Daily market analysis

Sudden Pullback in Tech Shares, US Stocks Move Higher

August 17, 2022

US stocks advanced on Tuesday, and closed higher following a sudden pullback in tech shares, as investors assessed the latest round of upbeat earnings against a backdrop of growing concerns over slowing growth and rising borrowing costs. Moreover, reports Monday indicating a sharp drop in New York state manufacturing along with the longest streak of declines since 2007 in homebuilder sentiment sparked optimism in equity markets that the Fed may slow interest rates hike. A critical clue on how sensitive the Fed is to unfolding economic data may be known when the minutes of the last meeting of the Federal Open Market Committee on Wednesday.

The benchmarks, S&P 500 and Dow Jones Industrial Average both edged higher on Tuesday. Six out of eleven sectors stayed in the positive territory, as Consumer Staples and Consumer Discretion performed best among all groups, rising with 1.21% and 1.09% gains on daily basis. The Dow Jones Industrial Average kept its leadership role within major benchmarks, rallying 0.7% for the day. The Nasdaq 100 ended lower, sliding 0.2%, and the MSCI World index was little changed on Tuesday.

Main Pairs Movement

The US dollar was little changed down on Tuesday, as investors waited on the US retail sales and minutes from the Federal Reserve’s July meeting on Wednesday. The DXY index witnessed fresh transactions and edged higher as recession fears boost the safe-haven greenback during the UK trading session. However, after touching a daily level above 106.9, DXY lost bullish momentum and pullback to oscillate in a range from 106.3 to 106.6 level.

The GBP/USD advanced with a 0.34% gain on a daily basis for the day, as UK employment figures were better-than-expected, further cementing the case for a 50 bps BOE rate hike. The cables suffered heavy selling pressure during the UK trading session as US dollars strengthen across the board. Then, GBP/USD rebounded and touched a daily high level above 1.211 during the early US trading session. Meanwhile, EUR/USD reached a daily high level above 1.019 in the period of the early US trading session. The pairs rose 0.11% on Tuesday.

Gold slid with a 0.23% loss on a daily basis for the day, holding lower ground near one week after a two-day downtrend. Investors were cautious as fears of the economic slowdown in China and Europe and waited for a clue on Fed’s decision to interest rates hike shown when FOMC meeting happens on Wednesday. Meantime, WTI and Brent oil dropped on Tuesday, falling 2.90% and 3.22% respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged higher on Tuesday, ending its previous slide and regained upside momentum to touch a daily top near the 1.019 mark despite the prevalent cautious market mood. The pair is now trading at 1.0174, posting a 0.16% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the disappointing Housing Starts data from the US exerted bearish pressure on the safe-haven greenback and lifted the EUR/USD pair higher. The US Housing Starts decline sharply by 9.6% in July and Building Permits also dropped by 1.3% MoM, causing the US dollar to lose some strength. For the Euro, the German ZEW Economic Sentiment Index came in at -55.3 in August, which showed that the economic sentiment continued to deteriorate in the euro area and limit the upside for the shared currency.

For the technical aspect, the RSI indicator is 37 as of writing, suggesting the pair’s bullish outlook in the near term as the RSI keeps rising toward the mid-line. As for the Bollinger Bands, the price regained upside traction and started to climb toward the moving average, therefore the upside momentum should persist. In conclusion, we think the market will be bullish as long as the 1.0111 support line holds. On the upside, a break above 1.0237 could lead to additional gains for the pair.

Resistance:  1.0237, 1.0287, 1.0347

Support: 1.0111, 1.0062, 0.9988

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced on Tuesday, witnessing some upside traction and climbed to a daily top above 1.211 level during the US trading session after the release of downbeat US housing data. At the time of writing, the cable stays in positive territory with a 0.30% gain for the day. Traders might prefer to move on the sidelines ahead of the FOMC meeting minutes on Wednesday, which could provide clues about the possibility of a 75 bps rate hike in September. For the British pound, the mixed UK employment data fail to impress bullish traders as the number of people claiming unemployment-related benefits fell by 10.5K in July and the UK unemployment rate was unchanged at 3.8%. On top of that, the concerns about a global economic downturn and the BoE’s gloomy economic outlook both limit the gains for the GBP/USD pair today.

For the technical aspect, the RSI indicator is 44 as of writing, suggesting that the risk is skewed to the upside as the RSI has climbed further toward the mid-line. For the Bollinger Bands, the price preserved its bullish movement and kept heading toward the moving average, therefore a continuation of the upside trend can be expected. In conclusion, we think the market will be bullish as long as the 1.2027 support line holds. The rising RSI also reflects bull signals.

Resistance: 1.2143, 1.2248, 1.2277

Support: 1.2027, 1.1940, 1.1897

XAUUSD (4-Hour Chart)

Gold price continued the trend of yesterday coming under bearish pressure on the trade of the day and declined toward the $1,770 level. Despite last week’s softer US CPI report, Fed officials warned that it is far too early for the US central bank to declare victory on inflation. Suggesting that the Fed would stick to its policy and have maintained a hawkish tone. The benchmark 10-year US Treasury bond yield is up more than 2% on the day. supporting the US dollar. This, in turn, undermines the dollar-denominated commodity. That said, traders might refrain from placing aggressive bets ahead of the key central bank event ­ — the FOMC minutes on Wednesday. For more price actions, eye on the tier 1 economic data from the US.

For the technical aspect, the RSI indicator is 42 as of writing, suggesting that the downside is more favoured as the RSI keeps in a downtrend and stays below the mid-line. For the Bollinger Bands, the price edged slightly down along with the lower bound, and the downward moving average seems to take pressure from the upside. In conclusion, we think the market will be bearish as the RSI indicator keeps in a downtrend and the price keeps edging lower below the moving average. At the time of writing, the price is slightly above the $1,770 level. If XAU/USD closes with negative price action below $1,770 on the four-hour chart, it might head to test the next support level at $1,757.

Resistance: 1803, 1857, 1876

Support: 1770, 1757, 1714

Economic Data

CurrencyDataTime (GMT + 8)Forecast
NZDRBNZ Interest Rate Decision10:003.00%
NZDRBNZ Press Conference11:00 
GBPCPI (YoY) (Jul)14:009.8%
USDCore Retail Sales (MoM) (Jul)20:30-0.1%
USDRetail Sales (MoM) (Jul)20:300.1%
USDCrude Oil Inventories22:30-0.275M