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Daily market analysis

US stocks fall due to COVID-19 concerns

December 29, 2022

US stocks were dragged lower for a second day, as stocks in Asia headed for declines on Wednesday with fresh concerns about the spread of Covid-19 from China unnerved investors. Market appetite for risk waned on news that the US would require inbound airline passengers from China to show a negative Covid-19 test before entry.

In Italy, health officials said they would test arrivals from China and said almost half of passengers on two flights from China to Milan were found to have the virus. However, Hong Kong removed limits on gatherings and testing for travellers in a further unwinding of its last major Covid rules, offering a boost to the global economy but sparking concerns it would amplify inflation pressures and prompt US policymakers to maintain tight monetary settings.

The benchmarks, the S&P500 dropped 1.2% for the day, to the lowest level in more than a month. All eleven sectors stayed in the negative territory, especially the Energy sector fell dramatically with 2.22% daily losses after the several-day surge. The tech-heavy Nasdaq 100 further declined by 1.3% daily, and the Dow Jones Industrial Average slid 1.10% on Wednesday.

Main Pairs Movement

The US Dollar edged higher with a 0.27% daily gain on Wednesday, as the concerns about the outbreak of Covid-19 from China attracted some risk-aversion flow to the safe-haven greenback. The DXY index confronted some mild selling during the first half of Wednesday, then managed to rebound above the 104.4 level during the US trading session.

The GBPUSD has little change lower for the day, as the strong US Dollar is across the board. The cables dropped hugely during the early American trading session as the US administration announced mandatory Covid tests for travellers from China. In the meantime, EURUSD tumbled by almost 0.36% undermining market risk sentiment. The pair ended the day with 0.26% daily losses.

The Gold price remains defensive around the $1805 mark after printing the first daily negative closing in three, as the market’s fresh fears of inflation, emanating from China, as well as geopolitical tension surrounding Russia and Ukraine, which in turn provide support for US Treasury bond yields and the greenback. The XAUUSD slumped during the UK trading hour and once fell below the $1800 mark, then regain upside momentum and stand firmly around the $1805 mark.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD edged lower throughout Wednesday’s trading and could not extend the pair’s three-day winning streak. The Euro-Dollar pair witnessed large volatility at the start of the American trading session as the Dollar dipped before starting an impressive rally that altered the course of EURUSD. The renewed Dollar strength comes after U.S. equities continue to sell off as the year comes to a close. Market participants are looking for safety as both equities and bonds continue to lose ground since trading began after the holidays. The benchmark U.S. 10-year treasury yield is now trading above the 3.87% mark, while the 2-year treasury yield was last seen trading at 4.357%. Yield curve inversion, often seen during late-cycle economies,  will continue to be the norm as global economies head into a grim 2023. The nature of late-cycle economies could favour the U.S. Greenback in 2023 as global market participants look to protect asset valuations.

On the technical side, EURUSD has continued to trade below our previously estimated resistance level of 1.0695. Short-term support remains at 1.0585 and 1.04591. RSI for the pair sits at 61.97, as of writing. On the four-hour chart, EURUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.0695

Support: 1.0585, 1.0459

GBPUSD (4-Hour Chart)

The pound rose sharply after a choppy European session, rebounding from an intra-day low near $1.2000 to challenge the $1.2100 figure in the American session. China is lifting Covid-19 restrictions on tourists, while it has started issuing travel permits to Hong Kong residents. In addition, authorities are starting to issue passports and will officially reopen the border on Jan. 8. Even though sentiment has turned positive, concerns about rising inflationary pressures are keeping traders on their toes. the U.S. Dollar Index, which measures the value of the greenback against a basket of peers – was down 0.28% at 103.984, weighed down by lower yields on U.S. Treasuries. There are no particular market events by this week for the UK.

Looking at the daily chart, GBP/USD is testing the 20 and 200-day EMA at 1.2113 after bouncing off the weekly lows near 1.2000. If the former is cleared, nest resistance would be the previous support-transfer-resistance of the uptrend line near 1.2180, followed by the 1.2200 figure. Conversely, failure to stay above 1.2100 could pave the way towards the weekly low at 1.2000 and the 50-day EMA at 1.1935. RSI for the pair sits at 48.71, as of writing. On the four-hour chart, GBPUSD currently trades above its 50, 100 day SMA but above its 200-day SMA.

Resistance: 1.2320, 1.2600

Support: 1.19, 1.176

XAUUSD (4-Hour Chart)

XAUUSD gave back gains after surging higher on Tuesday and fell further on Wednesday, basically having spit out all gains so far. The prices edged lower by nearly 1% to the lowest price at $1,797 during the American trading session.  It is hovering around $1,800 with bearish trends. As the price broke through the last estimated support of $1,812 and $1,800, it would make gold vulnerable to a decline to test an uptrend line around $1,795. A break below could trigger more losses, to the $1,785 zone. Below the next support is located at $1,773, which is Dec 15 & 16 low. As equity prices in Wall Street turned negative and amid a rebound in US yields to fresh daily highs, and the US Dollar Index rose from the lowest level in almost a week at 103.84 to 104.45, the strongest since Friday. The context put pressure on the gold price.

On the technical side, The four-hour chart shows that gold prices have slowed since mid-November, with the centre of gravity gradually rising, but the trend is gradually forming a rising wedge that warrants caution, as this is often a signal for a reversal to the downside. RSI sits at 57.47 as of writing. On the four-hour chart, gold price trades above its 50, 100, and 200-day SMA.

Resistance levels: 1805, 1820, 1830

Support levels: 1792, 1785, 1773

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDInitial Jobless Claims21:30225K