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Daily market analysis

The Fed said the economy can handle more tightening

December 23, 2022

US equities dropped on Thursday, as investors digested data validating the Federal Reserve’s assertion that the economy is robust enough to withstand more tightening.

Technology stocks were battered after a gloomy outlook from chipmaker Micron Technologies Inc. weighed on sentiment. Data released on Thursday painted a picture of a resilient economy, stoking concern that the Fed has a long way to go to subdue inflation. Initial jobless claims rose less than forecast in the week ended Dec. 17, underscoring the strength in the labour market. Third-quarter gross domestic product was revised to 3.2% – compared with a previously reported 2.9% advance – on firmer spending.

The benchmarks, the S&P500 dropped by 1.45% daily for the day, and the tech-heavy Nasdaq 100 declined as much as 4% but pared its drop to end Thursday down 2.5%. All eleven sectors in the S&P 500 stayed in the negative territory, and Consumer Discretion performed the worst among all groups, falling with 2.59% daily losses on Thursday. The Dow Jones Industrial Average fell 1%, but the MSCI world index rose 1.2% for the day.

Main Pairs Movement

The US Dollar edged higher by 0.23% daily on Thursday, as US third quarter Gross domestic product showed the resilience of the US economy, which mounting the bets of aggressive tightening policy. The DXY index witnessed some selling in the first half of Thursday, then managed to rebound to a daily high level around 104.6 during the middle of US trading hours.

The GBPUSD tumbled with 0.36% daily losses for the day, as strong-than-expected US economic data weighed on the British pounds pair. The pair had slid since the middle of the UK trading session and dropped as much as 1%, but mildly climbed back to the 1.2030 level. In the meantime, the EURUSD was moving lower with 0.08% daily losses for the day.

The gold fell dramatically by 1.21% daily on Thursday, as strong US GDP data triggered a plunge in the dollar-denominated gold. The XAUUSD has fallen below the $1800 critical level during the American trading session.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD traded 0.12% lower throughout Thursday’s trading. The recovering Dollar limited any upward momentum that the Euro exhibited during early Asia and European trading sessions on the 22nd. The better-than-expected U.S. GDP figure further eroded any upward mobility for the Euro. U.S. Q3 GDP came in at 3.2%, beating consensus estimates of 2.9%. The surprisingly higher U.S. GDP figure triggered interest rates and recessionary fears across markets. U.S. equities closed lower as short-term interest rate expectations once again climbed. The benchmark U.S. 10-year treasury yield rose above 3.68%, while the 2-year yield rose above 4.2%.

On the technical side, EURUSD has continued to trade below our previously estimated resistance level of 1.065. Short-term support for the pair remains at around the 1.0459 price region. EURUSD has been steadily consolidating around the 1.059 price region. RSI for the pair sits at 61.79, as of writing. On the four-hour chart, EURUSD currently trades below its 50-day SMA but above its 100 and 200-day SMA.

Resistance: 1.0650, 1.0695

Support: 1.0459, 1.0228

GBPUSD (4-Hour Chart)

The cable broke out of the coils and saw the next move towards 1.1900 and 1.1760. Greenback is being pursued as a higher prospect for Fed in 2023. GBPUSD is under pressure from a rally in the dollar, which is getting a boost from stronger-than-expected data, supporting the Fed’s hawkish outlook and higher interest rate expectations for 2023. DXY recovered to 104.5 from a low of 103.75 but remained well below 107.2, which is this month’s high. Ukrainian President Volodymyr Zelensky’s trip to the US and Russian President Putin’s readiness to increase the country’s military potential challenged risk appetite. On the other hand, China’s readiness for more stimulus measures and a second unscheduled bond purchase by the BoJ keep the Us stock still moderate buying the latest in the future.

On the technical side, GBP/USD extended its daily losses, falling below 1.2050. The pair struggled to stage a rally in the early US session after the dollar remained resilient against its rivals following better-than-expected Q3 GDP data, 1.9% compares to the forecast 2.4%. RSI for the pair sits at 34.12, as of writing. On the four-hour chart, GBPUSD currently trades below its 50 and 100-day SMA but above its 200-day SMA.

Resistance: 1.2320, 1.2600

Support: 1.19, 1.176

XAUUSD (4-Hour Chart)

The gold price hovers around at 1,812 to 1,820 area since the opening of the Q3 Final Gross Domestic Product and weekly Jobless Claims data released during the trading course yesterday. After the data was released the Q3 GDP was 3.2% which is 0.3% higher than the forecast 2.9%. This led the US dollar to rise nearly 0.5% to 104.50, as XAUUSD plunged immediately below 1,810 right away. As of writing, the current price fits at 1,787 and reaching a level under 1,800, the next estimated is 1,765. However, on the other hand, the pre-Christmas holiday mood is also set in, with liquidity thinning, which could also offer a helping hand to Gold buyers. Gold price’s technical setup on the daily chart also remains in favour of the optimists.

On the technical side, gold pressures intraday lows in the 1,795 price zone, further losing its bullish potential according to the daily chart but falling short of suggesting a steeper decline. For that, the pair would need to extend its current slump below 1,785, where 20 and 200-day SMAs coverage. In the near term, the risk is skewed to the downside. RSI for the precious metal sits at around 19.66, as of writing. On the four-hour chart, XAUUSD currently trades above its 5 to 200-day SMA.

Resistance: 1840

Support: 1777, 1765

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDCore Durable Goods Orders (MoM) (Nov)21:300.1%
USDCore PCE Price Index (MoM) (Nov)21:300.2%
CADGDP (MoM) (Oct)21:300.1%
USDNew Home Sales (Nov)23:00600K
HolidayUnited Kingdom – ChristmasEarly close at 12:30N/A
HolidayNew Zealand – ChristmasEarly close at 12:45N/A
HolidayAustralia – ChristmasEarly close at 14:30N/A
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