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Daily market analysis

US Technology Shares Rally as Inflation Concerns Ease

April 3, 2023

US technology shares have continued to rally this week as concerns over inflation have eased following a modest increase in the Fed’s preferred measure of inflation in February. The rise in tech shares coincided with a rise in Treasury prices, which saw the two-year yield fall to around 4.05% while the 10-year maturity dipped to 3.48%. In addition, the US dollar gained strength against major currencies.

The personal consumption expenditures price index, which excludes food and energy, rose by 0.3% in February, slightly below the median estimate. However, the overall PCE price index rose by 5% from a year earlier, which is still above the Fed’s 2% target but down from January’s figures.

In the benchmark, the S&P 500 surged by 1.4% on the day, resulting in a weekly gain of 3.5%, the largest since November. The tech-heavy Nasdaq 100 also increased by 1.7%, enabling it to achieve its highest quarterly gain since June 2020.

All sectors in the S&P 500 stayed in positive territory, with Communication Services, Real Estate, and Consumer Discretionary getting the best performance among all groups, rallying by more than 2% on Friday.

Main Pairs Movement

On Friday, the US dollar strengthened due to slower growth in US consumer spending, leading to hopes that the Federal Reserve will not aggressively increase interest rates. The DXY index gained momentum after positive inflation data and closed at a daily high of 102.59.

Meanwhile, the EURUSD pair weakened and dropped below 1.0900 due to weaker Eurozone inflation numbers, while the US Core PCE Price Index was upbeat, putting pressure on the euro. The GBPUSD also slid by 0.4% on Friday, closing at 1.2329.

Despite the positive US PCE price index report, gold prices fell by 0.56% on Friday. The XAUUSD pair dropped sharply during the American trading session and closed at $1969 by the end of the day.

Technical Analysis

EURUSD (4-Hour Chart)

On Friday, the EUR/USD pair initially dropped to the 1.0870 area following the release of upbeat US Core Consumer inflation data, but later regained some traction and is currently trading at 1.0895 with a 0.08% daily loss. The pair remains in negative territory due to the overall strength of the US Dollar but has rebounded slightly as the greenback trimmed its intraday gains ahead of the US session.

In terms of economic data, the US Personal Consumption Expenditures (PCE) Price Index declined to 5% every year in February, and the annual Core PCE Price Index, which is the Federal Reserve’s preferred inflation gauge, also edged lower to 4.6%. This has fueled speculation that the Fed may pause its rate-hiking cycle in response to the recent turmoil in the banking sector, which has further boosted the US Dollar. Meanwhile, the Eurozone’s Harmonized Index of Consumer Prices (HICP) declined to 6.9% every year in March, but this data was largely ignored by investors.

From a technical perspective, the RSI indicator currently sits at 38, suggesting a loss of bullish momentum as it drops below the mid-line. The Bollinger Bands also indicate downside momentum, with the price falling toward the moving average, indicating that the downside trend may persist. In conclusion, as long as the 1.0874 resistance line holds, the market is likely to remain bearish. A four-hour close below 1.0800 could attract more sellers and push the pair lower to 1.0749.

Resistance: 1.0824, 1.0874

Support: 1.0780, 1.0748

XAUUSD (4-Hour Chart)

On Friday, the XAU/USD pair initially rose to a daily high of around 1,987 level after the release of lower-than-expected Core Personal Consumption Expenditure – Price Index (PCE) data from the US. However, during the US trading session, the pair retreated slightly and is currently trading at 1,976, indicating a 0.19% loss daily. The preliminary PCE price index data showed a slight decline to 4.6% YoY in February, indicating a slow fall in US consumer inflation and raising the possibility that the Fed will not take any action at its May meeting. However, the Fed officials’ statement that more work needs to be done to bring down inflation could act as a headwind for the precious metal Gold. The Fed Funds Future Curve, a market gauge of future Fed policy moves, is currently showing a 58% probability of a 0.25% hike in May versus a 42% probability of no change.

In terms of technical analysis, the RSI indicator is currently at 41, suggesting a bearish bias in the short-term outlook as the RSI is declining towards the mid-line. As for the Bollinger Bands, the price remained under selling pressure and moved lower, indicating the possibility of further downside movements. Overall, the market is expected to be slightly bearish as long as the resistance line at 1,999 holds. If the price move above this resistance level in the four-hour timeframe, it could pave the way for additional gains.

Resistance: 1975, 1988

Support: 1956, 1937

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRetail Sales (MoM)09:300.2%
CNYCaixin Manufacturing PMI (Mar)09:4551.7
EURGerman Manufacturing PMI (Mar)15:5544.4
GBPManufacturing PMI (Mar)16:3048.0
USDISM Manufacturing PMI (Mar)22:0047.5

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