Daily market analysis

May 26, 2022

U.S. equities markets rebounded over the previous trading day. The Dow Jones Industrial Average rose 0.6% to close at 32120.28. The S&P 500 gained 0.95% to close at 3978.73. The Nasdaq Composite rallied 1.51% to close at 11434.74.

The FOMC released its meeting minutes during the American trading session on the 25th. According to the minutes, the committee reiterated the importance of reigning in soaring inflation and possibly more interest rate hike of the same magnitude as the previous interest rate hike. 50 basis points seem to be the largest jump the FOMC is willing to apply per rate hike, however, the meeting minutes did indicate a possible shift from a “neutral” central bank stance to a more “restrictive” stance to more aggressively shrink the central bank’s balance sheet. Importantly, a 50 basis point interest rate hike is almost certain at this point for the June FOMC meeting.

The benchmark U.S. 10-year treasury yield fell slightly and is currently sitting at 2.743%.

The consumer discretion sector experienced significant gains over the previous trading day. Retail earnings from Nordstrom, Dick’s Sporting Goods, and Best Buy all exceeded analyst estimates. Nordstrom shares popped 14% after it surpassed analyst estimates and rose a full-year outlook. In contrast to last week’s consumer sector earnings, the rise in these three companies indicate a shift in consumer behavior and shows, possibly, still strong demand from consumers.

Main Pairs Movement

The Dollar Index recovered after the FOMC meetings were released. The FOMC’s committed hawkish stance snapped the Dollar Index’s downtrend. The index gained 0.3% over the previous trading day and was able to find support near the 101.768 price level.

EURUSD fell 0.51% over the previous trading day. The stronger U.S. Dollar pushed the Euro lower despite renewed bullish sentiment for the Euro. EURUSD was still able to close above the 1.06 price level.

GBPUSD rose 0.37% to close over the previous trading day. The British Pound was able to gain against the Dollar despite broad-based Dollar strength. Technical analysis suggests Pound bulls remain in control for the short term.

USDCAD traded mostly sideways over the previous trading day. USDCAD ended the day down 0.02%. The Canadian Loonie recovered as global commodities see a gradual rise in demand.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Wednesday, failing to preserve its upside momentum, and retreated from a monthly high above the 1.074 level that touched yesterday amid renewed US dollar strength. The pair were surrounded by bearish momentum for most of the day and dropped to a daily low below the 1.065 level, then rebounded slightly to recover some of its daily losses. The pair is now trading at 1.0683, posting 0.44% losses daily. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the worsening global economic outlook continued to weigh on market mood and helped the safe-haven greenback to find demand. The market focus now shifts to the FOMC meeting minutes later in the US session, which might provide fresh impetus. For the Euro, the European Central Bank’s Financial Stability Review noted that an abrupt increase in real interest rates could induce house price corrections, which acted as a headwind for the EUR/USD pair.

For the technical aspect, the RSI indicator is 57 figures as of writing, suggesting that the upside is more favored as the RSI stays above the mid-line. As for the Bollinger Bands, the price failed to cross below the moving average after touching it, therefore some upside traction could be expected. In conclusion, we think the market will be slightly bullish as the pair might face some technical correction before testing the 1.0622 support. The rising RSI also reflects bull signals.

Resistance:  1.0736, 1.0816, 1.0921

Support: 1.0622, 1.0549, 1.0464

GBPUSD (4-Hour Chart)

The pair GBP/USD edged higher on Wednesday, ending its intra-day slide and regaining upside traction amid improving market sentiment ahead of FOMC Meeting Minutes. The pair remained under pressure below the 1.2550 mark and dropped to a daily low near 1.2485 in the European session, but then started to see fresh buying to erase all of its daily losses. At the time of writing, the cable stays in positive territory with a 0.12% gain for the day. The FOMC will release the minutes of its May policy meeting later in the US session, which is expected to outline the Fed’s much more hawkish stance that significant further monetary tightening. Market participants will also look for clues about the possibility of a 75 bps rate hike in June. For the British pound, the prospect for further BoE monetary tightening is being reassessed by investors, as the disappointing PMI data from the UK on Tuesday showed a significant loss of momentum in the private sector’s business activity.

For the technical aspect, the RSI indicator is 57 figures as of writing, suggesting that the upside is preserving strength as the RSI keeps heading north. For the Bollinger Bands, the price regained upside traction and crossed above the moving average, indicating that the upside momentum should persist. In conclusion, we think the market will be bullish as the pair is heading to test the 1.2588 resistance. A four-hour close above that level could open the door for an extended rebound toward 1.2631 and the rising RSI also confirms the bullish shift in the near-term outlook.

Resistance: 1.2588, 1.2631, 1.2761

Support: 1.2487, 1.2341, 1.2180

USDCAD (4-Hour Chart)

As the worsening outlook for the global economy continued to weigh on investors’ mood and help the US dollar to demand on Wednesday, the pair USD/CAD gained positive traction for the second straight day and touched a weekly high above the 1.2880 mark. The pair were surrounded by bullish momentum during the first half of the day and reached a daily top in the European session, then retreated to surrender some of its daily gains. USD/CAD is trading at 1.2846 at the time of writing, rising 0.20% daily. Repositioning trades ahead of the FOMC minutes lend some support to the US dollar and pushed USD/CAD higher, as traders will look for clues about the possibility of a 75 bps Fed rate hike in June that might provide trading impetus to the pair. On top of that, the retreating crude oil prices also exerted some bearish pressure on the commodity-linked loonie as WTI continued to move sideways near the $110 per barrel area. Fuel demand in the US is expected to rise as peak driving season is approaching.

For the technical aspect, the RSI indicator is 54 figures as of writing, suggesting that the upside is losing some momentum but remained within positive levels. For the Bollinger Bands, the price regained some bullish strength and rebounded slightly, therefore the upside traction should persist. In conclusion, we think the market will be somewhat bullish as the pair is heading to test the 1.2894 resistance. A break above that resistance could open the road for additional gains.

Resistance: 1.2894, 1.2966, 1.3046

Support: 1.2767, 1.2725, 1.2684

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDGDP (QoQ) (Q1)20:30-1.3%
USDInitial Jobless Claims20:30215K
CADCore Retail Sales (MoM) (Mar)20:302.0%
USDPending Home Sales (MoM) (Apr)22:00-2.0%