Market Focus

U.S. stocks halted their longest rally since 2017, sending major indices lower from all-time highs as Treasuries surged. The S&P 500 fell for the first time in nine sessions, led by a drop in financial shares that came under pressure as the 10-year yield slumped to the lowest level in seven weeks. Nasdaq tumbled 0.6%, with Tesla Inc. sinking as much as 13% after a tweet by investor Michael Burry. PayPal Holdings Inc. fell after its guidance displayed weakness, while General Electric Co. rose after saying it will split into three companies.

In the early afternoon, money-market traders will be glued to the New York Fed’s website to see the results of the overnight reverse-repurchase agreement facility.

In fact, they won’t be the only ones watching. A screenshot of this obscure but important facility’s daily usage is religiously uploaded to a Reddit forum called Superstonk, a discussion board similar to WallStreetBets where users swap memes and stock tips. As the usage of the facility swelled, the post regularly became one of the site’s most popular of the day, often attracting thousands of comments.

While professional traders check the central bank’s website to see how much excess liquidity the Fed is sopping up, many Reddit users are interested in something else: signs of an impending market crash. In some cases, Reddit investors are looking for evidence of more meme stocks “heading to the moon”.

While individual retail traders cannot use the facility, the posts appear to be influencing their trading. This behaviour is worth scrutinizing because it’s the type of hive-mind theorizing that has a habit of beginning as a social-media curiosity and ending up having big effects in the real world, such as the wild price action in meme stocks earlier this year.

Main Pairs Movement

The Greenback maintained its tepid tone during the Asian session but became more attractive during US trading hours. The catalyst for the dollar’s demand was another sign of inflationary pressures spurring risk-off. Wall Street edged lower after the release of the US Producer Price Index, which was confirmed at 8.6% YoY in October.

The EUR/USD pair tried to breach 1.1600 a couple of times but was stopped by robust selling pressure. European Central Bank (ECB) policymakers’ comments were mixed toward the union’s future monetary policy. Klaas Knot said that conditions for a rate hike are very unlikely to be met in 2022, while Supervisory Board Chair Andrea Enria said low ECB interest rates are now hurting bank margins more than they are boosting lending volumes.

Dollar’s performance was mixed against its other major rivals. Cable was hovering around 1.3550 after a failed attempt to recover above 1.3600, while the yen dived below the 113.00 threshold. Commodity-linked currencies seemed to lose their upward momentum, as the US EIA raised this year’s forecast for oil demand by 60,000 barrels per day.

Gold traded at a fresh one-month high around $1,830 a troy ounce amid dismal market sentiments. Crude oil prices soared as well, with WTI posting $84.50, and Brent was last seen at $85.10. US Treasury yields declined further on Tuesday, with the 10-year benchmark closing at 1.44%.

 

Technical Analysis

AUDUSD (4- Hour Chart)

AUD/USD declined on Tuesday, struggling to preserve its previous day’s rally. The pair was trading lower in the early Asian session and touched a daily low under 0.74 level for a time. Even though AUD/USD tried to rebound back during the European session, it started to see heavy selling at the time of writing. The National Australia Bank Business Confidence report showed 21 on Tuesday, as the easing of lockdown restrictions resulted in improvements in business confidence. But the upbeat data failed to underpin the AUD/USD, which has currently dropped towards the 0.735 area.

From a technical standpoint, the RSI indicator is at 38, suggesting bear movement ahead. For the MACD indicator, the positive histogram has started to diminish, which also indicates a possible downward trend for the pair. If we take a look at the Bollinger Bands, the price has crossed above the moving average after touching the higher band, therefore the lower band has become the loss target. In conclusion, we think the market will be bearish as long as the 0.7431 resistance line holds.

Resistance: 0.7431, 0.7474, 0.7556

Support: 0.7324, 0.7226, 0.7170

 

EURUSD (4- Hour Chart)

EUR/USD edged higher on Tuesday and is currently moving sideways around the 1.159 area. The pair touched a three-day high in the late Asian session but failed to preserve its bullish momentum as bears took over during European trading hours. EUR/USD was last seen trading at 1.1588, posting a 0.03% gain for the day. The renewed weakness witnessed in the US dollar provided some supports for the pair. However, expectations that the Fed would adopt a more aggressive policy response to high inflation could limit the loss for the greenback and cap the upside for EUR/USD. Some FOMC officials have also signalled that the Fed could raise rates by the end of 2022.

From a technical viewpoint, the RSI indicator is at 50 as of writing, suggesting that there is no obvious trend for now. Meanwhile, the MACD is now sitting above the signal line, which indicates a possible upward trend for the pair. Looking at the Bollinger Bands, the price fell towards the moving average after touching the upper band, which also indicates a continuation of the downward trend. In conclusion, we think that the market is consolidating now without a clear direction. Market focus has now shifted to the US CPI report on Wednesday, where investors could be looking for trading impetus.

Resistance: 1.1617, 1.1692, 1.1752

Support: 1.1535, 1.1514

 

USDCAD (4- Hour Chart)

USD/CAD rose 0.02% on Tuesday despite the weaker US dollar across the board. The USD/CAD pair started to see heavy selling after it touched a fresh daily top. Falling US Treasury bond yields weighed on the greenback as the 10-year yield lost 4.15% for the day. On top of that, higher crude oil prices underpinned the Loonie as rising jet fuel demand helped global oil demand recover back to pre-pandemic levels above 100M barrels per day. Investors now await tomorrow’s US CPI data, which is a key way to measure changes in purchasing trends and inflation.

For technical analysis: the RSI indicator is at 53 as of writing, suggesting tepid bull movement ahead. As for the Bollinger Bands, the price is rising from the lower band and chances are high that it will move towards the upper band since prices tend to bounce within the bands’ envelope. In conclusion, we think that the market will be bullish as the pair may try to re-test the 1.2499 resistance.

Resistance: 1.2499, 1.2648, 1.2775

Support: 1.2378, 1.2301