Daily market analysis

US Stocks Rallied for the Second Day

August 16, 2022

The US stocks rallied for the second day in a row, as investors digested weak data on New York manufacturing and the Chinese economy. The market is coming off a fourth straight weekly gain, the longest run this year, with sentiment buoyed by signs of slowing inflation pressures that stirred hopes of a shift by the Fed to less hawkish rate hikes and a gradual slowdown in the economy. Still, the rally has left market breadth looking stretched with stocks vulnerable to a pullback. Meanwhile, data showed China’s July retail sales, investment and industrial output missed economists’ estimates, and in the Eurozone, the risk of recession has reached the highest level since November 2020.

The benchmarks, S&P500 and Dow Jones Industrial Average both advanced on Monday. The S&P500 closed near the highs of the day, reversing losses of as much as 0.5%, with nine out of eleven sectors staying in the positive territory. Moreover, the Consumer Staples sectors got the best performance among all groups, rising with a 1.05% gain on daily basis, while Energy slid with 1.98% losses for the day, performing the worst. The Dow Jones Industrial Average rose 0.4%, Nasdaq 100 increased 0.7% as big tech-led gains, and the MSCI world index moved up 0.2%.

Main Pairs Movement

US dollar edged higher on Monday, benefiting its haven status, while the Chinese yuan dipped after a batch of disappointing data prompted the country’s central bank to cut interest rates. The DXY index surged unstoppably and closed near a daily high above 106.4 for the day.

The GBP/USD slid for the day, as market mood amid undermining risk sentiment and provided a boost to the safe-haven greenback. The cables witnessed heavy selling pressure at the beginning of this week and closed near a daily-low level of 1.205. Meanwhile, EUR/USD was also under bearish momentum and dropped to a level below 1.016. It’s worth noting that investors prefer to pile onto the greenback ahead of Wednesday’s FOMC minute showdown, which may reveal some clues to the next move by Fed officials.

Gold dropped by 1.26% on a daily basis on Monday, as China data triggers risk-aversion and investors resort to selling everything amid a pessimistic market mood. XAU/USD was driven by bearish momentum almost all the day and fell from $1802 to $1780 marks. Moreover, WTI and BRENT oil declined with 2.91% and 4.53% losses on a daily basis respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair tumbled on Monday, extending its slide that started last week and dropped to a daily low below the 1.020 mark amid the risk-averse market environment. The pair is now trading at 1.01935, posting a 0.62% loss daily. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the poor results from the Chinese docket earlier in the session underpinned the safe-haven greenback and dragged the EUR/USD pair lower. The weaker-than-expected Industrial Production in China rose by 3.8% in July, indicating signs of slowing economic activity in the country and escalating concerns about recession. For the Euro, the German energy crisis continued to be the main factor of the fears about the Eurozone recession, which might act as a headwind for the shared currency.

For the technical aspect, the RSI indicator is 33 as of writing, suggesting that the pair is facing heavy bearish pressure as the RSI drops toward 30. As for the Bollinger Bands, the price preserved its downside traction and moved alongside the lower band, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0150 support line. The near-term outlook stays bearish as the technical indicators have extended their declines to negative levels.

Resistance:  1.0287, 1.0347, 1.0430

Support: 1.0150, 1.0111, 0.9988

GBPUSD (4-Hour Chart)

The GBP/USD pair declined on Monday, coming under selling pressure and refreshed its daily low near the 1.206 mark during the European session as the US dollar continues to capitalize on safe-haven flows at the beginning of the week. At the time of writing, the cable stays in negative territory with a 0.46% loss for the day. The US Dollar Index extended its rally toward the 106.00 area as the escalating geopolitical tensions between the US and China and weak data releases from China both helped the safe-haven greenback to find demand. For the British pound, the latest news on Monday reported that 30 of 51 economists expect the Bank of England to hike the policy rate by 50 bps at its September meeting in a recently conducted survey, but the news failed to lift the GBP/USD pair higher today.

For the technical aspect, the RSI indicator is 39 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. For the Bollinger Bands, the price regained the downside traction and dropped toward the moving average, therefore a continuation of the downside trend can be expected. In conclusion, we think the market will be bearish as the pair might head to test the 1.2027 support. The RSI also reflects bear signals and confirms the lack of buyers’ interest in the British pound.

Resistance: 1.2178, 1.2248, 1.2309

Support: 1.2027, 1.19400, 1.1897

XAUUSD (4-Hour Chart)

The XAU/USD pair fell on Monday amid a risk-aversion mood. The price declined toward the $1,780 level in the European session, having struggled around $1,800 earlier in the Asian session. The risk-off market remains still after China’s activity came in below forecasts. In addition, an unexpected rate cut by PBOC fueled fears over a slowdown of the world’s second-largest economy, therefore making the safe-haven US dollar more attractive. Investors seek safety in the US dollar amid market panic as US-China tension remains. The key event risk this week is Wednesday’s FOMC minutes, which could set a clear direction for gold prices if it tells the Fed’s future policy path.

For the technical aspect, the RSI indicator is 41 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. For the Bollinger Bands, the price dropped below the moving average, the downside traction should persist. In conclusion, we think the market will be bearish as the RSI indicator stands at 41 and the price drops below the moving average. The price might head to test the next support level at 1769. For more price action, eyes on the next support level.

Resistance: 1803, 1857, 1874

Support: 1769, 1757, 1714

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRBA Meeting Minutes09:30 
GBPAverage Earnings Index +Bonus (Jun)14:004.5%
GBPClaimant Count Change (Jul)14:00-32.0K
EURGerman ZEW Economic Sentiment (Aug)17:00-53.8
USDBuilding Permits (Jul)20:301.650M
CADCore CPI (MoM) (Jul)20:30