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Daily market analysis

US stocks rose ahead of midterm elections and inflation data this week

November 8, 2022

US stocks rallied higher on Monday, preserving their upside traction for the second day and extending their previous rally ahead of midterm elections and inflation data later this week. The renewed speculation that the US Federal Reserve will ease the pace of quantitative tightening regardless of Chair Jerome Powell´s hawkish comments and easing restrictive measures in China has underpinned the market sentiment. Therefore, the risk-on mood acted as a tailwind for the equity markets on the first day of the week.

Markets focus now shifts to the release of the US Consumer Price Index (CPI) report for October, which will be closely watched after the core consumer price index rose more than forecast to a 40-year high in September. In the Eurozone, the upbeat EU data and hawkish comments from the European Central Bank (ECB) officials have provided support to the shared currency, as they said that the central bank shouldn’t stop rate hikes as long as underlying inflation has not peaked.

The benchmarks, S&P 500 and Dow Jones Industrial Average both climbed higher on Monday as the S&P 500 gained for a second day ahead of US midterms and closed near session highs with the US dollar falling with Treasuries. The S&P 500 was up 1.0% daily and the Dow Jones Industrial Average also advanced higher with a 1.3% gain for the day. Eight out of eleven sectors in the S&P 500 stayed in positive territory as the Communication Services and Energy sectors are the best performing among all groups, rising 1.82% and 1.73%, respectively. The Nasdaq 100 meanwhile climbed higher with a 1.1% gain on Monday and the MSCI World index was up 1.1% for the day.

Main Pairs Movement

The US dollar declined lower on Monday, extending its previous slide and refreshed daily lows below the 110.10 mark during the US trading session as Wall Street picked up momentum ahead of the close. Market participants believe that a slowdown in the pace of rate hikes by the Federal Reserve (Fed) is certain, making the American currency end up losing further ground against its major rivals. The upbeat market mood spurred by a seasonal US mid-term elections rally has also undermined the greenback.

GBP/USD outperformed on Monday with a 1.19% gain after the cable touched a daily high near the 1.1540 mark amid renewed US dollar weakness. On the UK front, uncertainty in the US political scenario ahead of US midterm elections and the US Consumer Price Index (CPI) report looming both helped the British pound to find demand. Meanwhile, EUR/USD preserved its upside momentum and climbed above the 1.0000 mark ahead of Eurozone Retail Sales and US inflation data. The pair was up almost 0.60% for the day.

Gold declined with a 0.37% loss for the day after failing to edge higher and retreated to the $1,675 mark during the late US trading session, as the positive market mood is weighing on the safe-haven metal despite the US dollar’s weakness. Meanwhile, WTI Oil dropped with a 0.89% loss for the day as China stays committed to zero covid policy. Crude oil prices have retreated to the $91.00 area.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD advances for the second session in a row and gains more than two cents since last week’s lows around 0.9730, always against the backdrop of the persistent sell-off in the greenback. The pair was priced at 0.9990 level and aiming to 1.0000 psychological level. Indeed, the dollar remains offered as market participants continue to gauge the mixed results from Friday’s Payrolls and recent Fedspeak leaning towards an impasse in the Fed’s normalization process. The persistence of the positive traction in the pair so far comes in line with the mixed performance in US yields and some loss of momentum in the German 10-year bond yields after two daily advances in a row. On the other side, tepid Chinese data weighed on market sentiment and drew support for the safe-haven greenback, but the US dollar quickly resumed its decline tendency. Despite the number of new coronavirus cases on the rise, investors are once again pricing in easing restrictive measures.

From the technical perspective, the four-hour scale RSI indicator extended its rally from last week figured 65 as of writing, suggesting the pair remained upbeat market mood and continued to move higher. As for the Bollinger Bands, the euro was pricing in the upper area and the size between upper and lower bands got larger, which is a signal that the pair was amid strong bullish momentum despite being capped by the psychological 1.0000 level at the time of writing.

Resistance: 1.0000, 1.0094

Support: 0.9813, 0.9730, 0.9636

GBPUSD (4-Hour Chart)

The GBPUSD extended its gains during the North American session due to upbeat market sentiment spurred by a seasonal US mid-term elections rally. At the same time, investors brace for the results of the latter and the October US Consumer Price Index. Even though the Bank of England (BoE), said that they would hike rates, but not at the level money market futures priced in, the pair was pricing at 1.15156 as of writing with 1.26% on daily basis. Furthermore, the Guardian reported that British Finance Minister Jeremy Hunt was planning to announce 60 billion Pounds of tax rises and at least 35 billion Pounds of spending cuts. The BoE said that they have not taken potential austerity measures or tax increases into account when deciding on the policy action. Hence, the BoE’s dovish stance could be reaffirmed in case the UK government decides to run a tighter fiscal policy. However, the US Dollar market demand is likely to continue to drive the pound’s movement in the near term.

From the technical perspective, the four-hour scale RSI indicator steadily climbed to 64 figures as of writing, suggesting that the pair was amid strong bullish momentum. As for the Bollinger Bands, the price was priced near the upper band. Hence, we think the pounds would confront some resistance around the upper band of 1.1550 and then challenge the 1.1645 level in the near term.

Resistance: 1.1645, 1.1738

Support: 1.1410, 1.1163, 1.0934

XAUUSD (4-Hour Chart)

Gold was put sideways and was priced at $1676.8 marks following touched the daily high of $1681.9 marks. The US dollar started the day on the back foot as the market mood improved at the beginning of the week and ahead of the release of US inflation figures. The US Consumer Price Index is expected to have eased in September from 8.2% YoY to 8% in October. The core reading, which excludes volatile food and energy prices, is foreseen at 6.5%, barely down from 6.6%. Furthermore, a combination of factors underpinned the market risk sentiment. The comments by the Chinese National Health Commission, which has reiterated the Government’s commitment to the Zero-COVID policy and warned about the possibility of severe restrictions ahead, as the winter flu season approaches. However, this has not altered the market mood, as in absence of first-tier macroeconomic releases, the positive Friday’s Non-Farm Payrolls report is still driving market sentiment on Monday.

From the technical perspective, the four-hour scale RSI indicator edged lower to 64 figures as of writing, suggesting that the positive traction has been lower. As for Bollinger Bands, the yellow metal was stability pricing in the upper area the following retreat back below the upper band, signalling that the pair witnessed some selling transactions around $1684 marks. Therefore, the bullish could persist to challenge the $1700 psychological level if breaking through the $1684 resistance with strong positive traction.

Resistance: 1684, 1701, 1729

Support: 1654, 1641, 1615