Daily market analysis

US Indices climbed on Friday despite a stronger US dollar on recession fears

July 4, 2022

higher inflation will lead to economic growth slowing and a possible recession. On the economic data side, the Institute for Supply Management’s US manufacturing PMI fell to 53 from 56.1 in May, which was the weakest since June 2020 and showed that the manufacturing activity in the US has weakened as new orders contracted. The market focus now shifts to this week’s minutes of the Federal Reserve’s June meeting, as the central bank is expected to raise interest rates by 75 basis points.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average both rose on Friday despite the safe-haven US dollar advanced on recession fears. Nasdaq 100 was up 0.7% daily and the Dow Jones Industrial Average also advanced with a 1.0% gain for the day. All eleven sectors stayed in positive territory as the utilities and consumer discretionary sectors are the best performings among all groups, rising 2.48% and 1.97%, respectively. The S&P 500 climbed the most with a 1.1% gain on Friday and the MSCI World index rose 0.5%. For the week ahead, Nonfarm Payrolls will be the key data that might provide fresh impetus.

Main Pairs Movement

The US dollar advanced on Friday, rebounding from the 104.7 level that touched on Thursday and extending its rally toward the 105 area amid risk-off market sentiment. The DXY index was surrounded by bullish momentum during the first half of the day and reached a daily high near 105.6 level in the early US session, but then lost its bullish traction to surrender some of its daily gains. The safe-haven greenback continued to find demand amid escalating fears about a global recession, as the dismal US manufacturing PMI fueled recession-related concerns.

GBP/USD tumbled with a 0.70% loss on Friday amid the stronger US dollar across the board. The flight to safety increased the appetite for safe-haven assets and weighed on the GBP/USD pair. The cable remained under bearish pressure and dropped to a monthly low below the 1.199 mark, but then regained some upside traction to recover its daily losses. Meanwhile, EUR/USD slumped to the lowest level since June 15th below 1.038 level. The pair was down almost 0.50% for the day.

Gold rebounded back slightly after touching a daily low below $1786 in the late European session, as the US yields collapsed and provided support to the precious metal amid fears of a recession. Meanwhile, WTI oil climbed back to the $109 area despite the escalating recession fears that have overshadowed the supply worries again.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD traded 0.54% lower over the last trading day of the week. The Eurozone HICP, the harmonised index of consumer prices, jumped to 86% in May, coming in higher than the 8.3% expectations. Despite the ECB’s efforts to tame inflation, prices are still growing at a pace that threatens price stability. The U.S. Greenback continues to be on the rise as market sentiment continues to be risk-averse and the U.S. equity market continues to fall further into bear territory. U.S. PMI data came in at 52.7, compared to estimates of 52.4, showing growth in purchasing and still signs of a healthy economy.

On the technical side, EURUSD was able to recover from our previously estimated support level of 1.0382 despite falling below this level briefly. A new level of resistance has formed around the 1.0485 price region. RSI for the pair sits at 41.02, as of writing. On the four-hour chart, EURUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.0485, 1.05754

Support: 1.0382

GBPUSD (4-Hour Chart)

GBPUSD lost 0.68% on the last trading day of the week. The pair gave up gains from the previous day as demand for the U.S. Greenback resumed. The dollar index, which measures the U.S. Dollar against a basket of other major foreign currencies, gained 0.36% to close the week in the green. The U.S. PMI data, which was released during the American trading session, provided fresh optimism for the U.S. Dollar as the figure came in better than expected.

On the technical side, GBPUSD successfully defended our previously estimated support level of 1.20824, despite the pair trading below that level for a brief period during the late European trading session. RSI for Cable sits at 38.1, as of writing. On the four-hour chart, GBPUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.2381

Support: 1.2123, 1.20824

USDJPY (4-Hour Chart)

USDJPY retreated a further 0.31% for the last trading day of the week. After touching a 24-year high on the 29th, USDJPY has been on a two-day short-term correction. However, as the U.S. reported better than expected PMI figures, demand for the U.S. Greenback returned towards the end of the American trading session. Carry trade opportunities continue to exist between these two currencies and are expected to increase as the better PMI provides more confidence for the Fed to hike interest rates by the next FOMC meeting.

On the technical side, USDJPY retreated from our previously estimated resistance level of 136.57 and successfully defended our estimated support level at 134.6. RSI for USDJPY sits at 58.39, as of writing. On the four-hour chart, USDJPY currently trades above its 50, 100, and 200-day SMA.

Resistance: 136.57

Support: 134.6

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDIndependence DayAll Day
AUDRetail Sales21:30