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Daily market analysis

Markets await Federal Reserve rate decision

November 1, 2022

US stocks declined lower on Monday, coming under selling pressure and trimming its big October rally as investors awaited Wednesday’s Federal Reserve decision for clues on whether officials will dial back the pace of rate hikes as early as December. Investors are now in anticipation of continued rate hikes from central banks that will cause a strong US dollar and elevated US bond yields, therefore the sentiment has exerted bearish pressure on equity markets at the start of the week where the FOMC is expected to deliver a fourth consecutive 75bp rate hike this week. Tepid Chinese data released at the beginning of the day and continued signs that global inflation is out of control have also fueled risk-averse sentiment.

On the economic data side, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) jumped by 10.7% in October, which came higher above estimates of 10.9% and weighed on market sentiment. In the Eurozone, the hawkish expectations from the European Central Bank (ECB) and the multi-year high inflation data failed to provide support for the shared currency as Monday’s risk-aversion joined fears of more economic hardships for the old continent.

The benchmarks, S&P 500 and Dow Jones Industrial Average both retreated lower on Monday as the big-tech companies weighed heavily on the S&P 500. The S&P 500 was down 0.7% daily and the Dow Jones Industrial Average also dropped lower with a 0.4% loss for the day. Ten out of eleven sectors in the S&P 500 stayed in negative territory as the Communication Services sector and the Information Technology sector are the worst performing among all groups, losing 1.68% and 1.34%, respectively. The Nasdaq 100 dropped the most with a 1.2% loss on Monday and the MSCI World index was down 0.4% for the day.

Main Pairs Movement

The US dollar advanced higher on Monday, extending its intra-day rally and touched a daily high above 111.50 level during the US trading session amid a risk-off market mood. The Fed’s pre-anxiety continued to act as a tailwind for the safe-haven greenback as investors shifted to the risk aversion theme amid uncertainty ahead of the interest rate decision by the Fed. The central bank will announce its decision on Wednesday, which might hint it will start slowing the pace of rate hikes in December.

GBP/USD tumbled on Monday with a 1.26% loss after the cable saw a pullback and dropped to a daily low near the 1.1460 mark as UK’s business confidence has dropped to pandemic levels. On the UK front, the Bank of England is also expected to deliver another 0.75% hike on Thursday in an attempt to tame the soaring inflation pressures. Meanwhile, EUR/USD remained under pressure and refreshed its daily low under the 0.9880 mark amid downbeat market sentiment and US dollar strength. The pair was down almost 0.83% for the day.

Gold declined with a 0.69% loss for the day after refreshing its daily low around the $1,632 area during the late US trading session, as the rising hawkish Fed bets continued to undermine the precious metal. Meanwhile, WTI Oil retreated lower with a 1.56% loss for the day despite recovering some daily losses near the $86.20 area.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD extended its last week losses on Monday and breaches the key support at 0.9900 the figure, as the continuation of the strong recovery in the greenback keeps undermining the sentiment around the euro and favours extra decline in the pair. EURUSD was pricing at 0.98847 level as of writing. With investors getting ready for the most salient event of the week, the Federal Open Market Committee meeting on Wednesday, the US dollar accelerated its well bid and climbed above 111.5 level at the moment of writing. In the euro docket, advanced inflation figures in the euro area now see the CPI rising more than the expected 10.7% in the year to October, which is more than the expected 10.2%, and the Core CPI is seen gathering 5.0% from a year earlier. Apart from that, the European area economy is predicted to expand 0.2% QoQ in Q3 and 2.1% every year, according to preliminary results. In the first turn, German Retail Sales contracted by 0.9% in September vs. the same month of 2021.

From the technical perspective, the four-hour scale RSI indicator 39 figured as of writing, suggesting that the pair was surrounded by heavy selling pressure, and the downtrend movement would persist until the RSI fell around 30, the oversold zone. As for the Bollinger Bands, the pair was pricing around the lower band and the gap between the upper and lower bands got larger. As a result, we think the pair would continue the bearish momentum and test the 0.9845 support.

Resistance:  1.0088, 1.0191

Support: 0.9845, 0.9747, 0.9653, 0.9552

GBPUSD (4-Hour Chart)

The GBPUSD struggles to find acceptance above the 1.1600 mark on Monday and retreats over 100 pips from the daily peak. Spot price extend the steady intraday descent and fell below the 1.1500 psychological level as of writing. The losses mainly come from sustained US dollar buying. The greenback builds on last week’s bounce from over a one-month low and gains traction for the third successive day, which exerts downward pressure on the pair. The US dollar index also climbed to a multi-day high level above 111.5 level at the moment of writing and is drawing support from a combination of factors. The Fed is universally expected to deliver another supersized 75 bps rate hike at the end of a two-day monetary policy meeting on Wednesday, which remains supportive of elevated US Treasury bond yields. However, mounting speculation that the US central bank might soften its hawkish stance, amid signs of a slowdown in the US economy, could act as a headwind for the greenback. Meanwhile, British Prime Minister Sunak has announced last week that they will unveil the fiscal plan on November 17, rather than the 31 set by Liz Truss. According to Reuters, futures markets are pricing in a 98% probability of a 75 basis points BoE rate increase on Thursday despite the lack of clarity on the budget.

From the technical perspective, the four-hour scale RSI indicator 43 figured as of writing, suggesting that the pair was surrounded by heavy selling pressure. As for the Bollinger Bands, the pair was priced around the lower band and the gap between the upper and lower bands get larger. Therefore, we think the pair would remain bearish in the near term.

Resistance: 1.1641, 1.1738

Support: 1.1285, 1.1124, 1.0949

XAUUSD (4-Hour Chart)

Gold tumbled and extends its yearly losses at the beginning of the week as a dismal market mood fueled demand for the dollar. XAUUSD has continued to slide and was heading for its longest streak of monthly losses on record with investors now in anticipation of continued rate hikes from central banks that will cause a strong US dollar and elevated US bond yields. The Federal Reserve is scheduled to announce its decision on Wednesday and is widely expected to deliver another supersized 75 bps rate hike. However, signs of a slowdown in the US economy might force the Fed to soften its hawkish stance, and the focus will be on the accompanying policy statement and the post-meeting press conference. Investors need to look for clues about the Fed’s future rate hike path, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the non-yielding gold. Meanwhile, a leg up in the US Treasury bond yields should act as a tailwind for the greenback and weigh on the yellow metal. However, the risk-off impulse could underpin the safe-haven gold as weak-than-expected Chinese business activity data released earlier this Monday revives fears about a deeper global economic downturn and tempers investors’ appetite for risky assets.

From the technical perspective, the four-hour scale RSI indicator 35 figured as of writing, suggesting the gold amid heavy selling pressure which would persist until RSI fell to 30, an oversold region. As for Bollinger Bands, the pair was pricing around the lower band and the size between the upper and lower bands remained became larger. Hence, we think XAUUSD would move downward to test the $1626 support and aim to YTD low $1615 marks in the near term.

Resistance: 1667, 1675, 1700

Support: 1622, 1615, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDU.S. President Biden Speaks04:30 
CNYCaixin Manufacturing PMI (Oct)09:4549.0
AUDRBA Interest Rate Decision (Nov)11:302.85%
AUDRBA Rate Statement11:30 
GBPManufacturing PMI (Oct)17:3045.8
BRLBCB Copom Meeting Minutes19:00 
USDISM Manufacturing PMI (Oct)22:0050.0
USDJOLTs Job Openings (Sep)22:0010.000M