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Daily market analysis

US Retail Sales increased, indicating the economy can handle Fed rises

November 17, 2022

US stocks declined lower on Wednesday, failing to preserve their upside momentum and witnessing selling pressure after strong retail sales data and comments from at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end.

The US Retail Sales rose by 1.3% in October, which came in better than the market expectation for an increase of 1% and indicated the economy can withstand additional Fed hikes. The figure weighed on equity markets amid speculation that inflation may resume its advance and the US Federal Reserve could maintain the aggressive tightening path.

Moreover, former President Donald Trump announced he will seek another term in the office, launching his Presidential run for 2024. The news lifted concerns amid his views on the US relationship with China.

On the Eurozone front, European Central Bank (ECB) Vice President Luis de Guindos said that the ECB would continue with policy normalisation and continue the restrictive monetary policy.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Wednesday as the S&P 500 fell after a report showed retail sales posted the biggest increase in eight months in October. The S&P 500 was down 0.8% on a daily basis and the Dow Jones Industrial Average also dropped slightly with a 0.1% loss for the day. Nine out of eleven sectors in the S&P 500 stayed in negative territory as the Energy sector and the Consumer Discretionary sector are the worst performing among all groups, losing 2.15% and 1.46%, respectively. The Nasdaq 100 meanwhile retreated the most with a 1.4% loss on Wednesday and the MSCI World index was up 1.1% for the day.

Main Pairs Movement

The US dollar edged lower on Wednesday, gathering some strength in the late US trading session and ended the day mixed amid a worsening sentiment following Tuesday’s developments in the Ukraine-Russia war. On top of that, tensions arose in China as the country keeps reporting increased coronavirus contagions and Regional lockdowns spread across the country are worsening the situation. The US Retails Sales also smashed forecasts and pressured the Federal Reserve.

GBP/USD advanced higher on Wednesday with a 0.41% gain after the cable rebounded towards the 1.1920 mark and recovered some of its daily gains as UK inflation surged. On the UK front, the significant jump in the UK inflation rate has triggered chances of further policy tightening by the BOE in the upcoming monetary policy announcements. Meanwhile, EUR/USD remains sidelined around a 4.5-month high and paused a two-day uptrend below the 1.0400 mark amid mixed market sentiment. The pair was up almost 0.44% for the day.

Gold retreated lower with a 0.29% loss for the day after testing the weekly high around the $1786 mark during the European session, as the mixed data from the US spurred a risk-off impulse and provided support to the US dollar. Meanwhile, WTI Oil dropped sharply with a 1.53% loss for the day as the Druzhba pipeline, which carries Russian oil into Europe, is said to have been restored.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD has erased it’s daily and declined below 1.0400 in the American session on Wednesday, as the negative shift witnessed in the risk sentiment despite the upbeat US Retail Sales data seemed to be helping the US Dollar find demand and weighing on the pair. The US core Retail Sales MoM, which measures the change in the total value of sales at the retail level in the U.S., printed surprisingly 1.3% compared to the forecast of 0.4% and the previous 0.1%. The better-than-expected sale data drew support for the safe-haven greenback in the early US trading session. Apart from this, concerns arose late on Tuesday, when supposed Russian missiles hit a Poland city near Ukraine’s border, killing two civilians. Moscow denied responsibility and initial findings suggest it could be part of Ukraine’s air defences. Nevertheless, NATO and Poland are on alert and further investigating the situation. In the meantime, the political developments in the United States take centre stage. Former US President Donald Trump announced he will run for president in 2024. Additionally, Republicans are close to winning control of the House of Representatives, adding 8 seats to a total of 217, just one short of the total needed to create a majority.

From the technical perspective, the four-hour scale RSI indicator slid to 60 figures as of writing, which suggested that the pair’s upside traction has been softer. As for the Bollinger Bands, the euro was hovering in the higher area. Therefore, we think the euro has no direction and would be put sideway.

Resistance: 1.0606, 1.0349

Support: 1.0280, 1.0167, 0.9953

GBPUSD (4-Hour Chart)

The GBPUSD edged high following the release of mixed US economic data from the United States, while also a slew of Bank of England (BoE) governors crossed the newswires after a red-hot UK CPI report. At the time of writing, the British pound was trading at 1.18886 with a 0.22% gain on a daily basis. The US Department of Commerce (DoC) reported that sales grew the most in eight months, with readings hitting 1.3% MoM vs. 1% estimated by analysts. Digging deep into the report, Retail Sales in the control group, used to calculate Gross Domestic Product (GDP), expanded by 0.7% MoM vs. 0.3% foreseen. Even though inflation data in the United States showed signs that an era of elevated prices could end, consumer resilience proves otherwise. In the domestic, the Consumer Price Index for October jumped 11.1% YoY, smashing estimates of 10.7%, reported the Office for National Statistics (ONS). Notably, the inflation report comes one day before Chancellor Jeremy Hunt unveils the Autumn Budget, which is expected to show a “fiscally responsible” government under new Prime Minister Rishi Sunak. After the release of the UK inflation readings, the BoE Governor Andrew Baily said that inflation is reflecting a series of supply shocks. However, he added that those shocks are starting to fade and noted that the central bank would raise rates further.

From the technical perspective, the four-hour scale RSI indicator remained at 62 figured as of writing, suggesting that the pair’s bullish momentum turned mild. As for the Bollinger Bands, the cables were wandering in the upper area, which is a signal that there is no clear tendency and gets into a consolidation phase.

Resistance: 1.2028, 1.2143

Support: 1.1744, 1.1639, 1.1358, 1.1141

XAUUSD (4-Hour Chart)

The gold price climbed to a daily high of $1785 during the European session but reversed its direction in the second half of the day on Wednesday, as the US Dollar benefited from safe-haven flows. The XAUUSD was trading at $1774 marks at the time of writing. The yellow metal is looking for more clarity on Russian military attacks on Poland as statements from US President Joe Biden and Polish President Andrzej Duda have created confusion. In early Asia, Biden noted that “based on the trajectory, it is unlikely that the missile is fired from Russia.” Also, Duda confirmed that what happened was a one-off incident, adding that there were no indications that there will be a repeat of today’s incident. This year, Russia’s invasion of Ukraine has already brought significant volatility in the global markets. An extension of Russian military attacks on members of NATO would accelerate it further. This might also impact gold prices significantly. Meanwhile, the returns on the United States government bonds have been a major victim of a significant decline in US inflation figures. The 10-year United States Treasury has dropped sharply from a high of 4.34% to a low near 3.76%.

From the technical perspective, the four-hour scale RSI indicator dropped to 59 figures as of writing, suggesting that the gold was confronting a corrective pullback. As for the Bollinger Bands, XAUUSD was pricing around the 20-period moving average with low volatility. As a result, we think the pullback is to store the strength for the next rally, and the bullish path is more favoured in the near future.

Resistance: 1800

Support: 1748, 1704, 1670

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDEmployment Change (Oct)08:3015.0K
EURCPI (YoY) (Oct)18:0010.7%
GBPAutumn Forecast Statement20:30 
USDBuilding Permits (Oct)21:301.512M
USDInitial Jobless Claims21:30225M
USDPhiladelphia Fed Manufacturing Index (Nov)21:30-6.2