Market Focus

Wall Street’s major indexes continued their sharp losses on Thursday, especially late in the session as investors considered whether stocks were cheap after a sell-off at the start of the year while the Nasdaq slipped into correction territory. In addition, the S&P 500’s plummet was largely driven by a slump in consumer discretionary stocks and renewed weakness after tech stocks failed to hold on to their intraday gains for the second day in a row. At the end of the market, the Dow Jones Industrial Average fell 0.89% to 34,715.39 points, the S&P 500 index lost 1.10% to 4,482.73 and the Nasdaq Composite Index dropped 1.3% to 14,154.02 points.

10 of the 11 major sectors in the S&P 500 ended lower, with the consumer discretionary sector down 1.9%, followed by the materials sector, down 1.43%, and the lone winner was utilities, which edged up 0.1%. Consumer discretionary stocks were led lower by Amazon, Garmin and VF Corporation, which lost 1.30%, 6.05% and 5.73%, respectively. On the other hand, the Dow’s worst intraday performances were Dow Inc. down 3.39%, Intel Corp down 2.95% and Home Depot down 2.81%.

Main Pairs Movement

Disappointing U.S. jobs-related data weakened the dollar in the U.S. session, with initial jobless claims unexpectedly jumping to 286K for the week of Jan. 7, the highest level since late October. However, as the three major indexes plummeted, the dollar index began to soar and reached around 96.

Sterling was down just 0.1% at the end of the day. A lack of specific data was released, but the pair gained 0.6% intraday as the Greenback weakened. However, the pound then fell as the Greenback strengthened. On Friday, core retail sales data and comments from BOE members may provide some direction on the way forward.

A similar situation occurred with the euro, which rose first and then fell against the dollar. ECB President Christine Lagarde is due to speak later in the day, but a rate hike remains less likely.

Gold settled little-changed at around $1,840 an ounce but managed to hit a fresh two-month high of $1,847.92. Meanwhile, crude prices surged to fresh multi-year highs, with WTI hitting $87.08 a barrel and Brent hitting $89.46 a barrel.

Technical Analysis

GBPUSD (Daily Chart)

Cable made a mild slide in the Asian session but jumped fiercely at the start of the European trading hours, extending further north after dismal US job data was released, which weighed heavily on the dollar’s demands. The pair now trades around 1.3645, posting 0.23% gains during the intraday trades. The rate competition between the hawkish Bank of England and the Federal Reserve will continue to be the main driver to Cable’s future price actions, as the Fed has announced its rate hike timetable that has been priced in by the market, we expect that GBP/USD to climb further once new BoE hawkish policies being announced. Investors’ eyes are now on the February 3rd BoE meeting.

On the technical front, the RSI for Cable remains around 60, and the pair has settled above its 20 and 50 DMA, and is eyeing the critical 200-day one. Cable is lingering around the 1.3640-50 level at the moment. On the upside, if the pair break through its 200 DMA, the next resistance will be at 1.3830, then 1.3900; on the flip side, if the pair failed to cling on the 1.3600 level, the next effective support will appear at 1.3400, followed by 1.3200, where the one-year lows lie.

Resistance: 1.3734 (200 DMA), 1.3830, 1.3900

Support: 1.36600, 1.3400, 1.3200

EURUSD (Daily Chart)

The euro pair is holding the lower ground below 1.1350 as the US dollar attempts a bounce in tandem with the Treasury yields amid a risk-on mood. The sentiment on Wall Street has improved quite a bit, in anticipation of corporate earnings reports. That fuelled a fresh sell-off in the US Treasuries, which in turn, prompted the yields to resume their uptrend. The upturn in the yields lifted the sentiment around the dollar at the euro’s expense. The escalating Russia-Ukraine crisis, with has seen the US imposing sanctions on four Ukrainian officials and accusing them of destabilizing Ukraine, also boosted demand for the safe-haven US dollar.

On the technical side, the EUR/USD pair’s price action has shifted to the south, heading to the next retracement line at around 1.1300. The RSI for the pair continues to fall and is now reading 47.74, showing a stronger downside pressure weighing on Euro. As previously mentioned, the pair could fall over the 1.1300 support and then season lows around the 1.1200 support. The pair is still capped by its 20 and 200 DMA, slightly above the 50 DMA.

Resistance: 1.1380, 1.1440,1.1500

Support: 1.1300, 1.1200

XAUUSD (Daily Chart)

Gold price remains almost unchanged on the day around $1,841 a troy ounce, as it fades its uptick from fresh two-month highs of $1,848. The latest leg down in gold price could be associated with a tepid bounce seen in the US Treasury yields, which helps put a fresh bid under the dollar. Additionally, a broad rebound across markets fuels risk-on flows, dulling gold’s appeal as a safe-haven asset. Despite the pullback, the yellow metal remains supported by soaring inflation globally and negative real returns, along with escalating geopolitical tensions surrounding the US, Russia and Ukraine amid a probable invasion by the Kremlin of the latter.

From the technical perspective, the RSI bias continues to point to the upside, after breaking the $1830 area on Wednesday. Since the next resistance lies $20 above the current price level, there’s still room for the gold’s traction. As previously mentioned, we expect the short-term uptrend to reach the critical $1,860 resistance, though the downside risk will gradually increase during its climb.

Resistance: 1860, 1900

Support: 1830, 1800, 1765