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Daily market analysis

ECB expected to raise 75bps

October 27, 2022

U.S. equities rose for the third consecutive session. The Dow Jones Industrial Average rose 0.01% to close at 31839.11. The S&P 500 dropped 0.74% to close at 3830.6. The tech-heavy Nasdaq Composite dropped 2.04% to close at 10970.99. The knock-on effect from the tightened grip of  Chinese President Xi in China continues, and the U.S. stock, Greenback goes and short-term treasury goes lower. U.S. 10-year treasury yield continues to retreat to around 4%. The yield was last seen trading at 4.015%. The policy-sensitive 2-year treasury yield sits at 4.422%.

The ECB Monetary Policy Decision Statement released today will have a strike on Euro with the dovish hike, since the rumour says there will be a 75 bps raise, it may cause a signal to loosen policy and an opportunity for DXY. If the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive for the EUR.

The US GDP(Q3) comes up today will represent the overall economic activities after the adjustment of inflation, it is predicted there will be a 2.4% growth rate, and if the result is lower than estimates, the DXY may be undermined and this might be the case given the overall trends of high inflation and rising interest rates weighing on investor confidence.

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

Main Pairs Movement

The Dollar index dropped 0.03% throughout yesterday’s trading. The U.S. Greenback faced strong selling pressure with the drop of Treasury yields fell on Wednesday along with the dollar, which was under pressure against major peers, also the up-day for the S&P 500  leaves the DXY vulnerable. The optimism in the Europe market and the higher stocks, lift European currencies, both leading DXY to a sensitive market.

EURUSD gained 0.02% throughout yesterday’s trading. The shared currency kept going higher and came to its highest in Oct, it is expected to remain in the grip of bulls ahead of the interest rate decision by the European Central Bank which may announce a rate hike by 75 basis points.

GBPUSD gained 0.05% throughout yesterday’s trading. With its latest Prime Minister, Rishi Sunak being appointed, IMF and the British are positive about the economic stability and the decline of the debt.

Gold dropped 0.02% 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 regained parity on Wednesday, surging to a fresh one-month high above 1.0075 as the Fed expects to slow the pace of its aggressive interest rate hike policy. The dollar’s sell-off picked pace without a clear catalyst, although easing US Treasury yields and gains among stock markets added to the greenback’s weakness. Moreover, tepid US data and mounting speculation the US Federal Reserve will slow the pace of quantitative tightening added to the bearish picture for the US dollar. The US will publish the preliminary estimate of its Q3 Gross Domestic Product, expected to show that the economy grew at an annualized pace of 2.4% in the three months to September. Domestic, the European Central Bank will announce its monetary policy decision, with the central bank seen pulling the trigger by 75bps for a second consecutive meeting.

From the technical perspective, the RSI indicator 74 figured as of writing, suggesting that the pair is amid strong bullish momentum, and investors should be aware of any pullback until the RSI get out of the overbought zone. As for the Bollinger Bands, the EURUSD was priced above the upper band and the gap between upper and lower bands became larger. We think it is a signal that the strong upside tendency would persist in the near term unless the price fell below 0.9990 support.

Resistance:  1.0201, 1.0356

Support: 0.9990, 0.9853, 0.9753, 0.9667

GBPUSD (4-Hour Chart)

The GBP/USD pair surged higher on Wednesday, being surrounded by heavy bullish momentum and touched a fresh six-week high above the 1.1600 mark as investors scaled back their expectations for a more aggressive policy tightening by the Fed. At the time of writing, the cable stays in positive territory with a 1.23% gain for the day. Investors are reassessing the Fed’s policy outlook following a batch of disappointing macroeconomic data releases, which weighed heavily on the benchmark 10-year US Treasury bond yield and helped the GBP/USD pair to find demand. The weaker US macro data this week have pointed to signs of a slowdown in the US economy and might force the Fed to soften its hawkish stance. For the British pound, the appointment of Rishi Sunak as the new British PM continues to underpin the GBP/USD pair as he pledges to fix mistakes by the Truss administration and boosts investors’ confidence.

For the technical aspect, the RSI indicator is 70 figures as of writing, suggesting that the pair could make a downward correction in the short term as the RSI climbed above 70. 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 could extend its rally to the next resistance at the 1.1714 mark. A sustained strength beyond that level might trigger a short-covering rally and allow the GBP/USD pair to reclaim the 1.1800 mark.

Resistance: 1.1714, 1.1853

Support: 1.1439, 1.1276, 1.1131

XAUUSD (4-Hour Chart)

The XAUUSD gains strong positive traction on Wednesday and rallied to a nearly two-week high, around the $1675 mark region during the first half of the European session. The intraday bullish movement is exclusively sponsored by the heavily offered tone surrounding the US dollar, which tends to benefit the dollar-denominated metal. The US dollar hits a one-month low amid diminishing odds for a more aggressive policy tightening by the Fed. The dismal US macro data released on Tuesday pointed to deteriorating growth in the world’s largest economy and might force the US central bank to soften its hawkish stance. Moreover, the US treasury bond yields had a further decline during the early US session, which continued to weigh on the buck and underpinned the non-yielding yellow metal. However, Fed is still expected to raise interest rates shortly to tame the runaway inflation. Apart from Fed, other major central banks are also likely to deliver a jumbo rate hike at the upcoming policy meetings. This might hold back the traders from placing aggressive bullish bets around gold.

From the technical perspective, the RSI indicator  60 figured as of writing, implying that the yellow metal was moving up amid an upbeat market mood. The bullish momentum would persist until the RSI hit above 70, the overbought zone. As for the Bollinger Bands, the XAUUSD was pricing around the upper band and the gap between upper and lower bands became closer, indicating that the price would continue with low volatility.

Resistance: 1675, 1700, 1730

Support: 1642, 1622, 1616

Economic Data

CurrencyDataTime (GMT + 8)Forecast
JPYBOJ Outlook Report (YoY)11:00 
EURDeposit Facility Rate (Oct)20:151.50%
EURECB Marginal Lending Facility20:15 
EURECB Monetary Policy Statement20:15 
EURECB Interest Rate Decision (Oct)20:152.00%
USDCore Durable Goods Orders (MoM) (Sep)20:300.2%
USDGDP (QoQ) (Q3)20:302.4%
USDInitial Jobless Claims20:30220K
EURECB Press Conference20:45 
EURECB President Lagarde Speaks22:15