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Daily market analysis

Earnings season continues to give equities a breather

October 26, 2022

U.S. equities rose for the third consecutive session. The Dow Jones Industrial Average rose 1.07% to close at 31836.74. The S&P 500 rose 1.63% to close at 3859.11. The tech-heavy Nasdaq Composite soared 2.25% to close at 11199.12. Equities were buoyed by the falling U.S Greenback and the retreating U.S. short-term treasury yield. The benchmark U.S. 10-year treasury yield has retreated from recent highs of above 4.2% to below 4.1%. The yield was last seen trading at 4.086%. The policy-sensitive 2-year treasury yield sits at 4.449%.

Earnings season continues to provide much-needed breathing room for equities. Coca-Cola and General Motors both reported earnings that were better than analyst estimates. Coca-Cola reported $0.69 EPS, beating the $0.64 EPS estimate. Revenue to the beverage giant came in at 11.1 billion Dollars for Q3. General Motors recorded $2.25 EPS, a 19.63% surprise from the analyst estimated $1.88 EPS. More importantly, GM did not adjust guidance for the year, providing a confidence boost to GM investors.

On the earnings calendar, Apple, Exxon Mobile, Ford Motor, and Credit Suisse are scheduled to release earnings this week.

U.S. GDP(QoQ) for Q3, 2022 will be announced on Thursday, Oct 27, given the persistently challenging environment, with historically high energy costs and rapidly rising interest rates, also the very high inflation, especially in food and household costs, we have less optimistic about GDP forecast.

Main Pairs Movement

The Dollar index dropped 0.99% throughout yesterday’s trading. The U.S. Greenback faced strong selling pressure amid the retreating 10-year treasury yield and better risk sentiment. Recent rumours regarding a more dovish Fed heading into the next FOMC interest rate decision have also triggered some selling amid the recent highs of the Dollar index.

EURUSD gained 0.9% throughout yesterday’s trading. The shared currency advanced against a weaker Dollar; however, strong economic headwinds still loom over the European economy and market participants’ optimism for a dovish Fed could be all but fictional.

GBPUSD gained 1.69% throughout yesterday’s trading. The British Pound surged as Britain welcomed its latest Prime Minister, Rishi Sunak. Personnel changes in the British government seem to have stabled the volatile Gilt market and thus the Pound.

Gold rose 0.21% throughout yesterday’s trading. The non-yielding metal took advance against the Dollar as treasury yields retreated.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair surged higher on Tuesday, gathering bullish momentum and refreshing its daily high above the 0.9970 mark in the US trading session amid dismal economic data in the US. The pair is now trading at 0.9958, posting a 0.86% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the weaker-than-expected US housing prices and manufacturing data on Tuesday added to the concerns about the negative impact on the economy of the Federal Reserve’s radical tightening pace. Therefore, investors’ expectations of the Fed slowing the pace of tightening has exerted bearish pressure on the US dollar and lifted the EUR/USD pair higher. For the Euro, the better-than-anticipated economic data has acted as a tailwind for the shared currency, as the German IFO Business Climate Index eases to 84.3 in October and showed that the Business Climate remained stable. The European Central Bank will announce its latest monetary policy decision on Thursday.

For the technical aspect, the RSI indicator is 70 as of writing, suggesting that the pair is facing heavy buying pressure as the RSI reached the overbought zone. As for the Bollinger Bands, the price moved out of the upper band, therefore a strong continuation of the uptrend can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 0.9986 resistance line. The four-hour chart also reflects heavy buying interest as the technical indicators now sit at the overbought zone.

Resistance:  0.9986, 1.0038

Support: 0.9836, 0.9757, 0.9667

GBPUSD (4-Hour Chart)

The GBP/USD has surged from levels right above 1.1300 on Tuesday’s early US market session, rallying to 1.1500 where it seems to have found some resistance. In the domestic, the victory of Rishi Sunak in the Tory race and his pledge to restore economic stability are bringing back confidence to the markets, terrified with his predecessor’s economic plan. The re-appointment of Jeremy Hunt as chancellor of the exchequer has increased hopes that the next cabinet will be more market-friendly, which is acting as a tailwind for the British pound. On the other end, the weaker-than-expected US housing prices and consumer confidence data on Tuesday, as well as the downbeat S&P PMIs released on Monday are increasing concerns about the negative impact on the economy of the Federal Reserve’s radical tightening pace. Against this backdrop, the US dollar is losing ground against its main peers, with US Treasury Bonds dropping sharply. The benchmark 10-year yield tumbled from 4.25% earlier on Tuesday to 4.06%.

From the technical perspective, the RSI indicator is 67 on the four-hour scale as of writing, suggesting that the pounds amid strong upside tractions. As for the Bollinger Bands, the GBPUSD was breaking through the upper band, and the gap between upper and lower bands became larger, signalling that the bullish trend would continue in the near term.

Resistance: 1.1500, 1.1750, 1.1900

Support: 1.1120, 1.0953, 1.0632, 1.0392

XAUUSD (4-Hour Chart)

XAUUSD price advances early in the New York session, up by 0.33% courtesy of falling US Treasury yields, while bonds climb amidst the ongoing narrative in the markets that the US Federal Reserve might slow the pace of its rate hikes. All that said, the weakened US Dollar is a tailwind for the yellow metal. Gold was priced at $1657 as of writing. The sentiment is upbeat, as shown by global equities trading in the green. As previously mentioned, market players are positioning for a possible pivot, while economic data in the US continues to show further deterioration in the country, coupled with high inflation and lower bond yields, boosted gold prices. Data side, US economic data flashed that the housing market on Tuesday, as shown by housing prices cooling down due t higher mortgages, which climbed to almost 7%, as the Fed embarked on a tightening cycle trying to tame inflation. Further data revealed by Conference Board (CB), reported that Consumer Confidence dropped from 107.8 to 102.5, less than estimates of 105.9, decreasing for the second consecutive month.

From the technical perspective, the four-hour scale, and the RSI indicator 57 as of writing, suggest that the gold was in an upbeat mood and the bullish momentum would persist until RSI hit above 70, the overbought zone. As for Bollinger Bands, the gold price was hovering between the upper band and the 20-period moving average, indicating the yellow metal remains upside trend in the near term.

Resistance: 1682, 1715, 1730

Support: 1640, 1615, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDCPI (QoQ) (Q3)08:301.6%
USDNew Home Sales (Sep)22:00585K
CADBoC Monetary Policy Report22:00 
CADBoC Interest Rate Decision22:004.00%
USDCrude Oil Inventories22:301.029M
CADBOC Press Conference23:00