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Daily market analysis

Market mood improved as Fed policymakers discussed slowing rate hikes

November 24, 2022

US stocks advanced higher on Wednesday, preserving their upside momentum and ended the session higher after the Federal Reserve’s latest meeting minutes showed most officials backing slowing the pace of interest-rate hikes soon. Investors’ market mood improved as the Federal Reserve (Fed) officials discussed the need of slowing down the interest rate hikes.

The US FOMC Meeting Minutes showed that most participants agreed that a slower pace of interest rate hikes would be appropriate soon despite the risk of the inflation outlook remaining skewed to the upside. Most Fed officials also believe the monetary policy is approaching a sufficiently restrictive level. On the economic data front, the US Manufacturing PMI for November eased to 47.6 from 50.0 expected and 50.4 and the Services PMI declined to 46.1 compared to 47.9 market forecasts.

On the Eurozone front, the German Services PMI came to 46.4 and the Manufacturing PMI improved to 46.7. The November PMIs report showed that the Euro Area economy remains in contraction territory, although the figures beat the market expectations.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Wednesday as the S&P 500 notched gains for a second straight session as several Fed officials backed the need to moderate the pace of rate hikes. The S&P 500 was up 0.6% on a daily basis and the Dow Jones Industrial Average climbed higher with a 0.3% gain for the day. Ten out of eleven sectors in the S&P 500 stayed in positive territory as the Consumer Discretionary sector and the Communication Services sector are the best performing among all groups, rising 1.33% and 1.21%, respectively. The Nasdaq 100 meanwhile advanced the most with a 1.0% gain on Wednesday and the MSCI World index was up 1.1% for the day.

Main Pairs Movement

The US dollar declined sharply on Wednesday, coming under pressure and finished the day down against all of its major rivals amid poor growth-related data and dovish US FOMC Meeting Minutes. The greenback marked the biggest daily slump in two weeks as the Fed officials discussed the need of slowing down the interest rate hikes. Chances of a 50 bps hike rose to 79% following the release while the terminal rate is now seen at 5.03%.

GBP/USD surged higher on Wednesday with a 1.42% gain as the cable rallied back above the 1.2000 mark after the release of mixed economic data from the US. On the UK front, the UK S&P Global PMIs were better than anticipated but signal persistent economic contraction in the country. Meanwhile, EUR/USD maintained its bullish tone and traded near the 1.0410 level following the release of the FOMC Meeting Minutes and a weaker US dollar across the board. The pair was up almost 0.90% for the day.

Gold advanced slightly with a 0.54% gain for the day after extending its rally towards the $1752 area during the US trading session, as the dovish Federal Reserve Minutes helped the precious metal to find demand. Meanwhile, WTI Oil holds lower ground at a weekly low after the biggest daily fall in two months. Oil price remains bearish around the $77.50 area.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD regained bullish strength and was trading above the 1.0360 level as of writing, with the greenback losing upside momentum following the release of economic reports. On Wednesday, economic data showed an increase to a multi-week high in jobless claims, which printed 240K compared to the previous 223K, offset by a bigger-than-expected increase in Durable Goods Orders. Moreover, the November preliminary PMI S&P Global showed a decline in the Composite index to 46.3 from 48.3, below the 47.7 market consensus. New Home Sales jumped 7.5%, surpassing expectations. The University of Michigan Consumer Sentiment Index recovered from 54.7 to 56.8, above the 55 expected. The U.S. Crude Oil Inventories, which measures the weekly change in the number of barrels of commercial crude oil held by US firms, weakly gained too -3.691M, below the -1.055M of market forecast. While investors were pricing in the releases of a combination of data, the US dollar was losing ground across the board as US yields tumbled. The DXY index was falling by 0.73%, and the US 10-year yield slid to 3.73%, which underpinned the pair. Later, the FOMC will be released. Investors will look for clues about a potential slowdown in rate hikes, which may have a huge impact on the pair.

From the technical perspective, the four-hour scale RSI indicator surged to 62 figures as of writing, suggesting that the pair was amid strong bullish momentum. As for the Bollinger Bands, the euro is trading near the upper band, if successfully breaks through the upper band and there is no surprisingly bad news from FOMC, the pair has the chance to challenge the recent high of 1.0479 level.

Resistance: 1.0479, 1.0604

Support: 1.0228, 1.0163, 0.9961

GBPUSD (4-Hour Chart)

The GBPUSD surged and touched its highest level since mid-August above 1.2050 following the release of mixed economic data out of the United States, weighing on the US Dollar. At the same time, a risk-on impulse keeps European and US equities trading with gains ahead of the release of the Federal Reserve’s last meeting minutes this year. Data released from the US came mixed, undermining the US Dollar. The University of Michigan Consumer sentiment came at 56.9, above estimates but below the preliminary reading of November. Delving into the report, 1-year inflation expectations were lowered from 5.1% to 4.9%, while the 5-10 year horizon remained unchanged at 3.0%. Furthermore, US New Home Sales surprisingly jumped to 632K from 570K, even though higher mortgage rates, nearly 7%, were sparked by the Federal Reserve tightening monetary conditions. Earlier, S&P Global reported that October’s Manufacturing, Services, and Composite PMIs for the US, are flashing a recession, remaining each at 47.6, 46.1, and 46.3 respectively. Apart from this, the US Department of Commerce revealed that Durable Good Orders in October rose by 1%, above 0.4% estimates. After a combination of US data releases, investors now are awaiting for the later Federal Reserve meeting minutes to look for clues about the rate hikes policy.

From the technical perspective, the four-hour scale RSI indicator surged to 73 figures as of writing, suggesting that the pair has entered into an overbuying zone, and a corrective pullback could be expected. As for the Bollinger Bands, the pair was trading above the upper band and the size became larger, which is a signal that the upside momentum remained its strength.

Resistance: 1.2081, 1.2147

Support: 1.1765, 1.1647, 1.1367

XAUUSD (4-Hour Chart)

The XAUUSD registered minuscule gains of 0.19% and was trading at $1743 marks following the release of economic data from the United States, as the busiest day of the current week calendar failed to provide support for the US Dollar ahead of the Federal Reserve monetary policy meeting minutes. The Core Durable Good Orders rose sharply, by 1% compared to September’s 0.3%, showing consumers’ resilience amidst a time of high inflation, elevated borrowing costs, and a deteriorated economic outlook. Delving into the report, core Durable Orders, which exclude transportation and aircraft, rose 0.5% MoM for the same period, well above September’s -0.9% contraction, and expectations of coming unchanged. However, the US Department of Labor revealed that Initial Jobless Claims for the week ending on November 19 increased to 240K above estimates of 225K, amidst a period of high-tech companies laying off workers. Meanwhile, continuing claims climbed by 48K to 1..55 million in the week ended November 12, the highest since March, flashing signs that the labour market is easing. Later, Federal Reserve Open Market Committee (FOMC) minutes from the November meeting, which analysts will scrutinize.

From the technical perspective, the four-hour scale RSI indicator edged higher to 49 figures as of writing, suggesting that the gold has not made any decisive move. As for the Bollinger Bands, the yellow metal was trading around a 20-period moving average and the size between the upper and lower bands got closer. Hence, we think if there is no surprising news from FOMC minutes, the gold would put into sideway in the near future.

Resistance: 1748, 1784, 1800

Support: 1704, 1670

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURGerman Ifo Business Climate Index (Nov)17:0085.0
EURECB Publishes Account of Monetary Policy Meeting20:30