US stocks wavered on Thursday as traders parsed various corporate earnings against a backdrop of aggressive interest-rate hikes by global central banks. The US yield curve continues to be inverted as recession fears persist.
The S&P 500 ended the session little changed after fluctuating throughout the day. The Nasdaq 100 closed up higher for the second straight day after swinging between modest gains and losses.
A flurry of economic data that released this week assuaged fears of a downturn while hinting at stabilizing growth. But the bond market, especially the persistently inverted Treasury yield curve, is flashing warnings on the economy amid a global wave of monetary tightening. All eyes will be on the US jobs report on Friday for further clues about the Federal Reserve’s path of rate hikes.
Elon Musk said he sees signs that the global economy has gone “past peak inflation.” Speaking at the electric-vehicle maker’s annual shareholder meeting, Musk said the company’s commodity and component costs are trending downward over the next six months. He also reiterated prior comments that he expects a mild recession to hit that could last 18 months.
“The trend is down, which suggests we are past peak inflation,” Musk said at Tesla’s Austin headquarters and factory. “I think inflation is going to drop rapidly” at some point in the future, he said.
Global central banks have embarked on a path of policy-tightening as inflation pressures consumers and corporate bottom lines. In the US, consumer prices increased by 9.1% in June from a year earlier, and Federal Reserve officials say the price gains have yet to slow. The next print on inflation comes Aug. 10.
Main Pairs Movement
The dollar fell against most of its major rivals, ending the day near its recent lows, usually a sign of further declines ahead in the near term. The fear of a global recession returned after the Bank of England announced its latest decision on monetary policy. The central bank raised interest rates by 50bps to 1.75% as expected.
However, politicians have revised their inflation forecast upwards, expecting a recession in the next five quarters. A Federal Reserve official said that recession risks have increased in the US and that interest rates should continue to rise at least through this year and the first half of 2023.
GBP/USD recovered some of its losses from the past two days and advanced towards 1.2170 in early European trading on Thursday. EUR/USD benefited from the broad dollar’s weakness and settled around 1.0250.
AUD/USD advanced and hovered around 0.6970, bolstered by gold, as it reached fresh one-month highs in the $1,790 price zone. The US dollar strengthened against the Canadian dollar, climbing to around 1.2860 before settling at that level. WTI currently trades at $88.40 a barrel.
XAU/USD has pushed down within its weekly bullish correction to mark a high of $1,794.23. Gold prices increased as US bond yields decreased and the Bank of England issued a warning that the UK’s economy might be headed for a recession later this year due to the possibility that inflation could reach 13%.
EURUSD (4-Hour Chart)
The EUR/USD pair advanced on Thursday, regaining upside momentum and rebounding from a weekly low below the 1.013 mark that it touched yesterday. The pair is now trading at 1.02106, posting a 0.46% gain on a daily basis. EUR/USD stays in the positive territory amid weaker US dollar across the board as falling US Treasury bond yields and the disappointing Jobless Claims data exerted bearish pressure on the greenback. The US Weekly Initial Jobless Claims rose to 260K, which came in slightly worse than the market expectation of 259K. But the recent hawkish stance from several Fed speakers and expectations for further rate hikes in the next months should limit the losses for the greenback. For the Euro, the IHS S&P Global Germany Construction PMI fell to 43.7 in July.
On the technical side, the RSI is at 57, suggesting that upside is more favored as the RSI stays above the midline. As for the Bollinger Bands, the price preserved its upside strength and crossed above the moving average, therefore the bullish momentum should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.0221 resistance line. A break above that level might bring additional gains to the pair.
Resistance: 1.0221, 1.0287, 1.0438
Support: 1.0150, 1.0082, 0.9991
The GBP/USD pair edged lower on Thursday, coming under selling pressure and dropping to a daily low below 1.208 level after the announcement of the Bank of England’s policy decision. At the time of writing, Cable stays in negative territory with a 0.17% loss for the day. The BoE decided to raise the benchmark rate by 50 bps to 1.75% as widely expected, which was fully priced in the markets and prompted fresh selling around Cable. For the British pound, the currency remained under bearish momentum amid the dovish BoE policy decision. Investors continue to anticipate further rate hikes after this week. Moreover, BOE Governor Bailey also said that he expects the UK economy to tip into recession in Q4 in the press conference, therefore the pound is likely to have a difficult time finding demand.
On the technical side, the RSI is at 48, suggesting that the bull is preserving strength as the RSI climbs toward the midline. For the Bollinger Bands, the price failed to touch the lower band and started to rise, indicating that some upside traction can be expected. In conclusion, we think the market will be bullish as the pair is heading to retest the 1.2178 resistance line. On the upside, additional gains can be expected if the pair break above the aforementioned resistance.
Resistance: 1.2198, 1.2277, 1.2317
Support: 1.2050, 1.2002, 1.1897
USDCAD (4-Hour Chart)
Despite the US dollar coming under selling pressure amid dismal Initial Jobless Claims data on Thursday, USD/CAD witnessed some upside momentum and climbed to a daily top above 1.287 mark in early US trading session. USD/CAD is trading at 1.28671 at the time of writing, rising 0.21% on a daily basis. Market focus now shifts to the Canadian employment conditions report and US Nonfarm Payrolls for July this Friday, as the market mood is mixed after US House Speaker Nancy Pelosi’s trip to Taiwan. On top of that, the falling crude oil prices also undermined the commodity-linked loonie and pushed the USD/CAD pair higher as WTI tumbled back to $88 per barrel area. Investors started to seek safety as the regional tensions escalated.
On the technical side the RSI is at 51, suggesting the pair’s indecisiveness in the near term as the RSI indicator stays near the midline. For the Bollinger Bands, the price lost its upside strength and dropped toward the moving average, therefore a continuation of the downside trend could be expected. In conclusion, we think the market will be bearish as long as the 1.2885 resistance line holds. The falling RSI also reflects bear signals.
Resistance: 1.2885, 1.2944, 1.2986
Support: 1.2823, 1.2785