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Daily market analysis

US Stocks continue to move lower

January 20, 2023

U.S. equities continued to retreat over the course of Thursday’s trading. The Dow Jones Industrial Average dropped 0.76% to close at 33044.56. The S&P 500 lost 0.76% to close at 3898.85. The tech-heavy Nasdaq Composite slipped 0.96% to close at 10852.27.

All three equity indices suffered losses as market sentiment, once again, turns risk off. The weaker-than-expected U.S. retail sales figure combined with missed earnings by major corporations have kept the recent risk rally contained.

Over the night, U.S. Federal Reserve Governor Lael Brainard, who is considered a dove, said the central bank would need to keep rates elevated for a longer period in order to bring inflation back to the bank’s target level. Governor Brainard’s comments continue to echo those of Chairman Powell and many other Federal Reserve officials.

The benchmark U.S. 10-year treasury yield climbed 0.62% over the course of Thursday and currently sits at 3.399%. The policy-sensitive 2-year treasury yield was last seen trading at 4.13%.

Netflix Inc., which released its F2022 Q4 earnings yesterday, saw a 3.23% drop in share prices after the company missed their earnings target. Q4 revenues came in at $7.85 billion with an EPS of 12 cents, compared to Wall Street estimates of 45 cents. Despite missing its earnings estimates, Netflix showed organic growth in global paid subscribers for Q4. On the other hand, the streaming giant also cited foreign exchange risk related to its euro-denominated debt that eroded some of its Q4 margins.

On the earnings calendar, State Street Corp. and Ally Financials will headline today’s releases.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, dropped 0.35% over the course of Thursday’s trading. The Dollar index has continued to trend lower despite hawkish remarks from Fed officials. The recent sell-off of the Greenback could continue before the FOMC meeting takes place in early February.

EURUSD climbed 0.34% over the course of Thursday’s trading. The Euro traded above the key level of 1.08 as the Greenback continue its retreat. ECB President Lagarde is scheduled to speak during today’s European trading session.

GBPUSD climbed 0.36% over the course of yesterday’s trading. The British Pound notches its third straight winning session against the Greenback amid the Dollar’s recent weakness.

XAUUSD soared 1.46% over the course of Thursday’s trading. The Dollar denominated Gold continues to find demand in the face of hawkish Fed comments. The risk-off sentiment across markets also buoyed the non-yielding metal.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced higher on Thursday, failing to preserve its upside momentum and retreated slightly towards the 1.0800 mark amid improving market mood following the release of better-than-expected US economic data. The pair is now trading at 1.0806, posting a 0.11% gain on a daily basis. EUR/USD stays in the positive territory amid a weaker US Dollar across the board, as the positive economic news from the US lend support to investors’ sentiment and exerted bearish pressure to the safe-haven greenback. On the economic data front, the US Weekly Initial Jobless Claims decline to 190K in the week ending January 13, which came in better than the market expectation of 214K and also the lowest level in four months. In the Eurozone, the Accounts of the latest meeting from the ECB showed an initial attempt to hike rates by 75 bps and some participants advocated for a quicker reduction of the APP. The hawkish ECB also acted as a tailwind for the EUR/USD pair.

For the technical aspect, RSI indicator 48 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is dropping below the mid-line. As for the Bollinger Bands, the price witnessed fresh selling and break below the moving average, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0780 support level. Technical indicators also drop toward negative levels, reflecting the bearish stance.

Resistance:  1.0870, 1.0921

Support: 1.0780, 1.0722, 1.0624

GBPUSD (4-Hour Chart)

The GBP/USD pair edged higher on Thursday, extending its modest daily gains and climbing to a daily high above the 1.2360 mark following the release of softer-than-expected US economic data. At the time of writing, the cable stays in positive territory with a 0.25% gain for the day. The Retail Sales and Industrial Production reports both showed larger-than-expected declines for December, which helped the risk appetite and weighed on the US Dollar. However, the rising fears of a potential recession should benefit the US Dollar’s relative safe-haven status and cap the upside for the GBP/USD pair. For the British pound, investors expect the UK central bank to continue raising interest rates to combat stubbornly high inflation, which was supported by the stronger wage growth data released on Tuesday. Meanwhile, the headline UK CPI is still at higher levels and might continue to act as a tailwind for the British Pound.

For the technical aspect, RSI indicator 67 figures as of writing, suggesting that the upside traction could remain in the near-term technical outlook as the RSI is moving northward above the mid-line. As for the Bollinger Bands, the price regained upside traction and climbed towards the upper band, therefore a continuation of the upside traction can be expected. In conclusion, we think the market will be bullish as long as the 1.2331 support line holds. On the upside, a break above the 1.2395 resistance level could open the door for additional gains and favour the bulls.

Resistance: 1.2395, 1.2426, 1.2493

Support: 1.2331, 1.2271, 1.2188

XAUUSD (4-Hour Chart)

With a weak US Dollar and a dampened market mood on Thursday, the pair XAU/USD snapped two days losing trend and ground higher towards the $1,920 area during the US trading session. XAU/USD is trading at 1921.89 at the time of writing, rising 0.90% on a daily basis. Despite the Initial Jobless Claims in the US declining by 15,000 last week, market sentiment remains dampened as the soft US economic data released on Wednesday sounded the alarms of an upcoming recession amidst a high inflation environment. On top of that, Boston Fed President Susan Collins said on Thursday that it was appropriate to slow the pace of rate increases, but she also emphasized its need to move above 5% and be held around at that level for some time. traders now are pricing in a 25 bps rate hike at the Federal Reserve’s January 31-February 1 meeting.

For the technical aspect, the RSI indicator is 60 figures as of writing, suggesting that the upside is more favoured as the RSI is rising higher towards 70. As for the Bollinger Bands, the price witnessed upside momentum and climbed higher to the upper band, therefore the upside trend should persist. In conclusion, we think the market will be bullish as the pair is heading to test the $1,924 resistance level. On the upside, if buyers extend their control above the abovementioned key resistance, an upside move toward the $1,935 level cannot be ruled out.

Resistance: 1924, 1935, 1952

Support: 1898, 1873, 1832

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CNYPBoC Loan Prime Rate09:153.65%
GBPRetail Sales (MoM) (Dec)15:000.5%
EURECB President Lagarde Speaks18:00 
CADCore Retail Sales (MoM) (Nov)21:30-0.4%
USDExisting Home Sales (Dec)23:003.96M