Market Focus

U.S. equities pared back a rebound Thursday after a selloff in the previous session due to fears that high inflation could spur more hawkish monetary policies. The Nasdaq Composite climbed 0.52% after plummeting 1.66% on Wednesday, while the Dow Jones slipped 0.44%, following the 0.66% slump in the previous day.

The S&P 500 gained less than 0.1% — led by gains in materials and technology — after falling 0.8% Wednesday in its worst slump in more than a month. Tesla Inc. fluctuated after filings showed CEO Elon Musk unloaded $5 billion of stock. Meanwhile, Walt Disney Co. slid while Beyond Meat Inc. plunged after disappointing quarterly figures.

According to people familiar with the matter, some prominent White House officials don’t think that Jerome Powell’s sale of equity in a stock index fund in 2020 disqualifies him from being appointed a second term as Fed chair.

Last October, Powell sold shares worth between $1- 5 million. While Powell was within his rights as the transaction was outside of the Federal Reserve’s blackout period, and months after its pandemic monetary policy, the move has generated controversy. As the Fed chair nomination looms, even the tiniest move will come under scrutiny.

President Joe Biden has said he will decide “fairly quickly” on his Fed chair pick, since Powell’s term as chair expires in February. According to Bloomberg News, the president has met last week with both Powell and Fed Governor Lael Brainard at the White House. Indications of the White House thinking on the Fed trading situation don’t mean Powell will get the nomination. But they do suggest that the area of contention over the current chair has receded. Some within the administration who support Brainard for chair are still concerned about the trades, the people said.

Main Pairs Movement

The US dollar continues its uptrend amid the skyrocketing inflation that has driven investors to risk-off mode. The dollar index climbed to a fresh 2021 high of 95.15, and the Greenback posted gains against all its major rivals, with the Australian dollar being the worst performer as the commodity market is experiencing a price correction.

The EUR/USD pair fell to its lowest for this year, hitting 1.1445 and ending the day a handful of pips above it. The selling pressure for the shared currency comes from central banks imbalances, as while the Fed has already kick-started tightening and may be accelerating its pace, the ECB maintains a conservative stance.

Cable also plummeted to fresh lows around 1.3360 during the day, as poor UK data dragged the price action down. Loonie flirted with the 1.2600 level, posting a fresh monthly high, while Ninja regained 114.00, and was last seen trading at 114.05.

Gold retained its strength, advancing for a sixth consecutive day. Spot trading is above $1,860 a troy ounce and has room to extend its rally towards the 1,900 mark. Crude oil prices seesawed between gains and losses, with WTI ending the day slightly changed at $81.50 a barrel, with Brent remaining at $82.50.

Technical Analysis

GBPUSD (4- Hour Chart)

GBP/USD declined on Thursday, following yesterday’s sharp slide to two-month lows under the 1.342 level. The pair was trading higher and touched a daily high in the late Asian session, but then started to see fresh selling after the release of the UK GDP report. The downbeat data showed that the UK economy expanded by 1.3% during the July-September period, which is less than the expected 1.5% and marking a sharp deceleration from the 5.5% growth reported in the previous quarter. Manufacturing Production data also fell short of expectations. Moreover, a stronger US dollar across the board and concerns that the UK government will trigger Article 16 of the Northern Ireland Protocol both weighed on Cable.

For the technical aspect, the RSI indicator is at 30 as of writing, suggesting that the pair is in the oversold zone and a trend reversal could be expected. For the MACD indicator, the MACD is now sitting below the signal line, which also indicates a possible downward trend for the pair. Looking at the Bollinger Bands, the price moved out of the lower band first, and now it’s moving alongside the band, which indicates a bear market. In conclusion, we think the market will be bearish as the pair might have a chance to test the 1.3214 support, which was last seen in December 2020.

Resistance: 1.3607, 1.3698, 1.3835

Support: 1.3214, 1.3135

AUDUSD (4- Hour Chart)

AUD/USD is having a tough week, staying in the negative territory for three days. The pair has extended its previous decline, touching the lowest level since October 8. It is hovering around the 0.73 area, currently losing 0.44% on a daily basis. AUD/USD continue its bearish traction amid weaker Australian jobs report today, as the Australian Employment Change for October dropped 46.3K, which is sharply lower than the 50K rise expected by analysts. The Unemployment Rate, meanwhile, jumped from 4.7% to 5.2%. In addition to the economic data, the renewed US dollar strength also weighed on the pair.

From a technical standpoint, the RSI reads 28 as of writing, suggesting that the selling pressure is too high, and the pair could experience some trend reversals. Looking at the Bollinger Bands, the price moves alongside the lower band, therefore the bearish momentum is likely to persist. In conclusion, we think the market will be bearish as the pair will likely extend the downward move and head to test the 0.7226 support. A break under that support exposes the September 29 low at 0.7170.

Resistance: 0.7393, 0.7432, 0.7471

Support: 0.7226, 0.7170

 

USDCAD (4- Hour Chart)

Following yesterday’s remarkable rally, the USD/CAD pair continued to advance on Wednesday amid the surging US dollar. The pair climbed higher after breaking above the key resistance at 1.2480, and is now hoping to surpass the 1.260 level. The DXY index has gained bullish momentum since the release of Wednesday’s hot US CPI report. On top of that, oil prices dropped sharply amid fears that the Biden administration will release crude oil reserves to deal with high energy costs due to inflation pressures. The falling oil prices also dragged the commodity-linked loonie lower.

For the technical analysis: RSI is at 78 figures as of writing, suggesting that the pair is in the overbought zone and a trend reversal could be expected. Looking at the MACD indicator, the MACD is now sitting above the signal line, which also indicates an upward trend for the pair. As for the Bollinger Bands, the price is moving out of the bands so a strong trend continuation can be expected. In conclusion, we think that the market will be bullish as the pair is eyeing a test of the 1.2648 resistance. A surge above that level should strengthen the positive tone.

Resistance: 1.2648, 1.2775, 1.2896

Support: 1.2387, 1.2288