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Daily market analysis

Market expectations improved as US PPI released softer

November 16, 2022

US stocks rebounded higher on Tuesday, ending their previous slide and regaining upside momentum as fresh data added to evidence that inflation may have peaked. The Producer Price Index (PPI) for final demand in the US declined to 8% on a yearly basis in October, which decelerated compared to last month’s 8.2% and strengthened the case for the Federal Reserve to moderate its pace of interest-rate hikes.

The market sentiment improved following the release of the US Producer Price Index and acted as a tailwind for the equity markets. Moreover, some Fed speakers in recent days also indicated that officials could slow their tempo and emphasized the central bank has more work to do to tame inflation. On the Eurozone front, geopolitical tensions arose as the latest news reported that two Russian missiles landed in Poland and killed two Polish. After the incident, Polish Prime Minister Mateusz Morawiecki called an urgent meeting and things could escalate fast as Poland is a NATO member.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Tuesday as the S&P 500 soared for most of Tuesday’s session, giving back some of its gains after the latest news showed that Russian missiles landed in NATO-member Poland. The S&P 500 was up 0.9% on a daily basis and the Dow Jones Industrial Average also climbed slightly with a 0.2% gain for the day. Nine out of eleven sectors in the S&P 500 stayed in positive territory as the Communication Services sector and the Consumer Discretionary sector are the best performing among all groups, rising 1.78% and 1.24%, respectively. The Nasdaq 100 meanwhile advanced the most with a 1.5% gain on Tuesday and the MSCI World index was down 0.6% for the day.

Main Pairs Movement

The US dollar retreated lower on Tuesday, failing to preserve upside traction and dropped to fresh monthly lows against most major rivals but then posted a nice comeback ahead of the close amid a mixed market mood. The headlines surrounding Russia and the market’s cautious sentiment ahead of the US Retail Sales for October have provided some support to the safe-haven greenback. Downbeat prints of US Retail Sales could weigh on prices amid talks of the Fed’s pivot.

GBP/USD advanced higher on Tuesday with a 0.93% gain after the cable retreated back towards the 1.1800 mark and surrendered its daily gains following the release of US PPI data. On the UK front, the UK’s Chancellor of the Exchequer, Jeremy Hunt, gave some clues regarding the Autumn Budget. Meanwhile, EUR/USD failed to extend the upside traction and retreated from the highest levels since early July around to 1.0300 area amid mixed market sentiment. The pair was up almost 0.20% for the day.

Gold advanced higher with a 0.43% gain for the day after climbing steadily to the $1,780 mark during the US session, as Federal Reserve’s case for diminishing interest-rate size increases has helped the yellow metal to find demand. Meanwhile, WTI Oil advanced sharply with a 1.22% gain for the day amid geopolitical worries from Europe.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD has lost its bullish momentum and slid below the 1.0400 level following a sharp spike in the early US trading session, as the US Dollar Index, which dropped to multi-month lows after soft US PPI data, managed to recover some grounds and climb above 106.00 level at the time of writing, capping the pair’s upside. The US. Producer Price Index (PPI), which measures the change in the price of goods sold by manufacturers, rose by 0.2% in October, compared to market expectations and the previous month of 0.4%. The softer-than-expected data weighed on the greenback, which, in turn, drew support for the European currency. Apart from this, the Euro Area Gross Domestic Product was confirmed at 0.2% QoQ in the third quarter of the year, as previously estimated. The German ZEW survey showed that the Economic Sentiment improved in November but also that it remains within negative levels.

From the technical perspective, the four-hour scale RSI indicator dropped sharply to 61 figures as of writing, which suggested that the pair witnessed huge selling transactions. As for the Bollinger Bands, the euro was pricing in the higher area, close to the 20-period moving average. Therefore, we think the pullback is good news for the pair, it’s a healthy pullback to store the upside strength.

Resistance: 1.0606, 1.0349

Support: 1.0272, 1.0163, 0.9955

GBPUSD (4-Hour Chart)

The GBPUSD has erased a portion of its gains after having jumped above 1.2000 earlier in the day. Nevertheless, the pair is still up more than 1% on the day, supported by the improving market mood following weaker-than-expected US producer inflation data, and the British pound was pricing at 1.1810 level as of writing. The US Bureau of Labor Statistics released the Producer Price Index for October, printing 0.2% compared to the market estimates and the previous 0.4%, ahead of the American trading session. Although the data hurt the safe-haven greenback heavily in the early American trading session, the US Dollar regathered strength in the second half. The DXY index, which tracks the greenback vs. a basket of its main rivals, rebounded from multi-month lows to above 106.5 level at the moment of writing, as the market is amid worsening risk sentiment. In the domestic, the ONS reported that the ILO Unemployment Rate edged higher to 3.6% in three months to September from 3.5%, and the further details of the publication revealed that the annual wage inflation, as measured by the Average Earnings Excluding Bonus, rose to 5.7% from 5.5%.

From the technical perspective, the four-hour scale RSI indicator retreated to 62 figures as of writing, suggesting the upbeat market mood has been calm down. As for the Bollinger Bands, the pair was priced in the upper area and close to the 20-period moving average. Hence, our view of this kind of movement is a great pullback to consume the overbuying orders, and the pair is more favoured to upside movement in the near term.

Resistance: 1.1901, 1.2157

Support: 1.1639, 1.1353, 1.1140

XAUUSD (4-Hour Chart)

The gold was headed higher on the day and trading at $1774 as of writing, with the undermining market mood on Poland news. The XAUUSD surged with a 0.3% gain on the news that at least two are dead after Russian missiles landed in NATO state Poland on the Ukraine border, according to the Express. Poland has convened a national security committee meeting according to a spokesman. The US Dollar had been pressured on Monday following Producer Price Index data that mirrored last week’s Consumer Price Index. However, the DXY index recovered some ground and climbed back above the 106.5 level as of writing. Meanwhile, the US 2-year yield is trading near 4.37%, just above the recent low near 4.29% last Thursday. The 10-year yield is trading near 3.80%, below the recent low near 3.81% last Thursday, which drew support for the non-yielding yellow metal. Equity markets had latched onto the PPI data as confirmation of the CPI data but flaked out on the day and started to melt towards the lowest point of the day, as risk-off outflow caused by sudden geopolitical disruption.

From the technical perspective, the four-hour scale RSI indicator remained above 70 figured three days in a row, suggesting that the gold’s upside momentum is strong enough to confront the short-term corrective pullback. As for the Bollinger Bands, the yellow metal kept moving above the 20-period moving average, targeting the $1800 marks psychological level. Therefore, we think an upside movement in the near future could be expected.

Resistance: 1800

Support: 1748, 1704, 1670

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPCPI (YoY) (Oct)15:0010.7%
USDCore Retail Sales (MoM) (Oct)21:300.4%
USDRetail Sales (MoM) (Oct)21:301.0%
CADCore CPI (MoM) (Oct)21:30 
GBPBoE Gov Bailey Speaks22:15 
GBPInflation Report Hearings22:15 
EURECB President Lagarde Speaks23:00 
USDCrude Oil Inventories23:30-0.440M