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Daily market analysis

Markets await Fed next move

November 22, 2022

US stocks dropped lower on Monday, witnessing some downside traction and dropped as investors parsed comments from Federal Reserve officials who broadly remained steadfast in their fight against inflation. Investors are closely watching what Fed speakers say about the outlook for interest rates, as several central bank officials in recent days have restated their intention to remain relentless until inflation is under control.

On top of that, risk aversion dominated financial markets after China’s National Health Commission reported two deaths of Covid-19 patients in Beijing, which in turn raised doubts about the Chinese government’s easing of activity controls. Therefore, the worsening Covid conditions in China and indecision over Fed’s next move weighed on the market sentiment. On the Eurozone front, the mixed signals from Eurozone data and the European Central Bank (ECB) policymakers are acting as a headwind for the Euro. ECB Chief Economist Philip Lane favoured further rate hikes and expected the likely recession to be short-lived.

The benchmarks, S&P 500 and Dow Jones Industrial Average both edged lower on Monday as the S&P 500 was dragged down by the Technology stocks that are typically more sensitive to interest rates. The S&P 500 was down 0.4% daily and the Dow Jones Industrial Average retreated slightly lower with a 0.1% loss for the day. Four out of eleven sectors in the S&P 500 stayed in negative territory as the Consumer Discretionary and Energy sectors are the worst performing among all groups, losing 1.41% and 1.39%, respectively. The Nasdaq 100 meanwhile dropped the most with a 1.1% loss on Monday and the MSCI World index was up 0.6% for the day.

Main Pairs Movement

The US dollar advanced higher on Monday, continuing to find demand and extended its intra-day rally towards the 108 level amid fears of an economic downturn. The greenback rose the most in November the previous day as the market’s sentiment soured amid fresh fears of the Coronavirus. The 10-year US Treasury yields have rebounded to 3.83% despite a less-hawkish commentary from Cleveland Fed President Loretta Mester.

GBP/USD dropped lower on Monday with a 0.56% loss as the cable strumbled sharply below the 1.1900 figure in the North American session amid risk aversion. On the UK front, the UK Office for Budget Responsibility’s projection overshadows expectations that the Bank of England will continue raising rates to combat stubbornly high inflation. Meanwhile, EUR/USD retreated lower and held lower ground near a one-week low in the 1.0240 price zone amid a stronger US dollar across the board. The pair was down almost 0.80% for the day.

Gold declined lower with a 0.72% loss for the day after dropping to a daily low around the $1733 mark during the US trading session, as the precious metal is declining gradually amid a global correction in risk-perceived assets. Meanwhile, WTI Oil dropped slightly with a 0.09% loss for the day after Saudi Arabia denied an oil-production increase for the OPEC+ meeting next month.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD managed to erase a small portion of its daily losses but lost recovery momentum around 1.0250, as Wall Street’s main indices trade in negative territory after the opening bell, allowing the US Dollar to preserve its strength and limiting the pair’s an upside. At the beginning of the week, the greenback extends the recent bounce backed by the recent hawkish message from some Fed speakers, which lent renewed oxygen to both the buck and yields. Apart from this, concerns arose during the Asian session, as China reported two new coronavirus deaths and a spike in cases as the outbreak extends in Beijing. Stay-home orders have been issued in different cities, and market players are concerned the situation can trigger fresh supply-chain issues, one of the main reasons global inflation soared earlier in the year. In the Eurozone, European Central Bank Executive Board member Philip Lane was on the wires and said that any recession in the Union would be mild and soft. He also noted that the ECB would make another hike in December, progressing towards the levels needed.

From the technical perspective, the four-hour scale RSI indicator dropped sharply below 40 figures as of writing, suggesting that the pair was confronting strong selling pressure. As for the Bollinger Bands, the euro was pricing around the lower band and the size between the upper and lower band became larger, indicating that the pair was surrounded by severe headwinds. As a result, we think the pair was more favoured to the downside path shortly.

Resistance: 1.0475, 1.0604

Support: 1.0298, 1.0167, 0.9953

GBPUSD (4-Hour Chart)

The GBPUSD stays on the back foot in the US trading session on Monday and trades at around the 1.1800 level as of writing. The negative shift witnessed in risk mood amid renewed China Covid worries helps the safe-haven US Dollar outperform its rivals and weighs heavily on the pair. China’s Covid-related news that three people died during the weekend sparked fears that authorities could reimpose strict measures to curb the outbreak. The economic docket in the United States (US) revealed the Chicago National Activity index fell into negative territory in October, to -0.05 from 0.17 in September. Aside from this, even though US October COI and PPI reports were softer-than-expected, a solid US Retail Sales report and hawkish Fed rhetoric increased the chances that the Fed will continue tightening monetary conditions. Besides, the British Pound remains undermined by the UK Autumn Budget, which failed to impress amid recession warnings.

From the technical perspective, the four-hour scale RSI indicator edged lower to 48 figures as of writing, suggesting that the pair was amid strong bearish momentum. As for the Bollinger Bands, the pair was underpinned by the lower band and hovering between the lower band and 20-period moving average, which is a signal that the pounds have no clear trading tendency. Hence, the pair need to find more clues about future movement.

Resistance: 1.2028, 1.2145

Support: 1.1748, 1.1640, 1.1366

XAUUSD (4-Hour Chart)

The XAUUSD dropped close to 0.8% on a strong US dollar and was trading at the $1739 mark as of writing. Gold price grinds lower amidst a risk-off impulse, which triggered a flight to safe-haven assets. The US Dollar (USD) remains underpinned by investors’ concerns that the recent Covid-19 outbreak in China could spur authorities to reimpose restrictions. Furthermore, sentiment remains negative, as shown by Wall Street posting losses between 0.32% and 1.08%. The financial markets’ narrative has not changed since both October’s Consumer Price Index (CPI) report and Producer Prices from the United States cooled down. However, last week’s solid US Retail Sales data increased the likelihood that the Fed would continue tightening conditions. Moreover, the US Federal Reserve officials continued to express their commitment to taming inflation toward the 2% goal, but the pace of rate hikes could moderate as soon as the December meeting. Elsewhere, US Treasury bond yields are extending their gains, particularly the 10-year benchmark note rate yielding 3.83%, drawing support for the greenback, which, in turn, hurts the non-yielding gold.

From the technical perspective, the four-hour scale RSI indicator further fell to 35 figures as of writing, suggesting that the gold was surrounded by selling transactions. As for the Bollinger Bands, the yellow metal was pricing along with the lower band, which indicates that the pair was more likely to move downward in the near term.

Resistance: 1784, 1800

Support: 1748, 1704, 1670

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CADCore Retail Sales (MoM) (Sep)21:30-0.6%