Daily market analysis

US GDP expanded faster than expected

January 27, 2023

U.S. equities marched higher over the course of Thursday’s trading. The Dow Jones Industrial Average rose 0.61% to close at 33949.41. The S&P 500 climbed 1.1% to close at 4060.43. The tech-heavy Nasdaq Composite gained 1.76% to close at 11512.41. Market participants turned a blind eye to the mixed U.S. GDP report, which showed that, despite aggressive rate hikes from the Fed, the U.S. GDP expanded at a faster-than-estimated pace into the end of 2022. Consumer spending, accounting for 68% of GDP, increased 2.1%, down slightly from 2.3% in the previous period but still positive. Weekly jobless claims fell by 6000, down to 186000 for the lowest reading since April 2022.

U.S. Treasury yields ticked higher amid a strong rally across equity markets. The benchmark U.S. 10-year treasury yield edged above 3.5% and was last seen trading at 3.503%. The policy-sensitive 2-year treasury yield currently sits at 4.187%.

Intel failed to deliver on earnings for the fourth quarter of 2022; furthermore, the chip maker gave one of the gloomiest quarterly forecasts in its history. The company is predicting a surprise loss in the current period and a sales miss by billions of dollars. Intel Corp. reported an EPS of 0.1, missing Wall Street estimates by more than 50%. Q4 revenue came in at 14.04 Billion, 3.1% lower than general consensus. Intel shares traded nearly 10% lower in after-hours trading.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, advanced 0.17% over the course of yesterday’s trading. The Dollar was buoyed by surging demand for U.S. treasuries ahead of Friday’s U.S. PCE data release. Markets are now pricing in a 25 basis point increase by the Fed at the next FOMC meeting.

EURUSD lost 0.22% over the course of Thursday’s trading. The Euro fared worse against the Dollar as market participants bid up the Greenback. The strong U.S. job report also acted as a tailwind for the Dollar.

GBPUSD edged 0.07% higher over the course of yesterday’s trading. Cable continued to advance after a 0.51% gain on Wednesday. U.K. PMI, which was released on the 24^th, indicated a drop in prices.

XAUUSD dropped 0.88% over the course of Thursday’s trading. The Dollar denominated Gold fared worse against the Dollar as market participants demanded U.S. treasuries and bidding up the Greenback.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Thursday, remaining under pressure and declined below 1.0900 level after the release of the United States Gross Domestic Product (GDP) data. The pair is now trading at 1.0866, posting a 0.34% loss on a daily basis. EUR/USD stays in the negative territory amid renewed US Dollar strength, as the greenback is volatile on Thursday following US economic reports and ahead of next week’s FOMC meeting. The US GDP report showed that the US economy expanded at an annualized rate of 2.9% in the fourth quarter, which came in slightly better than the market expectation for an expansion of 2.6% and strengthened the US Dollar that hit fresh daily highs across the board. In the Eurozone, the inflationary pressures are softening in Eurozone as supply chain bottlenecks are easing. But European Central Bank policymakers are still not satisfied with the scale of the interest rate and are reiterating more interest rate hikes ahead.

For technical aspect, RSI indicator 46 figures as of writing, suggesting that the pair could witnessed heavy bearish momentum as the RSI is falling sharply below the mid-line. As for the Bollinger Bands, the price declined sharply and dropped below the moving average, therefore the downside traction should persist. In conclusion, we think market will be bearish as the pair is now testing the 1.0861 support level. On the downside, the intraday sellers should seek entry below the aforementioned support level.

Resistance:  1.0918, 1.1032, 1.1131

Support: 1.0861, 1.0780, 1.0710

GBPUSD (4-Hour Chart)

The GBP/USD pair declined lower on Thursday, coming under bearish pressure and refreshed its daily low around 1.2350 mark after the release of the release of US economic data. At the time of writing, the cable stays in negative territory with a 0.18% loss for the day. The strong US growth data bolstered the US Dollar during the US trading session and acted as a headwind for the GBP/USD pair. At the same time, Durable Good Orders for December rose 5.6% MoM and Initial Jobless Claims for the week ending January 21 fell to 186K. Therefore, the odds for a smaller interest rate hike by the Federal Reserve are soaring and investors will look for clues about the future path from next week’s FOMC meeting. For the British pound, the dismal retail sales reported in the United Kingdom weighed heavily on the nation’s currency, as the data slumped over the last month at the fastest rate since April 2022.

For technical aspect, RSI indicator 52 figures as of writing, suggesting the bearish bias for the pair as the RSI is retreating from positive levels. As for the Bollinger Bands, the price preserved its downside momentum and dropped towards the moving average, therefore a continuation of the downside trend can be expected. In conclusion, we think market will be bearish as long as the 1.2426 resistance line holds. On the downside, a clear break of the 1.2341 hurdle becomes necessary for the GBP/USD sellers.

Resistance: 1.2426, 1.2493, 1.2593

Support: 1.2341, 1.2292, 1.2188

XAUUSD (4-Hour Chart)

Following the release of the Gross Domestic Product (GDP) preliminary reading in the United States on Thursday, the pair XAU/USD dropped sharply and retreated from a nine-month high above $1949 mark amid upbeat US economic data. XAU/USD is trading at 1926.44 at the time of writing, losing 1.03% on a daily basis. The US Dollar Index (DXY) is staging a comeback after being battered throughout the week and exerted bearish pressure to the dollar-denominated gold. Meanwhile, the recent release of downbeat US Retail Sales and PMI data has revived concerns over the health of the US economy, boosting expectations of smaller rate hikes from the US Federal Reserve in the upcoming policy meetings. As for now, the focus will shift to the US Core PCE Price Index due on Friday, which will play a key role in influencing the Fed’s rate-hike path.

For technical aspect, RSI indicator 46 figures as of writing, suggesting that the downside is more favored as the RSI stays below the mid-line. As for the Bollinger Bands, the price witnessed fresh selling and retreated towards the lower band, therefore the downside trend should persist. In conclusion, we think market will be bearish as the pair is heading to test the $1,922 support level. On the downside, if sellers extend their control below the abovementioned key support, an downside move toward the $1,898 level cannot be ruled out.

Resistance: 1947, 1957, 1963

Support: 1922, 1898, 1873

Economic Data