Daily market analysis

Earnings Downgraded due to Rising Interest rate Risks and Slowing Growth

August 9, 2022

US stock declined on Monday and failed to hold onto gains. S&P500 erased a rally that reached 1% earlier in the day, while the Nasdaq 100 underperformed after an advance that briefly drove the tech 20% above its June low. Nvidia tumbled almost 6.5% with a release of a gloomy forecast. Mounting risks of more aggressive interest rate policy and slowdown economic growth have sparked earnings downgrade.

The latest survey from the Fed Bank of New York showed that consumers’ expectations for US inflation would sharply decline over the coming years, with the dropping price of oil playing a key role in those results and likely contributing to a lower headline rate of inflation for July released on Wednesday. Still, almost all inflation measures are running well above the Fed’s 2% target.

The benchmark, S&P500 slid with a 0.12% loss on daily basis, although it gained 1% growth at the beginning of the trading session. However, six out of eleven still stayed in positive territory, as Real Estate performed best among all groups, rising 0.71% for the day, while Information Technology got the worst performance and fell 0.88% on Monday. The Dow Jones Industrial Average almost remained not changed, Nasdaq 100 declined by 0.4%, and the MSCI World index rose 0.1% for the day.

Main Pairs Movement

US dollar eased on Monday, giving back some gains it made following Friday’s blockbuster U.S. jobs report. Investors stayed aside to look ahead to Wednesday’s inflation data for more clues about Federal Reserve’s next steps. The DXY index dropped sharply in the first half of Monday and touched a daily-low level below 106.1, then regain fresh transactions and rebound to the 106.4 level.

The GBP/USD has little changed up for the day, as investors await US CPI data and the release of UK Gross Domestic Product (GDP) released on Friday. The cables mildly climbed to a daily high level around 1.214 before the US trading session, then confronted huge selling pressure and oscillates in a narrow range of 1.206 to 1.208 from the late New York session.
Meanwhile, EURUSD wavered between 1.018 to 1.020 after strong downside traction during the US trading session. The pairs little advanced with a 0.14% gain on Monday.

The Gold rose with a 0.76% gain on daily basis on Monday, amid a weak US dollar across the board and retreating US bond yields. XAUUSD managed to attract fresh buying and builds on its steady intraday ascent through the early New York session, and touched a daily high above $1786 marks. It’s also worth noting that, WTI and Brent oil surged by 1.97% and 1.82% respectively, which would be a sign of consumer data announced on Wednesday.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged higher on Monday, regaining upside momentum and rebounded from the 1.015 area that it touched last Friday amid a better market mood. The pair is now trading at 1.02167, posting a 0.36% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the retreating US Treasury bond yields and firmer equities both exerted bearish pressure on the safe-haven greenback. Investors are now accessing the better-than-expected US job data, which increases the speculation of a more aggressive policy tightening by the Fed in the next months. The probability of a 75 bps rate hike next month is now at nearly 68%. For the Euro, the Eurozone Sentix Investor Confidence index came in at -25.2 in August, which failed to ease off recession fears in the Eurozone.

For the technical aspect, the RSI indicator is 54 figures as of writing, suggesting that the upside is more favoured as the RSI stays above the mid-line. As for the Bollinger Bands, the price preserved its upside traction and climbed above the moving average, therefore the bullish momentum should persist. In conclusion, we think the market will be bullish as the pair is heading to test the 1.0246 resistance line. A break above that level would skew the risk to the upside.

Resistance: 1.0246, 1.0287, 1.0438

Support: 1.0150, 1.0111, 0.9988

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced on Monday, extending its recovery and touching a daily top above the 1.213 mark in the early US session amid the risk-positive market atmosphere. At the time of writing, the cable stays in positive territory with a 0.40% gain for the day. The US dollar struggled to capitalize on Friday’s upbeat NFP report as the falling US Treasury bond yields made it difficult to find demand. The market focus now shifts to the US CPI data this Wednesday, which might provide fresh impetus for the GBP/USD pair. For the British pound, the BoE’s gloomy economic outlook continues to act as a headwind for the pair. Meanwhile, the policy gap between the Fed and BoE could continue to widen and undermine the cable amid the hawkish stance of the Fed’s policy tightening outlook.

For the technical aspect, the RSI indicator is 47 figures as of writing, suggesting that the downside is preserving strength as the RSI keeps heading south. For the Bollinger Bands, the price witnessed fresh selling and failed to climb above the moving average, therefore some downside tractions can be expected. In conclusion, we think the market will be slightly bearish as long as the 1.2154 resistance line holds. On the upside, technical recovery could stretch higher toward 1.2198 if the pair starts using that level as support.

Resistance: 1.2154, 1.2198, 1.2277

Support: 1.2027, 1.1940, 1.1830

XAUUSD (4-Hour Chart)

As the US dollar came under bearish pressure amid the retreating US bond yields on Monday, the pair XAU/USD regained upside momentum and refreshed its daily high near the $1,790 level during the US trading session. XAU/USD is trading at 1788.91 at the time of writing, rising 0.74% daily. The risk-on flows have returned at the start of the week after market reaction to the upbeat US jobs data fades. Investors are now waiting for the latest US consumer inflation figures, which would influence Fed rate hike expectations and play a key role in driving the near-term USD demand. Markets are now pricing in a nearly 70% probability of a 75 basis points rate increase in September.

For the technical aspect, the RSI indicator is 59 figures as of writing, suggesting the pair’s bullish outlook in the near term as the RSI indicator keeps rising. For the Bollinger Bands, the price preserved its upside traction and crossed its moving average into positive territory, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1794 resistance line. A break above that level might favour the bull and open the door for additional gains in the near term.

Resistance: 1794, 1811, 1831

Support: 1769, 1756, 1735