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Daily market analysis

US Stocks rallied, 10-year treasury fell below 3.7%

October 4, 2022

U.S. stocks rallied on the first trading day of the month. The Dow Jones Industrial Average rose 765.38 points to close at 29,490.89. The S&P 500 gained 2.6% to close at 3678.43. The Nasdaq Composite rose 2.3% to close at 10,815.43. The benchmark U.S. 10-year treasury yield fell below 3.7% and was last seen trading at 3.67%. The receding treasury yield allowed a rare day of gains for equities; furthermore, after a month of losses, equities entered a revival rally over the 3rd. Among the S&P 500 index, the energy sector gained the most as utility stocks benefit from the falling bond yield.

Shares of Credit Suisse took a plunge of as much as 10% on Monday as reports have surfaced that the bank has tremendous exposure to credit default swaps that were previously undisclosed. Internal memos from Credit Suisse management have surfaced that the bank is looking to raise capital in order to cover CDS exposure. Similar to the 2008 credit crisis, Credit Suisse now faces a challenge to raise funds under tight money market conditions; however, other banks have reiterated their credit health and pointed out that Credit Suisse stands alone in this turmoil. Talks of asset sales and potential divestitures have been brought to the table.

Main Pairs Movement

The Dollar Index fell 0.46% over the course of yesterday’s trading. The Greenback fell amid falling bond yields; furthermore, the rallying equity market has attracted cash flow from market participants.

EURUSD climbed 0.25% over the course of yesterday’s trading and closed at a fresh weekly high. Parity is now fully in play as the Euro continues to take advantage of the weaker Dollar.

Cable rose 1.48% over the course of yesterday’s trading. The British Pound has extended its four-day winning streak as the downbeat U.S. PMI data dragged the Dollar lower.

XAUUSD closed at around the $1,700 per ounce price level as the Dollar denominated asset attracted bidding while bond yields retreated. The lower-than-expected PMI release from the U.S. has decreased market bets on a super-sized interest rate hike by the Fed.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Monday, gathering recovery momentum and refreshing its daily high above the 0.980 mark after the release of the disappointing ISM Manufacturing PMI from the US. The pair is now trading at 0.9829, posting a 0.28% gain on a daily basis. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the recent pullback in the US Treasury bond yields from a multi-year peak has weighed on the safe-haven greenback on the first day of a new week. The US ISM Manufacturing PMI declines to 50.9 in September, which was weaker than the market expectation and pointed to a loss of momentum in the manufacturing sector’s growth. For the Euro, the German Manufacturing PMI came at 47.8 in September, which came lower than expected.

For the technical aspect, the RSI indicator is 59 as of writing, suggesting that the bulls are in control of the pair as the RSI climbed sharply towards 60. As for the Bollinger Bands, the price rebounded towards the upper band from the moving average, therefore the upside traction should persist. In conclusion, we think the market will be bullish as the pair is testing the 0.9836 resistance line. A break above that level could open the road for near-term gains.

Resistance:  0.9836, 0.9880, 0.9969

Support: 0.9755, 0.9664, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair surged on Monday, preserving its upside momentum and extending its daily rally towards a fresh 10-day high above 1.1270 in the second half of the day amid the UK government’s U-turn on the fiscal plan. At the time of writing, the cable stays in positive territory with a 1.02% gain for the day. The downbeat US ISM Manufacturing PMI exerted bearish pressure on the US dollar and provide some support to the GBP/USD pair. For the British pound, reports suggested that British Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng would reverse a cut to the 45% rate of income tax for the highest earners, which provided a strong boost to the British pound. UK Finance Minister also confirmed later that they will not go ahead with that fiscal plan.

For the technical aspect, the RSI indicator is 47 as of writing, suggesting that the pair is preserving bullish strength as the RSI keeps moving north. As for the Bollinger Bands, the price preserved its upside traction and climbed to the moving average, therefore a continuation of the bullish momentum can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.1333 resistance. A steeper rebound could be expected if the ongoing rally extends above the aforementioned resistance.

Resistance: 1.1333, 1.1432, 1.1566

Support: 1.1086, 1.0797, 1.0392

XAUUSD (4-Hour Chart)

As the US dollar came under bearish pressure amid the retreating US bond yields on Monday, the pair XAU/USD regained upside momentum and extended its rally to fresh multi-week highs above the $1,690 level during US trading session. XAU/USD is trading at $1,689.39 at the time of writing, rising 1.72% on a daily basis. The sharp decline witnessed in the US Treasury bond yields is acting as a tailwind for the precious metal, as the US Dollar Index is down 0.25% on the day. Meanwhile, the probability of one more 75 basis points Fed rate hike in November has declined toward 50% after the release of the disappointing ISM Manufacturing PMI data. Investors now waiting for the key US labour market report, which will play a key role in influencing Fed rate hike expectations and provide a fresh directional impetus to gold.

For the technical aspect, the RSI indicator is 69 as of writing, suggesting the pair’s bullish outlook in the near term as the RSI indicator has reached near 70. For the Bollinger Bands, the price witnessed fresh buying and moved out of the upper band, therefore a strong continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair is testing the $1,681 resistance. A sustained strength above that level might favour the bull and open the door for additional gains.

Resistance: 1681, 1705, 1725

Support: 1660, 1644, 1620

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRBA Interest Rate Decision (Oct)11:302.85%
AUDRBA Rate Statement 11:30 
USDJOLTs Job Openings (Aug)22:0010.775M
EURECB President Lagarde Speaks23:00 
USDCore PCE Price Index (Aug)20:300.5%