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US Stocks lower on Friday, US 10-year treasury yields rise above 4%

October 17, 2022

U.S. stocks edged lower on the last trading day of the week. The Dow Jones Industrial Average lost 1.34% to close at 29634.83. The S&P 500 dropped 2.37% to close at 3593.07. The tech-heavy Nasdaq Composite slumped 3.08% to close at 10321.39. Equities reversed gains from Thursday’s turbulent trading as U.S. short-term yields soared. The benchmark U.S. 10-year treasury yield, once again, soared past 4% and was last seen trading at 4.022%.

Market turmoil resumed amid the major reversal in fiscal policy from the U.K. Prime Minister Truss has, for the second time, go back on her “mini-budget” policy, which originally slashed corporate tax increases planned by the previous administration, and has now decided to increase tax rates in only a few industries but those increases will not come until April 2023.

On Friday, JPMorgan Chase & Co. and Wells Fargo & Co. reported Q3 earnings results. While JPMorgan Chase saw revenue climb by 8.4% and net interest margin came in above market estimates, the bank saw a drop in investment banking fees, home lending, and corporate securities investment. Wells Fargo & Co., on the other hand, reported a revenue drop to $18.77 Billion, sliding 3.5% quarter over quarter; however, net interest income spiked 36% as interest rates increased over the course of Q3 and mortgage-backed securities were amortized at a lower rate.

Main Pairs Movement

The Dollar index rose 0.79% over the course of last Friday’s trading. The U.S. Greenback wiped away last Thursday’s losses as yields closed above 4% on Friday. Demand for the Dollar resumed amid a turbulent Gilt market and a broad market sentiment reversal.

EURUSD dropped 0.59% over the course of last Friday’s trading. The Euro fared worse against the Dollar as market participants come to grips with the soaring CPI data from the U.S. Short-term outlook on the Euro remains bearish.

GBPUSD lost 1.22% over the course of last Friday’s trading. The British Pound weakened as the Truss administration, once again, reversed course on their “mini-budget” policy. Gilt yields were slightly down, weakening the Pound.

Gold lost 1.3% over the course of last Friday’s trading. The non-yielding metal could not compete against the Dollar even though market sentiment took a sharp dive on last Friday. The soaring U.S. short-term interest rate expectations will continue to weigh on the yellow metal.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Friday, failing to extend its intra-day rebound and dropping towards the 0.9710 area after the mixed data from the US showed that Retail Sales remained virtually unchanged in September. The pair is now trading at 0.9736, posting a 0.41% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the greenback rebounded back slightly towards the 113.00 area despite the retreating US Treasury bond yields. The stronger US consumer inflation figures released on Thursday reaffirmed market expectations that the Fed will continue to tighten its monetary policy at a faster pace, which should act as a tailwind for the greenback. For the Euro, the European Central Bank President Christine Lagarde said that the ECB’s Governing Council expects to raise interest rates further over the next several meetings as inflation in the euro area is far too high.

For the technical aspect, the RSI indicator is 50 figures as of writing, suggesting that the pair is struggling to gather bullish momentum as the RSI stays near 50. As for the Bollinger Bands, the price lost its upside traction and dropped towards the moving average, therefore some downside momentum can be expected. In conclusion, we think the market will be bearish as the pair is heading to test the 0.9735 support. Sellers could show interest if the pair falls below that support and confirms that level as resistance.

Resistance:  0.9836, 0.9921, 0.9986

Support: 0.9735, 0.9667, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair tumbled with 0.98% losses for the day and priced at 1.1205 as of writing since a combination of factors promoted aggressive selling on Friday. The British pound is pressured by the latest UK political developments, wherein reports confirmed that financial minister Kwasi Kwarteng has been sacked, making him the shortest-serving chancellor since 1970. This comes amid the emergence of aggressive US dollar buying, exerting more downward pressure on the cables. On Friday, British Prime Minister Liz Truss said that they have decided to keep the corporation tax rise and added that this would act as a downpayment on the medium-term fiscal plan. However, this move failed to help the pound find demand, as investors may lose their faith in the UK government. Furthermore, the strong US consumer inflation data released on Thursday almost confirmed the speculation that another supersized 75 bps rate hike at the next FOMC meeting in November, which is underpinning the greenback.

From the technical perspective, the RSI indicator figured 52, suggesting that the cables remained mild bullish momentum until RSI fell down below 50, we think the pounds would turned weak and confront some selling pressure. As for Bollinger Bands, the pair fell from above the upper band to around the 20-period moving average area, and the gap between the upper and lower bands became larger, which is a signal that the upside traction was weaker and when the price fell below the average support, the pair would witness some downside tractions.

Resistance: 1.1327, 1.1476, 1.1714

Support: 1.0956, 1.0797, 1.0632, 1.0387

XAUUSD (4-Hour Chart)

The XAUUSD extends its losses, while the greenback recovered some ground following Thursday’s US inflation report, which will keep the Fed’s pedal to the metal as traders brace for big rate hikes in November and December FOMC’s meetings. The gold was priced at $1641 as of writing. US equity indices opened in the red, portraying a negative sentiment, and high US T-bond yields support the US dollar, which weighs on XAUUSD. Meantime, a slew of Fed policymakers is crossing the newswires. They all clearly expressed that inflation is not cooling and unacceptable. The San Francisco Fed Mary Daly reiterated the need to get policy restrictive and foresees the Federal funds rate (FFR) to peak at around 4.5% – 5%, which now sits at 3.25%. Investors need to keep eye on next week’s US economic docket featuring the Philadelphia Fed Index, Industrial Production, and unemployment claims. Additionally, Fed speakers will continue to dominate the headlines.

From the technical perspective, the RSI indicator figured 35 as of writing, indicating that the gold was amid heavy selling pressure until the RSI fell below 30, an oversold area, then may attract some bargain hunters. As for Bollinger Bands, the pair fell below lower bands and the gap between upper and lower bands became larger, implying the downside trend would persist. If the price fell below the $1640 psychology level, then the bearish momentum would test the two-year low $1616 mark.

Resistance: 1680, 1712, 1725

Support: 1640, 1616, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
NZDCPI (QoQ) (Q3)05:451.6%
AUDRBA Meeting Minutes08:30 
CNYGDP (YoY) (Q3)10:003.4%
CNYIndustrial Production (YoY) (Sep)10:004.5%
EURGerman ZEW Economic Sentiment (Oct)17:00-66.0