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Daily market analysis

Better-than-expected earnings boost US stocks

October 19, 2022

U.S. equities extended their gains into the second trading day of the week. The Dow Jones Industrial Average rose 1.12% to close at 30523.8. The S&P 500 gained 1.14% to close at 3719.98. The tech-heavy Nasdaq Composite edged 0.9% higher to close at 10772.4. Equities continued to be buoyed by better-than-expected earnings releases. Netflix reported earnings after the bell last night. The company reported an earnings beat of $3.1 EPS, beating market consensus by 43%. United Airlines also reported better-than-expected earnings of $2.28 EPS, beating market consensus by 23.1%.

The benchmark U.S. 10-year treasury yield continues to trade above 4% and was last seen at 4.009%.

Of the 9.15% of S&P 500 companies that have reported earnings so far this season, 70% of them have posted positive surprises, according to data from FactSet. Earnings expectations have been lowered considerably and the market is braced for a good amount of negative news in earnings season, thus an average performance from corporate America may well be the breakaway from recent bear market price movements market participants are waiting for.

Main Pairs Movement

The Dollar index lost 0.06% throughout yesterday’s trading. The Dollar has continued to lose steam for the second straight day as risk sentiment continues to improve due to better corporate earnings results and the recent UK policy reversal.

EURUSD gained 0.17% throughout yesterday’s trading. The broad-based weakness of the Dollar has put EURUSD on a solid upward trajectory; furthermore, the upside surprise of economic sentiment in Germany has provided a boost of confidence for the Euro.

GBPUSD retreated 0.28% throughout yesterday’s trading. The British Pound fared worse against a weakening Dollar. The newly appointed minister of finance, Jeremy Hunt, is scheduled to deliver tax and spending measures on next Monday.

Gold edged 0.08% higher throughout yesterday’s trading. The non-yielding metal continues to find appreciating headroom as the Dollar weakens.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD looks to extend an auspicious start of the week against the backdrop of the inconclusive price action around the greenback, all within a context of persevering appetite for the riskier assets. The pair was wandering in a range from 0.9820 to 0.9880 as of writing. Meanwhile, the prevailing risk-on mood continues to support the pair’s upside bias despite German yields now giving away initial gains and returning to negative territory. In addition, extra support for the European currency also came after the Economic Sentiment measured by the ZEW institute in Germany and the Euroland unexpectedly came in above estimates in October reversing at the same time the previous downtrend. Furthermore, the price action around EURUSD is expected to closely follow dollar dynamics, geopolitical concerns, and the Fed-ECB divergence. Following the latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

From the technical perspective, the RSI indicator is 62 as of writing, suggesting EURUSD stands firmly and remains well bid in the upper-0.9800 level in the near term until the RSI hit above 70, an overbought area. As for Bollinger Bands, the pair was priced in the upper area stably, and the size between the upper and lower bands remained. We think the EURUSD will retain mild upside momentum in the near term unless the price fell below the 20-period moving average.

Resistance:  0.9921, 0.9986, 1.0040

Support: 0.9666, 0.9543

GBPUSD (4-Hour Chart)

The GBP/USD pair although rebounded a few pips from the daily low and climbs back above the 1.1310 level during the North American session, erasing almost half the gains on Monday. The modest recovery is sponsored by the emergence of some US dollar selling, though lacks bullish conviction and the UK political uncertainty. Rebels within the ruling Tory Party are coming together to replace the newly-elected UK Prime Minister Liz Truss in the wake of the recent tax cut fiasco. Apart from this, reports that the Bank of England is set to further delay quantitative tightening to help stabilise bond markets act as a headwind for sterling and cap the pounds. However, according to a Bloomberg report on Tuesday, the long-term bearish bias on the pound has eased at the fastest pace since June 2016 amidst the UK government’s fiscal policy U-turn, as depicted by the options market. Meanwhile, one-year risk reversals in cable, a measure of the spread between call and put prices rallied on Monday in favour of calls by the most since June 2016.

For the technical aspect, the RSI indicator is 55 as of writing, suggesting that the price remains modest bullish momentum. As for the Bollinger Bands, the pair was pricing around the 20-period moving average, and the gap between upper and lower bands became smaller, indicating that the pair now has no clear traction, and favoured hovering around the 1.1300 level.

Resistance: 1.1476, 1.1566, 1.1714

Support: 1.1162, 1.0797, 1.0968, 1.0392

XAUUSD (4-Hour Chart)

As the US dollar witnessed some dip-buying amid the elevated US Treasury bond yields on Tuesday, the pair XAU/USD failed to preserve its upside traction and dropped to the $1,646 level during the US trading session. XAU/USD is trading at $1651 at the time of writing, rising 0.09% daily. The hotter US consumer inflation figures released last week have reaffirmed the prospects for a more aggressive policy tightening by the Fed, which continued to provide support to the greenback and exerted bearish pressure on the precious metal. Moreover, the better tone of global equities and the risk-on market mood is acting as a headwind for the safe-haven gold. The market focus now shifts to the Building Permits and Housing Starts for September, as a significant decline in these data could cause the US dollar to lose strength and lift the XAU/USD pair higher.

From the technical aspect, RSI is 44 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. For the Bollinger Bands, the price failed to preserve its upside strength and retreated from 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 $1643 support line. Sustained weakness below that level might increase the risk of a downward extension and open the door for additional near-term losses.

Resistance: 1666, 1674, 1681

Support: 1643, 1627, 1622

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPCPI (YoY) (Sep)14:0010.0%
EURCPI (YoY) (Sep)17:0010.0%
USDBuilding Permits (Sep)20:301.530M
CADCore CPI (MoM) (Sep)20:30 
USDCrude Oil Inventories22:301.380M