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U.S. equities closed mostly mixed throughout Wednesday’s trading. The Dow Jones Industrial Average gained 0.03% to close at 33743.84. The S&P 500 lost 0.02% to close at 4016.22. The tech-heavy Nasdaq Composite lost 0.18% to close at 11313.36. U.S. equities experienced a sharp drop at the beginning of Wednesday’s trading as Microsoft issued weaker guidance than expected; however, equities were able to strongly bounce back as market participants assessed corporate earnings and recessionary fears.
The benchmark 10-year treasury yield retreated slightly and was last seen trading at 3.451%. The short-term 2-year treasury yield gained slightly and was last seen trading at 4.133%.
EV maker Tesla reported earnings after the bell. The tech giant reported a beat on both earnings and revenues. Tesla reported revenue of $24.32 billion for the quarter, beating estimates of $24.16 billion. Despite cutting retail prices on its cars worldwide, Tesla has found abundant cash flow from its services business and continued government subsidies.
Main Pairs Movement
The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, dropped 0.27% throughout yesterday’s trading. The Dollar remains subdues ahead of the GDP and initial jobless claims figures, both scheduled to be released before the bell on Thursday. Market participants will also be tuning in on the U.S. PCE price index, scheduled for release on the 27th.
EURUSD continued to rise throughout Wednesday’s trading. The Euro advanced 0.27% against the Dollar. The Euro-Dollar pair has now entered its 6th straight winning session and now faces an immediate psychological resistance level of 1.1.
GBPUSD gained 0.51% throughout yesterday’s trading. The British Pound recovered most of its losses from Monday and Tuesday after the Dollar failed to attract bidding.
XAUUSD advanced 0.47% throughout Wednesday’s trading. Market participants’ concerns over growth and recession have opened the floodgates to the recent rally of Gold. The short-term interest rate expectation has allowed the Dollar to weaken and Gold to climb.
Technical Analysis
EURUSD (4-Hour Chart)
EUR/USD edged lower on Wednesday as cautious market sentiment helps the US dollar index hold its ground. At the time of writing, EUR/USD stays marginally below 1.0900, trading at 1.0867. The US dollar index holds around 102. The IFO index from Germany on Wednesday showed that business sentiment improved modestly in January but failed to help the pair. The IFO index rose to 90.2, up from 88.6 in December, aligning with the forecast of 90.2. For more price action, eye on the release of the United States Gross Domestic Product (GDP) data and the Initial Jobless Claims on Thursday, which will directly influence the financial market.
For the technical aspect, RSI indicator 51 figures as of writing. The RSI indicator maintains neutral in the near term, signaling that the market is lack main traction. As for the Bolling Bands, the price holds above the upward-moving average. The upward momentum seems weak as the pair trades in a narrow range in the near term. In conclusion, we think EUR/USD is in consolidation mode based on the technical analysis. The price is lack main traction. Market participants now await a key event on Thursday, which will act as a price catalyst, pushing the financial market. For the uptrend scenario, the pair need a breakthrough above the current resistance at 1.0912 to confirm the further uptrend. For the downtrend scenario, if the price drop below the support at 1.0780, it may lose its upward momentum and head to test the next support at 1.0710.
Resistance: 1.0912, 1.1048, 1.1131
Support: 1.0780, 1.0710, 1.0582
GBPUSD (4-Hour Chart)
GBP/USD trades in a narrow range around 1.2300 on Wednesday. In the absence of major macroeconomic data releases, the cautious market sentiment helps the US dollar index hold its ground and keeps the financial market non-volatile for now. On the other hand, the various stimulus and energy payments have led to a record deficit in the UK but failed to solve the British workers’ problem, which sends more negative signals for GBP/USD. Market participants await the release of the US Gross Domestic Product (GDP) for the fourth quarter (Q4) and the Initial Jobless Claims on Thursday which will let market participants better understand the current market and trigger more price action.
For the technical aspect, RSI indicator 47 figures as of writing, still holding around the neutral region, signaling no main traction. As for the Bolling Bands, the price trades between the moving average and lower band, suggesting that the is a lack of direction in the near term. In conclusion, we think GBP/USD may continue on consolidation until further breakthrough. For the uptrend scenario, the pair is establishing itself above the current support at 1.2273. It must not drop below the current support for any following upward movement. For the downtrend scenario, if the price drop below the support at 1.2273, it may stage more downward correction.
Resistance: 1.2430, 1.2600
Support: 1.2273, 1.2161, 1.2021
XAUUSD (4-Hour Chart)
Gold prices fell despite the weak US Dollar and falling US Treasury bond yields. Technical moves or near-term profit-taking could be the main reason. In the meantime, the US economic calendar would be busy on Thursday, led by US Gross Domestic Product (GDP) for the fourth quarter (Q4), expected at 2.6%. Further, Durable Good Orders are expected at 2.5%, compared to -2.1% of the previous. Initial Jobless Claims for the last week would also be updated, expected 205K, compared to 190K previous.
For the technical aspect, RSI indicator 51 figures as of writing, moving marginally around mid-line, signaling the lack of price movement. For the Bollinger Bands, the price is moving up and down between the upper band and the lower band, suggesting that the pair is lack traction. In conclusion, we think the market is in consolidation mode ahead of US key event on Thursday. The market needs a decisive breakthrough to confirm the following trend as Gold price is trading between a narrow range. For the uptrend scenario, the next resistance is at $1,952. If the price breakthrough the resistance, it may head to test the next resistance at $1,977. For the downtrend scenario, if the price drop below $1,920, it may change its current trend and head to test the pivotal round figure mark at $1,900.
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U.S. equities struggled to maintain their recent rally throughout Tuesday’s trading. The Dow Jones Industrial Average gained 0.31% to close at 33733.96. The S&P 500 slipped 0.07% to close at 4016.95. The tech-heavy Nasdaq Composite lost 0.27% to close at 11334.27. The recent bear market rally has been aided by better-than-expected earnings results and signs of cooling inflation.
After the bell of the 24th, Microsoft Corp. released F2022 Q4 earnings. The software giant delivered better-than-expected earnings and shares rose 4% in late trading. Microsoft announced $2.32 earnings per share, while sales rose 2% over the quarter to $52.7 billion. Microsoft’s Azure cloud computing proved resilience by gaining 38% in sales, beating estimates of a 37% growth. Recent developments of ChatGPT and OpenAI have injected excitement for the tech giant.
The benchmark U.S. 10-year treasury yield continued to drift lower and was last seen trading at around the 3.455% mark. The policy-sensitive short-term 2-year treasury yield currently sits at 4.148%.
Main Pairs Movement
The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, traded mostly sideways throughout Tuesday and lost 0.09% by the end of the day. The Dollar has been trading extremely range bound between the 101 to 103 level over the past week as market participants await crucial earnings results from major U.S. corporations.
EURUSD gained 0.13% throughout yesterday’s trading. The Euro continued to gain against the Dollar as the Dollar recedes around the 101 level. The EURUSD has notched its fifth consecutive winning session.
GBPUSD lost 0.32% throughout Tuesday’s trading. The British Pound traded lower against the Greenback as the U.K. PMI came in at 47, lower than the market consensus of 47.9. The lower British PMI sparked a weakening of the Sterling.
XAUUSD rose 0.31% throughout yesterday’s trading. The Dollar denominated Gold continues to gain as the Dollar weakens.
Technical Analysis
EURUSD (4-Hour Chart)
EUR/USD regains lost territory on the weak US dollar. Earlier, EUR/USD declined toward 1.0830 with the initial reaction to US PMI data. After the markets priced in the data, EUR/USD rebounded above 1.0870. The US Dollar struggles to maintain upside traction as Wall Street’s main indices recover from session lows.
For the technical aspect, RSI indicator 56 figures as of writing. The RSI indicator maintains neutral in the near term, signaling that the pair lose clear direction. As for the Bolling Bands, the price is hovering around the moving average. Though the moving average is slightly upward, the upward momentum seems weak as the price edges lower. In conclusion, we think EUR/USD is in consolidation mode based on the technical analysis. The price is lack clear traction. A decisive breakthrough is needed to trigger the follow-through buy or sell interest. For the uptrend scenario, the pair is now trading slightly below the resistance at 1.0912. The price needs a breakthrough above the current resistance to meet the higher-high pattern of an uptrend. For the downtrend scenario, if the price drop below the support at 1.0780, it may lose its upward momentum and head to test the next support at 1.0710.
Resistance: 1.0912, 1.1048, 1.1131
Support: 1.0780, 1.0710, 1.0582
GBPUSD (4-Hour Chart)
GBP/USD fell on soft PMIs. Both the Services and Manufacturing PMIs came in below the 50 levels, indicating contraction. The Manufacturing PMI rose slightly to 46.7, up from 45.3 in November and above the forecast of 45.4 points. The Services PMI fell to 48.0, down from 49.9 in November and below the forecast of 49.6 points. On the other hand, the composite PMI fell to 47.8, down from 49.0 in November and below the forecast of 49.3 points. GBP/USD fell after PMIs released and kept going South in the early US session. After the US PMIs released, the US dollar went weak and therefore lifted GBP/USD. The pair regained some lost territory from the earlier trading session. At the time of writing, GBP/USD is trading at 1.2320.
For the technical aspect, RSI indicator 45 figures as of writing, sliding to a bearish region from the mid-line, suggesting that the downward correction could persist as the RSI indicator crossed below the mid-line. As for the Bolling Bands, the price hovering around the lower band, signaling downside traction in the near term. In conclusion, we think GBP/USD may continue on correction based on the technical analysis. For the uptrend scenario, the pair has to establish itself above the current support at 1.2273 to regather upward strength. For the downtrend scenario, if the price drop below the support at 1.2273, it may trigger some follow-through selling and head to test the next support at 1.2161.
Resistance: 1.2430, 1.2600
Support: 1.2273, 1.2161, 1.2021
XAUUSD (4-Hour Chart)
Gold price touches a nine-month high on Tuesday amid renewed US Dollar selling. Bets for smaller FED rate hikes keep the US dollar index under pressure. The markets have been pricing in a modest 25 bps rate hike at the upcoming FOMC policy meeting next week. This resulted in a continued decline in the US Treasury bond yields and the US dollar index, which in turn benefit Gold bullish traders. On the other hand, recession fears also favor safe-haven Gold.
For the technical aspect, RSI indicator 63 figures as of writing, staying in a bullish region and rising from mid-line, suggesting that the uptrend should persist. For the Bollinger Bands, the price is moving up between the upper band and the upward average, which is a typical pattern for an uptrend. In conclusion, we think the market is in bullish mode as technical analysis shows bullish potential. For the uptrend scenario, the next resistance is at $1,952. If the price breakthrough the resistance, it may head to test the next resistance at $1,977. For the downtrend scenario, if the price drop below $1,920, it may change the current trend and head to test the pivotal round figure mark at $1,900.
The equity market rallied two consecutive days on Monday, as the most influential segment of the US stock is about to kick off earnings in a test of the S&P500’s 12% surge from its October low. Giants like Microsoft Corp. and Texas Instruments Inc. are set to report results that will help shape the fate of a sector that last year faced a reckoning amid higher rates.
The latest notable company to announce layoffs to lower expenses was Spotify Technology SA, which climbed on plans to slash about 6% of its employees. Interestingly enough, despite the positive reaction to the industry’s cost-saving measures, some note that could herald waning demand. It’s also worth noting that among all tech groups, chipmakers were by far the best performers Monday thanks to a call from Barclays Plc upgrading Advanced Micro Devices Inc. and Qualcomm Inc.
The benchmarks, the S&P500 surged 1.19% on Monday, with tech-heavy Nasdaq100 seeing its best two-day run since November. Ten out of eleven sectors of the S&P500 stayed in the positive territory, as Information Technology performed the best among all groups, rising 2.28% daily. It’s also worth noting that the Energy sector, the only sector that stayed in the negative territory, slid 0.2% on Monday. Apart from this, the Dow Jones Industrial Average rose 0.8% and the MSCI world index rallied with a 1% daily gain on Monday.
Main Pairs Movement
The US Dollar has little changed on Monday, as the low market liquidity was caused by the Chinese new year. The DXY index extended the downside tendency in the first half of Monday, falling to a level around 101.6 during the beginning of the UK trading hour. Then, the DYX index rebounded to a level around 102.2 level ahead of the US trading session and closed at 101.9 on Monday.
The GBPUSD slid with 0.15% losses daily, as the UK is falling behind its peers in the race to spur economic growth. Prime Minister Rishi Sunak must act now to boost investment, fix a lack of workers and avoid chaos over post-Brexit rules. Meanwhile, the EURUSD rose by 0.15% for the day, as ECB President Christien Lagarde largely repeated her hawkish stance.
The gold rallied with a 0.26% daily gain, as risk appetite and a weaker US dollar partially offset the impact of higher US yields and the sharp decline in Silver price on Monday. The XAUUSD managed to rebound from a daily low of $1911 marks to above $1930 marks during the American trading session.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair edged lower on Monday, losing its upside traction that was witnessed earlier in the day and retreated from the multi-month high above the 1.0900 mark amid the cautious market mood. The pair is now trading at 1.0849, posting a 0.05% loss daily. EUR/USD stays in the negative territory amid renewed US Dollar strength, as the benchmark 10-year US Treasury bond yield recovered above 3.5% and helped the greenback stays resilient against its rivals. On top of that, the Fed officials were also hawkish ahead of the two-week-long pre-FOMC blackout period. Federal Reserve Governor Christopher Waller said that he favours a 25 basis point rate hike at the upcoming meeting and continued policy tightening beyond that. In the Eurozone, the ECB Governing Council member Yannis Stournaras argued that the adjustment of interest rates needs to be more gradual considering the slowdown in the growth of the euro area economy. Therefore, the mixed comments from ECB officials seem to have caused the Euro to lose some strength.
For the technical aspect, RSI indicator 52 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is falling towards the mid-line. As for the Bollinger Bands, the price witnessed fresh selling and dropped towards the moving average, therefore a continuation of the downside trend can be expected. In conclusion, we think the market will be bearish as long as the 1.0912 resistance level holds.
Resistance: 1.0912, 1.1048, 1.1131
Support: 1.0780, 1.0710, 1.0582
GBPUSD (4-Hour Chart)
Financial markets anticipate that the Bank of England will raise interest rates by 0.5 percentage points next month due to high underlying inflation and the unexpected resilience of the economy. In December, inflation dipped slightly to 10.5%, down from 10.7% in November. However, the growth rate of prices charged by service companies increased, which is considered a more accurate indicator of inflationary pressure. Meanwhile, recent data suggests that inflation is under control in the US, resulting in a decrease in the USD index and pushing the GBPUSD to a six-week high. To stay informed, we should keep an eye on the numbers of the UK PMI this Tuesday and the US PCE price index on Friday.
From a technical perspective, although GBPUSD reached a six-month high, the upward momentum did not last long. It fell back to 1.2488 when the relative strength index (RSI) entered the overbought zone. As of writing, it was hovering around 1.2375 in the Bollinger band and it seems no strong resistance below 1.26. Once it successfully breaks the previous high, we could expect to see a firm uptrend.
Resistance: 1.2488, 1.2600
Support: 1.2273, 1.2161, 1.2021
XAUUSD (4-Hour Chart)
During the Blackout Period, US equities open in the green, indicating that investors have a positive outlook. According to CME Fed watch, the market currently expects a 99% chance that the Fed will raise rates by 0.25 basis points, which will also reduce uncertainty in the market and boost risk appetite. Although the price of gold retreated from its nine-month high, it still has strong support at 1,920 and is steadily continuing its upward trajectory. Market participants are now paying attention to the Personal Consumption Expenditure Price Index (PCEPI) this Friday, which measures personal expenditure within a period and serves as an important inflationary signal. If the PCEPI shows that inflation is further cooling down, the expectation of an end to rate hikes will strengthen, which could be disadvantageous to the dollar and potentially drive the price of gold higher.
From a technical perspective, after reaching 1,937, gold failed to continue its upward movement and retreated to 1,911. However, it left a long underlying indication of strong support. It is currently hovering around 1,925. We expect it to move within the Bollinger band. If support at 1,920 holds firmly and the FOMC’s monetary policy aligns with expectations, we believe gold will continue to rise further.
Markets will focus on the US Gross Domestic Products (GDP) report and the Bank of Canada (BoC) interest rate decision this week.
Analysts have various predictions for the GDP reading in the US for Q4 of 2022 after the economy grew an annualised 3.2% in Q3.
Meanwhile, the Bank of Canada (BoC) raised its interest rates by 50bps to 4.25% at its last meeting in 2022. Will BoC continue to raise interest rates?
Here are the market events to keep an eye on this week:
EU, UK and US Flash Services PMI (24 January)
Flash Services PMI readings for December 2022 in the EU and the UK were 49.8 and 49.9 respectively, higher than in November. Meanwhile, Flash Services PMI in the US was 44.7 in December, much lower than its previous month’s reading.
Analysts expect Flash Services PMI in the EU, UK and US will rise slightly in January.
Flash Manufacturing PMI (24 January)
The Flash Manufacturing PMI in the EU was 47.8 in December 2022, higher than in November. The reading for the UK came at 45.3 and the US at 46.2, lower than in November.
Analysts expect the EU and UK Flash Manufacturing PMI readings to be slightly higher this month. They also predict that the US reading will be lower.
New Zealand and Australia CPI (25 January)
The Consumer Price Index (CPI) rose by 1.8% in Australia in Q3 2022, while it increased by 2.2% in New Zealand.
Analysts expect that for Q4 2022, New Zealand’s CPI will decrease by 1.9% while Australia’s will decrease by 1.5%.
Bank of Canada Monetary Policy Statement (25 January)
The Bank of Canada’s target for its overnight rate was raised by 50bps to 4.25% at its last meeting in 2022. The bank also noted that it was continuing its policy of quantitative tightening and that economic growth remains strong, but it will slow through the end of this year and into early 2023.
Analysts expect BoC to raise its interest rates by 25bps to 4.5% at its next meeting.
US Quarterly Gross Domestic Products (Adv) (26 January)
In Q3 of 2022, the US economy grew an annualised 3.2%, better than the 2.9% in the second estimate and rebounding from two straight quarters of contraction.
Analysts have various predictions for Q4 and expect the GDP reading to decrease by 1.2% to 2.8%.
US Quarterly Core PCE Price Index (27 January)
The Core PCE price index for the US increased 4.7% quarter-on-quarter in Q3 of 2022, the same rate as in the previous quarter.
Analysts expect that core PCE prices will fall by 3.9% in Q4.
US stock erased some of the week’s losses on Friday, as a tech rally buoyed risk sentiment and comments by Federal Reserve officials dialled back fears of overly aggressive policy moves. The Fed Governor Christopher Waller said the policy looks pretty close to sufficiently restrictive, which led the equity market to a session high.
Moreover, Philadelphia Fed President Patrick Harker repeated his view for more incremental steps in a rate hike, while Kansas City Fed Chief Esther George said the economy could avoid a sharp downturn. Earnings have also been in focus. Of the 55 S&P500 companies that have reported results so far, two-thirds have beaten analysts’ estimates, compared with the 80% positive surprise seen over the past several quarters.
The benchmark, the S&P500 rose for the first time in four days, and the tech-heavy Nasdaq 100 pushed it into the green for the period. Google parent Alphabet Inc. gained after revealing a plan to cut 12,000 jobs, and Netflix Inc. surged after reporting stronger-than-expected subscriber numbers. All eleven sectors of the S&P500 stayed in the positive territory, and the communication service performed the best among all groups. The Dow Jones Industrial Average rose 0.9% for the day, and the MSCI world index rallied by 1.4% on Friday.
Main Pairs Movement
The US dollar extended its negative traction on Friday, as Fed policy makers’ dovish comments. The DXY index managed to rebound above 102.3 level during the European trading period but then dropped below 102.0 level after Fed Governor Christopher Waller said the policy looks pretty close to sufficiently restrictive.
The GBPUSD has little changed for the day, as a combination of depressed CPI data and the US Dollar’s lack of appeal. The pair dropped to the 1.2340 level in the first half of Friday and then managed to rebound above the 1.2390 level at the end of the day. Meanwhile, the EURUSD slid to around 1.0800 in the first half of the day, and end the day with a 0.21% gain on Friday.
The gold slid by 0.32% daily, as the bulls take a breather after a five-week uptrend, especially amid a lack of traders from China and the Federal Reserve’s silence period. The XAUUSD prints mild losses around the $1925 mark during the UK trading hour, and closed the week at $1926 with volatility.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair edged higher on Friday, retreating from a daily high above the 1.0850 mark but then rebounded slightly during the US trading session amid a positive market mood. The pair is now trading at 1.0835, posting a 0.04% gain daily. EUR/USD stays in the positive territory amid renewed US Dollar weakness, as the greenback retreated from a daily top around 102.50 level and provided some support to the EUR/USD pair. However, the hawkish Federal Reserve (Fed) officials might challenge the upside momentum of late. On the economic data front, the Producer Prices in Germany contracted 0.4% MoM in December and rose 21.6% over the last twelve months. In the Eurozone, European Central Bank (ECB) President Christine Lagarde spoke in a panel discussion, saying that ECB will stay the course with rate hikes and doesn’t target an exchange rate.
For the technical aspect, RSI indicator 52 figures as of writing, suggesting that the pair could witness some upside movements as the RSI is rising higher above the mid-line. As for the Bollinger Bands, the price regained upside traction and rebounded from the moving average, therefore some upside momentum can be expected. In conclusion, we think the market will be bullish as the pair might head to test the 1.0870 resistance level. On the downside, the intraday sellers should seek entry below the 1.0780 support level.
Resistance: 1.0870, 1.0921
Support: 1.0780, 1.0722, 1.0624
GBPUSD (4-Hour Chart)
The GBP/USD pair declined lower on Friday, refreshing its daily low below the 1.2340 mark but then recovered slightly after the release of disappointing UK Retail Sales data. At the time of writing, the cable stays in negative territory with a 0.08% loss for the day. The UK Retail Sales fall 1.0% MoM in December, while Retail Sales and Industrial Production reports both showed larger-than-expected declines for December, which is a big miss compared to the market’s expectations of a 0.5% increase. Therefore, the dismal United Kingdom macroeconomic data undermines demand for the GBP/USD pair despite the US Dollar’s lack of appeal. For the British pound, Bank of England (BoE) Governor Andrew Bailey noted on Thursday that they think there will be a recession while also stating that the recession will be shallow by historic standards.
For the technical aspect, RSI indicator 62 figures as of writing, suggesting that the upside traction could remain in the near-term technical outlook as the RSI is moving northward above the mid-line. As for the Bollinger Bands, the price regained upside traction and climbed towards the upper band, therefore a continuation of the upside traction can be expected. In conclusion, we think the market will be bullish as the pair is testing the 1.2395 resistance level. On the upside, a break above the abovementioned key resistance could open the door for additional gains and favour the bulls.
Resistance: 1.2395, 1.2426, 1.2489
Support: 1.2334, 1.2271, 1.2168
XAUUSD (4-Hour Chart)
After the US Dollar recovered some ground amid elevated US Treasury bond yields on Friday, the pair XAU/USD witnessed some selling and retreated from multi-month highs around the $1,936 area during the US trading session. XAU/USD is trading at 1923.77 at the time of writing, losing 0.43% daily. The US Dollar Index (DXY) consolidates the previous day’s losses, as Fed policymakers favour higher rates during their last public appearances before the 15-day silence period ahead of the February FOMC meeting. Fed speakers continued their hawkish rhetoric and said that rates need to be “slightly above” 5%. As for now, Investors are also resorting to repositioning heading into the Fed’s blackout period and China’s Lunar New Year holidays, which start next week.
For the technical aspect, RSI indicator 59 figures as of writing, suggesting the lack of short-term direction for the pair as the RSI remains flat near 60. As for the Bollinger Bands, the price witnessed some selling and retreated from the upper band, therefore some downside movements can be expected. In conclusion, we think the market will be slightly bearish as long as the $1,932 resistance line holds. On the upside, if buyers extend their control above the abovementioned key resistance, an upside move toward the $1,952 level cannot be ruled out.
U.S. equities continued to retreat over the course of Thursday’s trading. The Dow Jones Industrial Average dropped 0.76% to close at 33044.56. The S&P 500 lost 0.76% to close at 3898.85. The tech-heavy Nasdaq Composite slipped 0.96% to close at 10852.27.
All three equity indices suffered losses as market sentiment, once again, turns risk off. The weaker-than-expected U.S. retail sales figure combined with missed earnings by major corporations have kept the recent risk rally contained.
Over the night, U.S. Federal Reserve Governor Lael Brainard, who is considered a dove, said the central bank would need to keep rates elevated for a longer period in order to bring inflation back to the bank’s target level. Governor Brainard’s comments continue to echo those of Chairman Powell and many other Federal Reserve officials.
The benchmark U.S. 10-year treasury yield climbed 0.62% over the course of Thursday and currently sits at 3.399%. The policy-sensitive 2-year treasury yield was last seen trading at 4.13%.
Netflix Inc., which released its F2022 Q4 earnings yesterday, saw a 3.23% drop in share prices after the company missed their earnings target. Q4 revenues came in at $7.85 billion with an EPS of 12 cents, compared to Wall Street estimates of 45 cents. Despite missing its earnings estimates, Netflix showed organic growth in global paid subscribers for Q4. On the other hand, the streaming giant also cited foreign exchange risk related to its euro-denominated debt that eroded some of its Q4 margins.
On the earnings calendar, State Street Corp. and Ally Financials will headline today’s releases.
Main Pairs Movement
The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, dropped 0.35% over the course of Thursday’s trading. The Dollar index has continued to trend lower despite hawkish remarks from Fed officials. The recent sell-off of the Greenback could continue before the FOMC meeting takes place in early February.
EURUSD climbed 0.34% over the course of Thursday’s trading. The Euro traded above the key level of 1.08 as the Greenback continue its retreat. ECB President Lagarde is scheduled to speak during today’s European trading session.
GBPUSD climbed 0.36% over the course of yesterday’s trading. The British Pound notches its third straight winning session against the Greenback amid the Dollar’s recent weakness.
XAUUSD soared 1.46% over the course of Thursday’s trading. The Dollar denominated Gold continues to find demand in the face of hawkish Fed comments. The risk-off sentiment across markets also buoyed the non-yielding metal.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair advanced higher on Thursday, failing to preserve its upside momentum and retreated slightly towards the 1.0800 mark amid improving market mood following the release of better-than-expected US economic data. The pair is now trading at 1.0806, posting a 0.11% gain on a daily basis. EUR/USD stays in the positive territory amid a weaker US Dollar across the board, as the positive economic news from the US lend support to investors’ sentiment and exerted bearish pressure to the safe-haven greenback. On the economic data front, the US Weekly Initial Jobless Claims decline to 190K in the week ending January 13, which came in better than the market expectation of 214K and also the lowest level in four months. In the Eurozone, the Accounts of the latest meeting from the ECB showed an initial attempt to hike rates by 75 bps and some participants advocated for a quicker reduction of the APP. The hawkish ECB also acted as a tailwind for the EUR/USD pair.
For the technical aspect, RSI indicator 48 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is dropping below the mid-line. As for the Bollinger Bands, the price witnessed fresh selling and break below the moving average, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0780 support level. Technical indicators also drop toward negative levels, reflecting the bearish stance.
Resistance: 1.0870, 1.0921
Support: 1.0780, 1.0722, 1.0624
GBPUSD (4-Hour Chart)
The GBP/USD pair edged higher on Thursday, extending its modest daily gains and climbing to a daily high above the 1.2360 mark following the release of softer-than-expected US economic data. At the time of writing, the cable stays in positive territory with a 0.25% gain for the day. The Retail Sales and Industrial Production reports both showed larger-than-expected declines for December, which helped the risk appetite and weighed on the US Dollar. However, the rising fears of a potential recession should benefit the US Dollar’s relative safe-haven status and cap the upside for the GBP/USD pair. For the British pound, investors expect the UK central bank to continue raising interest rates to combat stubbornly high inflation, which was supported by the stronger wage growth data released on Tuesday. Meanwhile, the headline UK CPI is still at higher levels and might continue to act as a tailwind for the British Pound.
For the technical aspect, RSI indicator 67 figures as of writing, suggesting that the upside traction could remain in the near-term technical outlook as the RSI is moving northward above the mid-line. As for the Bollinger Bands, the price regained upside traction and climbed towards the upper band, therefore a continuation of the upside traction can be expected. In conclusion, we think the market will be bullish as long as the 1.2331 support line holds. On the upside, a break above the 1.2395 resistance level could open the door for additional gains and favour the bulls.
Resistance: 1.2395, 1.2426, 1.2493
Support: 1.2331, 1.2271, 1.2188
XAUUSD (4-Hour Chart)
With a weak US Dollar and a dampened market mood on Thursday, the pair XAU/USD snapped two days losing trend and ground higher towards the $1,920 area during the US trading session. XAU/USD is trading at 1921.89 at the time of writing, rising 0.90% on a daily basis. Despite the Initial Jobless Claims in the US declining by 15,000 last week, market sentiment remains dampened as the soft US economic data released on Wednesday sounded the alarms of an upcoming recession amidst a high inflation environment. On top of that, Boston Fed President Susan Collins said on Thursday that it was appropriate to slow the pace of rate increases, but she also emphasized its need to move above 5% and be held around at that level for some time. traders now are pricing in a 25 bps rate hike at the Federal Reserve’s January 31-February 1 meeting.
For the technical aspect, the RSI indicator is 60 figures as of writing, suggesting that the upside is more favoured as the RSI is rising higher towards 70. As for the Bollinger Bands, the price witnessed upside momentum and climbed higher to the upper band, therefore the upside trend should persist. In conclusion, we think the market will be bullish as the pair is heading to test the $1,924 resistance level. On the upside, if buyers extend their control above the abovementioned key resistance, an upside move toward the $1,935 level cannot be ruled out.
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U.S. equities traded lower throughout Wednesday’s trading. The Dow Jones Industrial Average lost 1.81% to close at 33296.96. The S&P 500 dropped 1.56% to close at 3928.86. The tech-heavy Nasdaq Composite slipped 1.24% to close at 10957.01.
Equities markets were spooked by the weaker-than-expected U.S. retail sales figures, which came in at -1.1%. Weaker consumer spending sparked a drop in the U.S. Greenback and a retreat in the consumer discretionary sector.
Despite a strong start to the year, a tense earnings season and huge layoffs reported by Fortune 500 companies, the strong upward momentum for equities may vanish in a hurry. Recessionary fears have been largely overlooked by market participants for the first two weeks of 2023; however, with weak consumer spending and the Fed FOMC meeting, which is scheduled for February 1st, around the corner, selling pressure has once again resurfaced.
The benchmark U.S. 10-year treasury yield dropped 5.09% and was last seen trading at 3.379%. The short-term 2-year treasury yield rose 10 basis points and sits at 4.086%, as of writing.
Netflix Inc., Procter & Gamble Co., and Preferred Bank will headline today’s earnings release. After delivering on earnings expectations, Morgan Stanley retreated over Wednesday’s trading as the 10-year yield faltered around the 3.3% mark.
The Bank of Japan will be releasing its trade data during today’s Asia trading session. The Bank of Japan surprised markets by keeping its loose monetary policy and keeping a tight grip on yield curves, thus sparking a downward spike in Japanese Yen. Still, the Japanese currency was able to gain back intra-day losses throughout Wednesday.
Main Pairs Movement
The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, saw large movements in both directions throughout Wednesday’s trading and ended 0.03% higher. The Dollar surged during the Asia trading session after the Bank of Japan surprised markets by keeping its tight control over yields; however, the Greenback dropped sharply after the weaker-than-expected retail sales and PPI figures were released.
EURUSD gained 0.06% throughout yesterday’s trading. The Euro Dollar pair climbed as high as 1.088 on Wednesday, but could not sustain that level as market participants demanded the Dollar as equities faltered.
GBPUSD gained 0.47% throughout Wednesday’s trading. The British Pound took full advantage of the Dollar’s weakness and was able to keep those gains towards market close.
XAUUSD dropped 0.22% throughout yesterday’s trading. The Dollar denominated Gold extends its losing streak into the third day as the Dollar gains traction around the 102 mark.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair advanced higher on Wednesday, regaining upside strength and rebounded sharply towards the 1.0880 mark following the release of weaker-than-expected US macro data. The pair is now trading at 1.0833, posting a 0.43% gain on a daily basis. EUR/USD stays in the positive territory amid aggressive intraday US Dollar selling, as the release of softer-than-expected US macro data dragged the greenback down to a seven-month low. On the economic data front, the Producer Price Index (PPI) for final demand in the US declined to 6.2% on a yearly basis in December, which was well below consensus estimates for a fall to 6.8%. The data further points to easing inflationary pressure and could allow the Fed to slow the pace of its policy tightening. In the Eurozone, the European Central Bank policymaker Francois Villeroy de Galhau said on Wednesday that it is “too early to speculate about what we will do in March.” But his words failed to impress market participants.
For the technical aspect, RSI indicator 54 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is falling sharply lower. As for the Bollinger Bands, the price failed to preserve the upside traction and dropped towards the moving average, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as long as the 1.0868 resistance level holds. Technical indicators also reflect bear signals as they retreat from their early peaks and head south.
Resistance: 1.0868, 1.0921
Support: 1.0780, 1.0722, 1.0624
GBPUSD (4-Hour Chart)
GBP/USD advances higher on Wednesday as UK inflation eased for a second straight month in December. Headline CPI (YoY) dropped to 10.5%, down from 10.7% in November and below the 10.6% of expectations. However, the core CPI (YoY) showed no improvement, remaining unchanged at 6.3%. Though there is a downtrend observed, inflation remains stubbornly high after hitting a 41-year high of 11.1% in October. It is much too high for the BoE, which is focused on curbing inflation. There is more work to be done. The next meeting of BoE will be on February 2nd, and the market has priced in a second-consecutive 50 basis point rate hike. The BoE will also release its latest economic forecasts, which could play a key role in the central bank’s rate policy.
For the technical aspect, RSI indicator 67 figures as of writing, soaring from mid-line, showing the upside traction in the near term. As for the Bolling Bands, the price rallied along with the upper band, signalling the strong bullish momentum. In conclusion, we think GBP/USD is in a bullish mode based on the technical analysis. For the uptrend scenario, the pair is now testing the resistance at 1.426. If the price breakthrough the level, it may head to test the next resistance at 1.2675. For the downtrend scenario, if the price drop below the support at 1.2168, it may change the current trend and head to test the next support at 1.2106.
Resistance: 1.2426, 1.2675
Support: 1.2168, 1.2106, 1.2013
XAUUSD (4-Hour Chart)
Gold price traded choppily on Wednesday. Earlier in the Asian trading session, gold price slumped to below the $1,900 mark at the lowest of $1,896.73. From the late EU trading session, the pair regather strength, recovering lost territory below $1,900 to the highest of $1,925.9. After the release of the December PPI, gold prices fell in a risk-averse mood. At the time of writing, the gold price is trading at $1,908.54. US figures suggested the American economy could already be in a recession. The US Commerce Department reported that December Retail Sales plunged -1.1% MoM, below -0.8% of expectation, falling for two consecutive months. Furthermore, the Producer Price Index (PPI) slides to -0.5% MoM, below -0.1% of expectation. Easing inflation is seen as good news but also reflects decreased purchasing power.
For the technical aspect, the RSI indicator is 52 figures as of writing, holding around the mid-line, reflecting the unclear price trend in the near term. For the Bollinger Bands, the price hovers around the moving average. Since the moving average is upward, the trend is still in a modest bullish mode in the long -term. In conclusion, we think the market is in a modest bullish mode as technical analysis shows bullish potential. For the uptrend scenario, gold price got rejected from the current resistance at $1,924, and it needs a breakthrough above the level to meet the bullish pattern of a higher high. For the downtrend scenario, if the price drop below support at $1,893, it may trigger fresh selling traction and head to test the next support at $1,873.
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