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Daily market analysis

Market flat in end-of-year holiday season

December 27, 2022

US stock ended Friday’s session with gains as investors digested data showing inflation is continuing to ease and the Federal Reserve’s rate hikes are serving their purpose. Data on Friday showed the Fed’s closely watched measure of inflation cooling and consumer spending stagnating. Consumers’ year-ahead inflation expectations also dropped this month to the lowest since June 2021. Both sets of data calmed the market sentiment on Friday. While central bank officials have repeatedly said that they’ll keep raising rates this year, markets have often shrugged off these warnings. However, robust economic data has continued to keep investors on edge.

The benchmarks, the S&P 500 edged higher with a 0.59% daily gain on Friday, and all eleven sectors stayed in the positive territory. Especially for the Energy sector, surging with 3.16% daily for the day, performed the best among all groups. However, the S&P 500 and the tech-heavy Nasdaq 100 still suffered their third week of losses, the longest losing streak since late September, as investors this month grappled with a hawkish Fed and data pointing to a resilient economy that can handle more rate-hike pain.

Main Pairs Movement

The US Dollar index edged lower with 0.11% daily losses, as the US inflation figure declined further than expected. The Personal Consumption Expenditure (PCE) Price Index rose a modest 0.1% in November, missing expectations for a reading of 0.3%.  Additional details showed that the Core PCE Price Index (the Fed’s preferred inflation gauge) climbed by 0.2% MoM in November and decelerated to a 4.7% YoY rate from 5.0% previous. The DXY index was wandering in a range from 104.1 to 104.5 level all day, except the moment when the data was released climbing above 104.5 level.

The GBPUSD has little changed on Friday, as trading volume dropped lower ahead of the Christmas holidays. The pair was hovering between the 1.2020 to 1.2090 levels on the last day of the week. In the meantime, the EURUSD mildly moved upward with large volatility, and the pair ended the day with 0.20% daily gains.

The Gold regained upside tractions and rose 0.32% for the day, as US consumer data has shown the inflation is cooling. The XAUUSD witnessed some fresh transactions during the early US trading hours and surged by 0.35% in an hour.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD traded 0.27% higher throughout Friday’s trading as of writing. It continues to trade in positive territory slightly above $1.0600. The data released by the US for hew home sales (Nov.) increased by 5.8%, core PCE inflation rate declined to 4.7% (Nov.) which all looks a favour in Euro. However, it failed to trigger a reaction. Core PCE’s impact should be straight forward with a weaker-than-forecast print weighing on the US dollar and helping the pair push higher. It probably could be affected by the thinning trading conditions into the Christmas holidays, which failed to gather enough momentum to make a decisive move in either direction.

On the technical side, the pair faces strong support at around the $1.0580 area, where the Fibonacci 23.6% retracement of the latest uptrend and the 100-period SMA on the four charts align. The next estimated level could be seen as $1.0500. RSI for the pair sits at 52.13, as of writing. On the four-hour chart, EURUSD currently trades above its 50 and 100-day SMA but below its 200-day SMA.

Resistance: 1.0650, 1.0695

Support: 1.0580, 1.0500, 1.0459, 1.0228

GBPUSD (4-Hour Chart)

The cable pair raised around 0.28% after two consecutive days of a downtrend, struggling to retain the $1.2000 price level. US PCE inflation eased as anticipated in November and core durable goods orders data is better than expected with 0.2% which is higher than the forecast 0.1%.

The pound edged higher on Friday against the backdrop of a modestly weaker dollar. The UK GDP (annual and quarterly) results released on Thursday were weaker than expected, with the UK economy posting negative growth in the third quarter of 2022 and will add to the focus on the fourth quarter data to be released next year – a technical recession that includes two consecutive quarters of negative growth. In addition, strike action in the U.K., which has reduced household incomes amid rising inflation, puts the Bank of England (BoE) in a difficult position but could end rate hikes sooner than the Federal Reserve, making the outlook for the pound against the dollar unfavourable in 2023.

On the daily chart of GBP/USD, the currency pair is trading near its 200-day SMA after yesterday’s daily close below the psychological barrier of 1.2000 and even a brief break below it. RSI for the pair sits at 53.54, as of writing. On the four-hour chart, GBPUSD currently trades above its 50-day SMA but below its 100 and 200-day SMA.

Resistance: 1.2320, 1.2600

Support: 1.20, 1.19, 1.176

XAUUSD (4-Hour Chart)

Gold price remains mildly bid as bears take a breather after a two-day downtrend. As of writing, the price has back to the $1,800 price level and up to the highest $1,802.75 as of today’s trading. Even so, mixed catalysts challenge the metal buyers in consolidation the biggest daily in over a week.

By the end of 2022, a brief annual review and prospect in 2023 of gold price. Gold prices started in 2022 in an indecisive way after fluctuating around $1,800 in the last quarter of 2021. In late February, gold rose sharply and reached its highest level since August 2020 at $2,070 in early March. However, in the second and third quarters, the gold price fell sharply and fell for seven months in a row, approaching $1,600 in September for the first time since April 2020. In November, gold prices recovered decisively, rising more than 8%, and continued higher in the first few weeks of December, returning to the midpoint of the annual range of around $1,800. Gold prices in 2023 will be driven by two important factors: the Fed’s monetary policy and China’s economic performance.

On the technical side, nothing seems to have changed as gold price still yearns for acceptance above trendline resistance at $1,825. RSI for the precious metal sits at around 55.45, as of writing. On the four-hour chart, XAUUSD currently trades below its 50, 100 day SMA but above the 200-day SMA.

Resistance: 1825, 1840

Support: 1785, 1777, 1765