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Daily market analysis

US retail sales figures lower than expected

January 19, 2023

U.S. equities traded lower throughout Wednesday’s trading. The Dow Jones Industrial Average lost 1.81% to close at 33296.96. The S&P 500 dropped 1.56% to close at 3928.86. The tech-heavy Nasdaq Composite slipped 1.24% to close at 10957.01.

Equities markets were spooked by the weaker-than-expected U.S. retail sales figures, which came in at -1.1%. Weaker consumer spending sparked a drop in the U.S. Greenback and a retreat in the consumer discretionary sector.

Despite a strong start to the year, a tense earnings season and huge layoffs reported by Fortune 500 companies, the strong upward momentum for equities may vanish in a hurry. Recessionary fears have been largely overlooked by market participants for the first two weeks of 2023; however, with weak consumer spending and the Fed FOMC meeting, which is scheduled for February 1st, around the corner, selling pressure has once again resurfaced.

The benchmark U.S. 10-year treasury yield dropped 5.09% and was last seen trading at 3.379%. The short-term 2-year treasury yield rose 10 basis points and sits at 4.086%, as of writing.

Netflix Inc., Procter & Gamble Co., and Preferred Bank will headline today’s earnings release. After delivering on earnings expectations, Morgan Stanley retreated over Wednesday’s trading as the 10-year yield faltered around the 3.3% mark.

The Bank of Japan will be releasing its trade data during today’s Asia trading session. The Bank of Japan surprised markets by keeping its loose monetary policy and keeping a tight grip on yield curves, thus sparking a downward spike in Japanese Yen. Still, the Japanese currency was able to gain back intra-day losses throughout Wednesday.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, saw large movements in both directions throughout Wednesday’s trading and ended 0.03% higher. The Dollar surged during the Asia trading session after the Bank of Japan surprised markets by keeping its tight control over yields; however, the Greenback dropped sharply after the weaker-than-expected retail sales and PPI figures were released.

EURUSD gained 0.06% throughout yesterday’s trading. The Euro Dollar pair climbed as high as 1.088 on Wednesday, but could not sustain that level as market participants demanded the Dollar as equities faltered.

GBPUSD gained 0.47% throughout Wednesday’s trading. The British Pound took full advantage of the Dollar’s weakness and was able to keep those gains towards market close.

XAUUSD dropped 0.22% throughout yesterday’s trading. The Dollar denominated Gold extends its losing streak into the third day as the Dollar gains traction around the 102 mark.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced higher on Wednesday, regaining upside strength and rebounded sharply towards the 1.0880 mark following the release of weaker-than-expected US macro data. The pair is now trading at 1.0833, posting a 0.43% gain on a daily basis. EUR/USD stays in the positive territory amid aggressive intraday US Dollar selling, as the release of softer-than-expected US macro data dragged the greenback down to a seven-month low. On the economic data front, the Producer Price Index (PPI) for final demand in the US declined to 6.2% on a yearly basis in December, which was well below consensus estimates for a fall to 6.8%. The data further points to easing inflationary pressure and could allow the Fed to slow the pace of its policy tightening. In the Eurozone, the European Central Bank policymaker Francois Villeroy de Galhau said on Wednesday that it is “too early to speculate about what we will do in March.” But his words failed to impress market participants.

For the technical aspect, RSI indicator 54 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is falling sharply lower. As for the Bollinger Bands, the price failed to preserve the upside traction and dropped towards the moving average, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as long as the 1.0868 resistance level holds. Technical indicators also reflect bear signals as they retreat from their early peaks and head south.

Resistance:  1.0868, 1.0921

Support: 1.0780, 1.0722, 1.0624

GBPUSD (4-Hour Chart)

GBP/USD advances higher on Wednesday as UK inflation eased for a second straight month in December. Headline CPI (YoY) dropped to 10.5%, down from 10.7% in November and below the 10.6% of expectations. However, the core CPI (YoY) showed no improvement, remaining unchanged at 6.3%. Though there is a downtrend observed, inflation remains stubbornly high after hitting a 41-year high of 11.1% in October. It is much too high for the BoE, which is focused on curbing inflation. There is more work to be done. The next meeting of BoE will be on February 2nd, and the market has priced in a second-consecutive 50 basis point rate hike. The BoE will also release its latest economic forecasts, which could play a key role in the central bank’s rate policy.

For the technical aspect, RSI indicator 67 figures as of writing, soaring from mid-line, showing the upside traction in the near term.  As for the Bolling  Bands, the price rallied along with the upper band, signalling the strong bullish momentum. In conclusion, we think GBP/USD is in a bullish mode based on the technical analysis. For the uptrend scenario, the pair is now testing the resistance at 1.426. If the price breakthrough the level, it may head to test the next resistance at 1.2675. For the downtrend scenario, if the price drop below the support at 1.2168, it may change the current trend and head to test the next support at 1.2106.

Resistance: 1.2426, 1.2675

Support: 1.2168, 1.2106, 1.2013

XAUUSD (4-Hour Chart)

Gold price traded choppily on Wednesday. Earlier in the Asian trading session, gold price slumped to below the $1,900 mark at the lowest of $1,896.73. From the late EU trading session, the pair regather strength, recovering lost territory below $1,900 to the highest of $1,925.9. After the release of the December PPI, gold prices fell in a risk-averse mood.  At the time of writing, the gold price is trading at $1,908.54. US figures suggested the American economy could already be in a recession. The US Commerce Department reported that December Retail Sales plunged -1.1% MoM, below -0.8% of expectation, falling for two consecutive months. Furthermore, the Producer Price Index (PPI) slides to -0.5% MoM, below -0.1% of expectation. Easing inflation is seen as good news but also reflects decreased purchasing power.

For the technical aspect, the RSI indicator is 52 figures as of writing, holding around the mid-line, reflecting the unclear price trend in the near term. For the Bollinger Bands, the price hovers around the moving average. Since the moving average is upward, the trend is still in a modest bullish mode in the long -term. In conclusion, we think the market is in a modest bullish mode as technical analysis shows bullish potential. For the uptrend scenario, gold price got rejected from the current resistance at $1,924, and it needs a breakthrough above the level to meet the bullish pattern of a higher high. For the downtrend scenario, if the price drop below support at $1,893, it may trigger fresh selling traction and head to test the next support at $1,873.

Resistance: 1924, 1952, 1962

Support: 1893, 1873, 1832

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURECB President Lagarde Speaks18:30 
EURECB Publishes Account of Monetary Policy Meeting20:30 
USDBuilding Permits (Dec)21:301.370M
USDInitial Jobless Claims21:30214K
USDPhiladelphia Fed Manufacturing Index (Jan)21:30-11.0