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Daily market analysis

Producer Price Index rose, Market awaits Inflation data

October 13, 2022

US equity fell on Wednesday, with investors bracing for Thursday’s reading on consumer prices. Producer Price Index figures of 0.4% on Wednesday showed prices paid to US producers rose in September by more than expected ahead of a key measure of consumer inflation due Thursday that’s set to return to a four-decade high. It’s also worth noting that on the corporate side, PepsiCo Inc. jumped the most in more than two years after lifting its forecast for the year on the back of better-than-estimated third-quarter profit as drink and snack sales buck inflation. Moderna Inc. surged after Merck & Co. said it would exercise an option to work in partnership with the biotech on a messenger RNA cancer vaccine.

In the Eurozone, a selloff in long-maturity UK debt gathered pace after the Bank of England damped hopes it would extend its bond-buying support into next week. The yield on 30-year gilts surged above 5%, nearing levels that just last month drew the central bank’s invention, before easing again after the BOE snapped up billions in its daily operations. Elsewhere, oil in New York dropped below $88 a barrel on slowdown fears, and OPEC trimmed projections for the amount of crude it will need to pump this quarter.

The benchmarks, the S&P500 slipped into the negative area in the final minutes of trading, capping six days of losses to close at the lowest level since November 2020 and surpassing the previous low on Sep. 30. Seven out of eleven categories stayed in the negative territory, as Utilities got the worst performance among all groups, tumbled with 3.42% losses on daily basis. The Dow Jones Industrial Average and the Nasdaq 100 were little changed on Wednesday. The MSCI world index fell 0.3% for the day.

Main Pairs Movement

The US dollar was little changed on Wednesday, failing to preserve its upside traction and flirted with the 113.00 area following the release of FOMC meeting minutes. Fed officials determined that they needed to adopt and maintain a more restrictive policy stance to fight elevated inflation. But once the policy had reached a sufficiently restrictive level, it would be appropriate to keep it there for a period of time. As for now, investors await US inflation data for fresh clues about future rate hikes.

GBP/USD surged sharply on Wednesday with a 1.20% gain after the cable refreshed its daily top above the 1.112 mark amid the latest emergency program. On the UK front, reports showed that the Bank of England might be willing to extend its purchases beyond Friday and provide a boost to the GBP/USD pair. Meanwhile, EUR/USD remained stable and capped below the 0.9710 level after European Central Bank President Lagarde’s speech. The pair was down almost 0.05% for the day.

Gold advanced with a 0.42% gain for the day after climbing higher to touch the $1,677 mark during the US trading session, as the less hawkish FOMC minutes hint to moderate the hiking pace and underpinned the dollar-denominated gold. Meanwhile, WTI Oil retreated further with a 1.70% loss for the day after dropping to the $86.5 area ahead of the key event of the week in the US CPI report, as higher interest rates and recession fears both acted as a headwind for the oil price.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged lower on Wednesday, failing to preserve its recovery momentum and remained under pressure below the 0.9700 mark ahead of the key FOMC minutes. The pair is now trading at 0.9692, posting a 0.12% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the greenback gained momentum after the release of the US Producer Price Index and exerted bearish pressure on the EUR/USD pair. The US Producer Price Index rose 0.4% in September, above the 0.2% of market consensus. Meanwhile, the annual rate fell from 8.7% to 8.5%. Market participants await the FOMC minutes for new clues about the latest US Federal Reserve (Fed) monetary policy decision. For the Euro, the European Central Bank President Christine Lagarde said that the Governing Council has started discussions on quantitative tightening and further noted that the interest rate is the most appropriate tool in current circumstances.

For the technical aspect, RSI indicator 40 as of writing, suggests a neutral-to-bearish stance as the RSI head nowhere but stands below the mid-line. As for the Bollinger Bands, the price came under selling pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be slightly bearish as the pair tests the 0.9677 support line. Technical indicators also consolidate within negative levels, reflecting the absence of directional strength.

Resistance:  0.9766, 0.9836, 0.9921

Support: 0.9677, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD erased two successive day losses and approached the 1.1125 level following the FOMC minute. The Federal Open Market Committee minutes of September’s meeting released that “Several participants noted that it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.” Which market regarded it as a relatively dovish comment, driving the cables surge with 50 points to a level above 1.1120.  Apart from that, the Bank of England (BoE) accepted 2.3754 billion sterling of offers in the daily purchase operation of conventional long-dated gilts according to Reuters reported on Wednesday. The news suggested that the British Government could be contemplating a U-turn on the mini-budget that rattled financial markets have eased negative pressure on the sterling. However, in the macro view, the UK economy shrunk by 0.3% in the three months prior to September, according to NIESR GDP Estimate. This is a larger contraction than the 0.1% forecast, also a signal that the UK may confront a more severe recession.

For the technical aspect, RSI indicator 51 as of writing, suggests a bullish tilt in the near-term technical outlook as the RSI fell back below 50. As for Bollinger Bands, the gap between the upper and lower bands became smaller and the cable pricing broke through the 20-period moving average to the upper area. The bullish tractions would persist if the price stands firmly above the upper band level of 1.1146, then the bulls could challenge the 1.1366 resistance. On the contrary, if the price lost upside momentum, then the pound would test the 1.0958 support.

Resistance: 1.1366, 1.1485, 1.1715

Support: 1.0958, 1.0797, 1.0632, 1.0392

XAUUSD (4-Hour Chart)

The XAUUSD  kept trading around the $1,670 mark as has been the case since the beginning of the European session, as it is moving sideways after US PPI and ahead of the FOMC minutes. Following the release of the US Producer Price Index (PPI), gold approached daily lows but it quickly bounced back to the upside. The PPI rose 0.4% in September, above 0.2% of market consensus. The annual rate fell from 8.7% to 8.5%. The US dollar gained some upside tractions after the figures, but just for a few minutes, continuing to wander in a range from 113.2 to 113.6 level. Most market participants were waiting for the FOMC minutes to shed light on the trajectory of US monetary policy. The document will trigger volatility if it contains surprises. The next FOMC meeting is in November and another 75 bps rate hike seems likely according to the current market price.

From the technical perspective, the RSI indicator fell below 50 as of writing, implying a bearish momentum in the near-term technical outlook. As for the Bollinger Bands, the price was hovering around the 20-period moving average, suggesting gold would move sideways ahead of any surprising transactions. The yellow metal was priced at the $1,670 mark as of writing, and bulls needed to challenge the short-term resistance at $1,680 to gain more upside traction. On the contrary, the bears needed to test the $1,665 support to attract more sales.

Resistance: 1680, 1700, 1725

Support: 1665, 1644, 1620

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDEIA Short-Term Energy Outlook00:00 
USDFOMC Meeting Minutes02:00 
EURGerman CPI (YOY) (Sep)14:0010.0%
USDCore CPI (MoM) (Sep)20:300.5%
USDCPI (YoY) (Sep)20:308.1%
USDCPI (MoM) (Sep)20:300.2%
USDInitial Jobless Claims20:30225K
USDCrude Oil Inventories23:001.750M