US Shares End 6-Day Slide

29 September 2022, 02:30

Market Focus

US stocks rallied on Wednesday, regaining upside strength and ending their six-day slide after the Bank of England’s decision to stage a market intervention boosted UK bonds and tentatively calmed markets. The BOE decided to buy long-dated UK government bonds starting today to restore market conditions and later confirmed that it would buy just £1.025 billion in the emergency QE operation. Therefore, the BoE’s decision supported the market sentiment and global markets enjoyed a break from the brutal selling that has gripped them since the Fed embarked on the most aggressive path of interest-rate hikes since the 1980s. However, several US Federal Reserve officials still remained hawkish, repeating the well-known message of another 75 bps coming up next. In the Eurozone, ECB President Christine Lagarde participated in a US-European GeoEconomics forum and said they would continue to hike rates in the next several meetings. Several other ECB Governing Council members also openly favored a 0.75% rate hike in the next meeting.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Wednesday as the S&P 500 snapped a six-day rout and rose the most since early last month. The S&P 500 was up 2.0% on a daily basis and the Dow Jones Industrial Average also climbed higher with a 1.9% gain for the day. All eleven sectors in the S&P 500 stayed in positive territory with the Energy and Communication Services sectors the best performing among all groups, rising 4.40% and 3.18%, respectively. The Nasdaq 100 advanced with a 2.0% gain, while the MSCI World index was down 0.1%.

Daily Return vs US Dollar(%)

Main Pairs Movement

The US dollar declined sharply on Wednesday, failing to preserve its upside traction and dropping to a daily low below the 112.70 mark in the late US session after a positive turnaround in the global risk sentiment. But the downside for the US dollar seems limited amid the prospects for more aggressive policy tightening by global central banks, including the Federal Reserve. Market focus now shifts to German inflation data.

GBP/USD rebounded higher on Wednesday with a 1.42% gain after Cable touched a daily top above the 1.090 mark amid the Bank of England’s (BoE) efforts to cap the fixed income market. On the UK front, the Bank of England entered the bond market on Wednesday which aimed to stimulate the economy. Meanwhile, EUR/USD also staged a goodish rebound and refreshed its daily high near 0.974 level amid US dollar weakness. The pair was up almost 1.45% for the day.

Gold surged higher by 1.91% after climbing to a daily top above the $1660 mark during the late US trading session, as a sharp pullback in the US bond yields weighed on the greenback and underpinned the safe-haven metal. Meanwhile, WTI Oil advanced higher with a 4.95% gain for the day after recovering towards the $82 area amid the risk-on market mood.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD (4-Hour Chart)

EURUSD rallied more than 1% over the course of the previous trading day amid a broad based Dollar sell off. The short term U.S. 10-year Treasury yield retreated back below 3.8% and is currently trading at 3.737%. Market participants rotated out of the U.S. Dollar into equities as equity markets rebounded off of fresh lows. All major U.S. equity indices rose more than 1%. A 75 basis point interest rate hike by the ECB is now being entertained as the E.U. continues to struggle with soaring inflation.

On the technical side, EURUSD has rebounded strongly off of our previously estimated support level of 0.96. Should the Dollar continue to weaken, EURUSD could head back above the 0.97 price region. RSI for the pair sits at 39.8, as of writing. On the four hour chart, EURUSD  is currently trading below its 50, 100, and 200 day SMAs.

Resistance:  1.0011, 1.0055

Support: 0.98, 0.96

GBPUSD (4-Hour Chart)

GBPUSD (4-Hour Chart)

Cable rallied 1.45% over the course of the previous trading day. The decision by the BoE to restart its bond purchasing program in order to control the pound’s recent freefall has allowed it to rise against the U.S. Dollar. The BoE’s plan to purchase longer dated bonds to stabilize its currency, however, has attracted many criticisms, including comment from the IMF. The short term decision by the BoE continues to raise our previous concerns of the health of British credit. Further widening its credit deficit could put the British economy under tremendous stress; furthermore, members of the British Finance ministry have come forward to confirm that there are no plans to reverse its cancellation of its latest tax policy.

On the technical side, GBPUSD has found support just below our previously estimated support level and is now consolidating around the 1.08 price region. Short term resistance for the pair stands at the 1.1 price region. RSI for the pair sits at 29.34, as of writing. On the four hour chart, GBPUSD currently trades below its 50, 100, and 200 day SMAs.

Resistance: 1.1561, 1.1854

Support: 1.08, 1.053

XAUUSD (4-Hour Chart)

XAUUSD (4-Hour Chart)

Gold rebounded more than 1.8% over the course of the previous trading day. The precious metal saw a surge in price as the U.S. Greenback witnessed a broad based sell off. The non-yielding metal found momentum as market participants rotated out of the Dollar and into equities. Macroeconomic environment for the yellow metal, however, remains unchanged. While Gold bulls are able to find a day of breathing room and profit taking space, the short term upward movement of Gold does not suggest a break away from its recent downward trend. Market participants will be paying close attention to the U.S. GDP data, scheduled to be released during today’s American trading session.

On the technical side, XAUUSD rebounded strongly from our previously estimated support level of $1619 per ounce and is now trading above our higher level of support for Gold at $1660 per ounce. Note that $1660 could change polarity and become a short term resistance for Gold. RSI for the pair sits at 35.7, as of writing. On the four hour chart, XAUUSD  is currently trading above its 50 day SMA but below its 100 and 200 day SMAs.

Resistance: 1695, 1724

Support: 1619, 1600