based on ongoing momentum, a trend likely to persist over time. Additionally, the prevailing interest rates in the United States are under scrutiny, as they can significantly impact market dynamics.

On Tuesday, U.S. stock index futures remained subdued, with investors keeping an eye on prominent earnings releases and anticipating insights from Federal Reserve officials on the potential timing of the central bank's first interest-rate cut. In premarket trading, Eli Lilly (NYSE:LLY) saw a 4.2% jump after forecasting 2024 profits above estimates, driven by demand for its weight-loss drug Zepbound and diabetes medicine Mounjaro. GE HealthCare (NASDAQ:GEHC) Technologies gained 2.2% following better-than-expected fourth-quarter earnings, while DuPont de Nemours (NYSE:DD) rose by 2.5% after beating fourth-quarter profit estimates and announcing a new $1 billion share-repurchase program along with a dividend hike.

Investors are actively monitoring business forecasts against a backdrop of high borrowing costs and persistent concerns about a slowdown. With about half of the S&P 500 companies having reported earnings, 80.4% have exceeded expectations, according to last week's LSEG data. Overall, S&P 500 earnings are now expected to have risen by 7.8% in the fourth quarter compared to the same period the previous year.

Wall Street's sentiment started on a subdued note in the previous session, following a robust rally in the S&P 500, which achieved 13 weekly gains out of 14. The index benefited from largely positive quarterly corporate earnings and optimism surrounding a potential interest-rate cut by the Fed. However, policymakers, including Chair Jerome Powell, have tempered market expectations of a swift start to policy easing, a central theme in the central bank's interest-rate decision last week. Strong labor market and economic activity data have fueled speculations about rate cuts.

The market is now pricing in rate cuts of between 100-125 bps this year, down from 150 last week.

Traders are betting with nearly a 65% chance that at least a 25-basis-point rate cut could be delivered in May, with the odds standing at around 94% for the first cut in June.

At 7:15 a.m. ET, Dow e-minis were down 45 points, or 0.12%, S&P 500 e-minis were down 3.5 points, or 0.07%, and Nasdaq 100 e-minis were down 7.5 points, or 0.04%.

Palantir Technologies (NYSE:PLTR) witnessed a 16% jump after the data analytics firm forecast annual profits above estimates, reporting its "first profitable year" on strong demand for its AI offerings. In contrast, FMC Corp (NYSE:FMC) tumbled 13.6% after forecasting downbeat first-quarter profit.

U.S. shares of Chinese firms like Li Auto (NASDAQ:LI), Bilibili (NASDAQ:BILI), and Tencent Music surged between 4% and 8%, reflecting optimism in mainland China on signals that authorities are strengthening their resolve to support slumping markets.

In summary, the start of the week brought a calm market with a focus on earnings and Federal Reserve signals. Despite a subdued Monday, various factors, including corporate performance and interest rate speculations, are actively influencing investor decisions. As the week unfolds, market participants will continue to assess economic indicators, central bank remarks, and corporate updates to navigate through the ongoing dynamics of the financial landscape. S&P 500 Searches for Catalysts to Spark Momentum after a Quiet Monday and Today_1

S&P 500 Searches for Catalysts to Spark Momentum after a Quiet Monday and Today_1

Technnincal Analysis

Market participants are expected to stay alert for potential value opportunities amid possible pullbacks, especially around the 4,800 level. It's noteworthy that the 50-day Exponential Moving Average (EMA) currently sits at 4,700, and with the market just 50 points away from the 5,000 level, attention is likely to intensify. As the market approaches this crucial point, traders may explore various options strategies, seeking to influence market dynamics.

Upon reaching the 5,000 level, the market could face substantial resistance, potentially leading to a notable pullback. However, a breakthrough at this level might ignite a surge in Fear of Missing Out (FOMO) sentiment, potentially driving further gains.

It's important to keep in mind that the S&P 500 is significantly influenced by a select few stocks, often dubbed the "magnificent seven." These stocks wield considerable influence over the broader index, reflecting the impact of passive investing on the S&P 500's composition.

From a technical standpoint, the S&P 500 has broken the rising trend in the medium to long term, indicating a potentially stronger upward trajectory. The absence of resistance in the price chart suggests a favorable outlook with further upward potential. In the event of a negative reaction, the index finds support around 4580 points. The Relative Strength Index (RSI) is above 70 after a substantial price increase in recent weeks, signaling strong positive momentum. However, a high RSI, particularly for prominent stocks, may indicate overbought conditions, raising the possibility of a downward reaction. Overall, the index is assessed as technically positive for the medium to long term.

As investors navigate the current market landscape, the focus on potential pullbacks and key levels, such as 4,800 and 5,000, remains crucial. The interplay between technical indicators, options strategies, and the influence of a few dominant stocks underscores the complexity of decision-making in the financial markets.

Traders and investors alike will be closely monitoring developments, ready to adapt strategies based on the evolving market conditions. Whether it's seizing value opportunities, managing potential pullbacks, or interpreting the impact of influential stocks, staying attuned to these factors is essential for informed decision-making.

In conclusion, the S&P 500's journey toward the 5,000 level presents both challenges and opportunities. The dynamics of the market, influenced by technical trends, key support and resistance levels, and the role of dominant stocks, contribute to the complexity of the current scenario. As market participants navigate these intricacies, a balanced and informed approach will be crucial for capitalizing on potential value opportunities and managing risks effectively. S&P 500 Searches for Catalysts to Spark Momentum after a Quiet Monday and Today_2

S&P 500 Searches for Catalysts to Spark Momentum after a Quiet Monday and Today_2

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Zi Cheng

Traders' Opinions

Economic

Fundamental Analysis

According to the BRC-KPMG Retail Sales Monitor released on Tuesday, total retail sales for the four weeks ending January 27 saw a month-on-month increase of 1.2%, contrasting with the previous month's growth of 1.7% and the three-month average of 1.9%. This compares to a growth rate of 4.2% recorded in January of the previous year.

United Kingdom Retail Sales Slows Down _1

The primary driver of growth continued to be food sales, which rose by 6.3% over the three-month period leading up to January, albeit lower than the 8.0% growth seen a year ago. Conversely, non-food sales experienced a decline of 1.8% year-on-year for the same three-month period, contrasting with a 2.9% growth rate observed in the previous year.

Sales of big-ticket items such as furniture, household appliances, and electricals remained sluggish, while clothing sales suffered due to milder temperatures, particularly impacting winter clothing and footwear.

Despite some positive developments such as falling mortgage rates and shop inflation reaching its lowest point in over a year, Linda Ellett, KPMG U.K.'s head of consumer markets, leisure, and retail, highlighted a lack of substantial improvement at the tills. She emphasized the challenging environment for retailers, marked by downward pressures on demand, intense promotional activity, and supply chain uncertainties exacerbated by rising geopolitical tensions.

Upcoming next week, we will be having data released from the United Kingdom on Unemployment Rate and United Kingdom's inflation rate. This will be the key driver for GBP/USD's movement towards the upside or towards the downside.

United Kingdom Retail Sales Slows Down _2

Investors will closely monitor comments from central bank officials. However, market positioning indicates limited upside potential for the USD, even if participants persist in resisting a rate cut in March. The CME FedWatch Tool indicates a probability of less than 20% for a policy pivot at the upcoming meeting.

Technical Analysis

GBP/USD has been moving down aggressively this week as USD has been strengthening and bad news coming from United Kingdom on their economy which led to this aggressive sell off. GBP/USD has crossed the 200 Day Moving Average which could be a sign that temporary short term downtrend could be happening for the month February.

I will be closely monitoring the key support level for GBP/USD, if it breaks past the key support level that I have drawn in the chart attached below, I will be looking for sell entries towards the downside.

United Kingdom Retail Sales Slows Down _3

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Ukadike Micheal

Economic

Forex

European consumers restrained their spending at the close of 2023, resulting in a substantial 1.1% decline in price-adjusted eurozone retail sales for December, the most significant monthly drop in a year. This downturn extended to the annual outlook, with Eurozone retailers experiencing a 1.8% fall in real sales compared to the previous year.

Despite a recent decline in inflation from over 10% to below 3%, consumers in the Eurozone exhibited caution in their spending leading up to Christmas. Eurostat, the EU’s statistics agency, reported a 1.6% decrease in sales of food, drink, and tobacco in December, along with a 1% drop in non-food sales, and a 0.5% decline in fuel sales.

The notable 1.1% decline in price-adjusted eurozone retail sales for December underscored a cautious approach by European consumers in their year-end spending habits. This significant drop, the largest in a year, reflects a broader trend of subdued retail activity despite a recent reduction in inflation rates.

The impact of this spending restraint extended beyond the month, with Eurozone retailers experiencing a 1.8% decrease in real sales throughout 2023 compared to the previous year. This challenging year-end performance suggests a more prolonged and sustained impact on consumer behavior.

Despite a marked decline in inflation from over 10% to below 3%, consumers in the Eurozone remained prudent in their expenditures, signaling a level of economic uncertainty. Eurostat's breakdown of sales categories revealed a decline of 1.6% in food, drink, and tobacco sales, along with a 1% decrease in non-food sales. Fuel sales also saw a 0.5% dip, painting a comprehensive picture of reduced consumer activity across various sectors.

The cautious approach observed in December's retail sales figures prompts a closer examination of consumer sentiments and economic factors influencing spending habits. The contrast between decreasing inflation and restrained consumer spending suggests a complex interplay of variables shaping the Eurozone's economic landscape.

As Eurozone retailers grapple with the aftermath of diminished consumer spending, the nuanced details provided by Eurostat highlight specific sectors affected. Understanding the dynamics of food, drink, and tobacco sales, as well as non-food and fuel sales, contributes to a more comprehensive analysis of the challenges faced by retailers in the region.

The end-of-year decline in price-adjusted eurozone retail sales underscores a cautious stance by European consumers despite a decrease in inflation rates. The 1.8% fall in real sales for the entire year further emphasizes the sustained impact on retail activity. The breakdown of sales categories by Eurostat provides valuable insights into specific sectors affected, prompting a deeper exploration of the economic factors influencing consumer behavior. As the Eurozone navigates these challenges, retailers and analysts alike will be closely monitoring future trends and potential shifts in consumer sentiment.

Source: Financial Times, Share Cast

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Glendon

As of February 6, 2024, Palantir Technologies (PLTR) stock sits at a crossroads, oscillating between the dizzying heights of government contracts and the murky depths of investor uncertainty. This article delves into the current state of PLTR, analyzing its potential and challenges, and exploring what lies ahead for this controversial data analytics company.

A Double-Edged Sword: Government Contracts

Palantir's core business lies in providing data analysis software and services to government agencies. This has granted them lucrative contracts with various departments, including the Department of Defense, CIA, and NSA. These contracts provide a steady stream of revenue and have fueled the company's stock price in the past. However, reliance on government contracts comes with a double-edged sword:

Stability: Government contracts offer predictability and stability, mitigating some of the volatility often associated with tech stocks.

Scrutiny: These contracts often attract significant public scrutiny, raising concerns about data privacy and potential misuse.

Limited Market: Dependence on government contracts limits Palantir's market reach and diversification, making it vulnerable to changes in government priorities and budgets.

Commercial Expansion: Beyond the Government Bubble

Palantir recognizes the need to diversify and is actively pursuing contracts in the commercial sector. This includes partnerships with companies like IBM and Airbus, targeting areas like healthcare, finance, and energy. While promising, these ventures are still in their early stages, and their long-term impact on revenue is uncertain.

Financial Performance: A Mixed Bag

Palantir's financial performance is a mixed bag. While revenue has grown steadily, the company remains unprofitable, raising concerns about its long-term sustainability. Additionally, the stock price is highly volatile, reflecting investor uncertainty about the company's prospects.

The Analyst Divide: Bullish Bets vs. Bearish Warnings

Analysts' opinions on PLTR are divided. Some remain bullish, citing the company's strong government contracts, potential for commercial expansion, and innovative technology. Others express concerns about the company's profitability, limited market reach, and negative public perception.

Emerging Trends: Tailwinds or Headwinds?

Several emerging trends could impact PLTR's future:

Increased government spending on technology: This could benefit Palantir as governments prioritize data analysis capabilities.

Growing demand for cybersecurity solutions: Palantir's expertise in this area could be attractive to both government and commercial clients.

Concerns about data privacy and regulation: This could create challenges for Palantir, requiring them to navigate a complex legal and ethical landscape.

Investing in PLTR: A Calculated Risk

Investing in PLTR requires careful consideration due to its inherent risks and uncertainties. Investors should consider their risk tolerance, investment goals, and understanding of the data analytics industry before making any decisions.

Conclusion: Knowledge is Power

While PLTR presents an intriguing investment opportunity due to its government contracts and potential in the commercial sector, its volatile stock price and inherent risks require careful consideration. Understanding the key drivers, challenges, and long-term trends can empower investors to navigate the uncertainty and make informed decisions about their stake in this data analytics pioneer.

Is Palantir still a good buy?

It's complicated. The 2023 surge was great, but the high valuation (P/E 57) is concerning. This price might not be justified unless Palantir achieves significant future growth, which is uncertain given its lack of profitability. However, strong government contracts, commercial expansion, and cutting-edge technology offer potential. Ultimately, it depends on your risk tolerance. Do your research and consult an advisor before investing.

Who is Palantir's biggest competitor?

Pinpointing a single "biggest" competitor is difficult due to the diverse data analytics landscape. Key rivals include Accenture, IBM, Microsoft Azure, and Cloudera, each with its strengths and weaknesses.

Has Palantir ever been profitable?

No, Palantir hasn't turned a profit publicly. Revenue growth exists, but consistent net losses raise concerns for investors and contribute to stock price volatility. The company strives for profitability through commercial expansion, but success remains uncertain.

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Ukadike Micheal

Economic

Forex

In January, UK builders showcased their highest optimism levels in two years, buoyed by the anticipation of lower borrowing costs set to stimulate increased activity, according to a closely monitored survey. The S&P Global UK construction purchasing managers’ index climbed to 48.8, surpassing expectations and marking the highest reading since August 2023.

Builders signaled a robust improvement in business activity expectations, reaching a two-year peak in optimism. Tim Moore of S&P Global Market Intelligence noted that construction companies are becoming increasingly hopeful, envisioning an end to the challenging period as recession risks diminish and interest rate cuts loom on the horizon.

The S&P Global UK construction purchasing managers’ index for January rose to 48.8, exceeding economists' forecasts and marking the highest level since August 2023. This positive upswing indicates a significant shift in sentiment among UK builders, who are anticipating a boost in activity fueled by expected reductions in borrowing costs.

The heightened optimism is not only reflected in the index but also in builders' expressed expectations for improved business activity. January saw the highest level of optimism in two years, highlighting a collective belief within the construction sector that challenges may be waning, particularly as the specter of recession recedes.

Tim Moore, a representative from S&P Global Market Intelligence, offered insights into the mindset of construction companies, noting their growing confidence in the potential resolution of challenging times. The anticipation of interest rate cuts, coupled with fading recession risks, has contributed to a positive outlook among builders who see brighter days ahead.

As the UK construction sector navigates economic uncertainties, the surge in optimism indicates a turning point. The willingness to look beyond immediate challenges and anticipate a positive shift in market conditions is a testament to the resilience of the industry. The S&P Global UK construction purchasing managers’ index serves as a quantitative measure of this positive sentiment, surpassing expectations and instilling confidence in the sector's trajectory.

Looking ahead, the construction industry's optimism may be a leading indicator for broader economic trends. The anticipation of lower borrowing costs and the belief that the worst may be behind them suggest a potential ripple effect, influencing other sectors and contributing to a more optimistic economic landscape.

The January surge in optimism among UK builders is a notable development, signaling positive expectations for the construction sector. The higher-than-expected reading in the S&P Global UK construction purchasing managers’ index and the expressed confidence in improved business activity underscore the industry's resilience and adaptability. As the sector looks forward to potential interest rate cuts and a fading recession threat, this newfound optimism may have broader implications for the overall economic outlook, offering a glimmer of positivity amid ongoing uncertainties.

Source: Financial Times

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Warren Takunda

Traders' Opinions

Economic

The Euro's recent performance against the U.S. dollar has been far from stellar, experiencing its most significant decline in January since 2015. Despite this setback, leading investment banks are predicting that the Euro has yet to reach its lowest point, foreseeing further losses in the coming months.

Euro's Worst January Since 2015 Sparks Concerns of Further Decline_1

Contrary to initial expectations within the analyst community at the start of the year, which anticipated a weakening of the Dollar and a subsequent recovery for the Euro, recent market dynamics have painted a different picture. The Dollar has emerged as the standout performer among currencies in 2024, outshining expectations particularly after the release of the non-farm payroll report, which surpassed forecasts and led to a notable 0.75% decline in the Euro-Dollar pair.

Federal Reserve Chair Jerome Powell's cautious stance on interest rate cuts further bolstered the Dollar's position, with his remarks following a weekend interview indicating a reluctance to implement rate cuts in the near term. The positive momentum for the Dollar continued with the release of the ISM survey, which highlighted a robust rebound in U.S. employment figures, further reinforcing expectations of unchanged interest rates from the Federal Reserve in the immediate future.

The prevailing sentiment among analysts is that the Federal Reserve is unlikely to consider rate cuts until June, suggesting that Dollar strength will persist until then. This outlook has prompted a revision in forecasts, with a consensus emerging on the Euro's prospects as one of the weakest performers among G10 currencies in 2024.

Euro's Worst January Since 2015 Sparks Concerns of Further Decline_2

Projections for the Euro-Dollar exchange rate indicate a one-month forecast of 1.07 and a three-month target of 1.05, underscoring a bearish outlook for the currency pair. This pessimism towards the Euro is not solely attributed to Federal Reserve policy but also reflects expectations of dovish actions by the European Central Bank (ECB).I anticipate the ECB mirroring or even surpassing the number of rate cuts implemented by the Federal Reserve in 2024, potentially making the Euro an attractive funding currency.

Additionally, widening yield spreads between bonds issued by peripheral Eurozone countries and those of Germany are expected to further weigh on the Euro's appeal. As the ECB's Quantitative Tightening program gains momentum, the yield differentials are projected to widen, exerting downward pressure on the Euro.

Heightened risk aversion in the latter half of the year, driven by economic uncertainty and political instability in the U.S., is anticipated to exacerbate the Euro's underperformance.

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