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Daily market analysis

Global Central Banks Focus on Tackling Inflation

September 27, 2022

US stocks declined on Monday, extending their recent slide and fell in a volatile session amid the fact that worldwide central bankers insisted on battling inflation at any cost. On the economic data side, US Durable Goods Orders and CB Consumer Confidence are taking centre stage on Tuesday.

The UK markets were in focus on Monday as the UK’s plan to lift its economy fueled fears that heightened inflation would push rates higher and ignite a global recession. Despite the Bank of England Governor Andrew Bailey’s repeated they would not hesitate to alter interest rates if necessary and added that they are closely monitoring financial markets developments, the comments did little to reassure traders who were waiting for a broader policy response.

In the Eurozone, investors are awaiting the European Central Bank (ECB) President Christine Lagarde’s speech, which will provide cues for likely monetary policy action ahead.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined on Monday as the S&P 500 ended yesterday’s session at its lowest level since December 2020 meanwhile the Cboe Volatility Index spiked past 30. The S&P 500 was down 1.00% daily and the Dow Jones Industrial Average also dropped lower with a 1.1% loss for the day. Ten out of eleven sectors in the S&P 500 stayed in negative territory as the Real Estate sector and the Energy sector are the worst performings among all groups, losing 2.63% and 2.57%, respectively. The Nasdaq 100 meanwhile dropped the least with a 0.5% loss on Friday and the MSCI World index was down 2.0% for the day.

Main Pairs Movement

The US dollar climbed higher on Monday, preserving its upside strength and touched the highest since 2002 above the 114.5 mark amid recession fears and rising interest rates. The Federal Reserve’s 75 basis point hike in interest rates and the promise of further increases as the central bank looks to quell inflation has underpinned the safe-haven greenback and pushed major pairs into fresh multi-year lows.

GBP/USD tumbled sharply on Monday with a 1.04% loss after the cable recovered slightly from the all-time low marked on Monday amid the pessimism surrounding the UK. On the UK front, British finance minister Kwasi Kwarteng announced the scrapping of the top rate of income tax and cancelled a planned rise in corporate taxes. Meanwhile, EUR/USD preserved its downside momentum and traded near a fresh two-decade low of 0.9549 amid US dollar strength. The pair was down almost 0.60% for the day.

Gold declined with a 1.29% loss for the day after dropping to the lowest in more than two years below the $1,623 mark during the US trading session, as the risk aversion keeps traders’ flows toward the greenback and weighed on the safe-haven metal. Meanwhile, WTI Oil retreated further with a 3.74% loss for the day after retreating from the $80.0 area amid concerns about a global economic slowdown.

Technical Analysis

EURUSD (4-Hour Chart)

The Euro sank against the Dollar on the first trading day of the week. The shared currency extended its decline from last week and is heading towards multi-year lows amid a strong Dollar. Risk-off sentiment across markets have allowed the Dollar to gain tremendous bidding at the start of the Asia trading session. A string of speeches by Fed officials is set to happen for this week, starting with Fed Chair Jerome Powell’s speech on Tuesday the 27th. The U.S. 10-year treasury yield has continued to rise as bonds sell off—yields have topped 3.8%, as of writing. The Fed’s most recent conference has delivered a clear message of reining in inflation at all costs. The U.S. PCE report, which is scheduled for September 30th, will be in focus as it is a favoured leading inflation indicator for the Fed.

On the technical side, EURUSD has once again traded towards our previously estimated support level of 0.96. The next level of support for EURUSD could form around 0.94 should the U.S. Greenback continue to gain strength. RSI for the pair sits at 37.96, as of writing. On the four-hour chart, EURUSD currently trades below its 50, 100, and 200-day SMA.

Resistance:  1.0011, 1.0055

Support: 0.96, 0.94

GBPUSD (4-Hour Chart)

Cable tumbled on the first day of the new trading week. The British Pound witnessed a fresh historic low as the Pound sold off during the Asia and European trading sessions. Market participants dumped the Pound as news of Britain’s latest corporate tax reduction sparked concerns over the fiscal deficit of the British government. As mentioned in last week’s report, we see rising credit risk from Britain as the country continues to face significant growth challenges, while the BoE continues to hike rates; on the other hand, the British government has decided to run a further budget deficit to finance the private sector and subsidize energy costs for British residents. Members from the BoE and the Fed are scheduled for speeches throughout the week—starting with Fed Chair Jerome Powell on the 27th.

On the technical side, Cable has broken below our previously estimated support level of 1.08 and is now consolidating around the 1.06 price level. Parity is now firmly in play for Cable as the Dollar continues to reach historical highs. RSI for the pair sits at 43.13, as of writing. On the four-hour chart, GBPUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.1561, 1.1854

Support: 1.06, 1

XAUUSD (4-Hour Chart)

Gold slid more than 1% on the first trading day of the week. The Dollar denominated Gold could fare worse against the Dollar as market participants continue to demand the U.S. Greenback. As of writing, Gold has sunk to $1,624 per ounce, the lowest level since April of 2020. Some reasons contribute to the plummet of gold—hawkish central banks across the globe, rising yields on sovereign debt, and risk-averse market sentiment, which is typically a positive signal for Gold but market participants have favoured the U.S. Greenback over gold. However, as Russia begins their partial mobilization of its armed forces, Gold prices could see a surge should the war between Russia and Ukraine take a turn for the worse.

On the technical side, XAUUSD has broken below our previously estimated support level of $1640 per ounce. The next level of support for the non-yielding metal forms around the $1600 per ounce price level. RSI for the pair sits at 32.8, as of writing. On the four-hour chart, XAUUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1695, 1724

Support: 1620, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
BRLBCB Copom Meeting Minutes19:00
USDFed Chair Powell Speaks19:30
EURECB President Lagarde Speaks19:30
USDCore Durable Goods Orders (Aug)20:30
USDCB Consumer Confidence (Sep)22:00104.5
USDNew Home Sales (Aug)22:00500K