Market Focus

Stocks turned lower to close a choppy session at the start of another busy week for corporate earnings and fresh economic data, as investors continue to assess the Federal Reserve’s path forward for monetary policy. S&P 500 declined after posting its best weekly rise of the year last week, closing 0.37% lower at 4483.86. Dow Jones traded sideways, and the Nasdaq underperformed as technology shares fell anew, down 0.58% to 14015.67 at the end of the day.

U.S. President Joe Biden has said that the controversial Nord Stream 2 natural gas pipeline between Russia and Germany would be stopped if President Vladimir Putin orders an invasion of Ukraine. “We will bring an end to it,” Biden said at a joint news conference at the White House on Monday with German Chancellor Olaf Scholz in a short answer to a question about whether he had received assurances from Scholz. “The notion that Nord Stream 2 is going to go forward with an invasion by the Russians — that’s not going to happen.”

Earlier, Scholz’s top diplomat said that Europe’s largest economy was willing to “pay a high economic price” that would come with supply cutoffs. Foreign Minister Annalena Baerbock is a member of the Greens and has been more explicit than Scholz in pledging to target Nord Stream 2.

The main concern for Europe, which depends on Russia for gas, is trying to secure supplies in a scenario where gas could get cut off. Biden sought to address this worry, saying that the U.S. had been looking for alternative sources: “We think we could make up a significant portion of what would be lost.” The comments from Biden represent the largest-yet commitment by the U.S. to ensure European allies have sufficient supplies of natural gas amid potential conflict with Russia, which provides about 40% of the bloc’s needs today.

Main Pairs Movement

The week started slowly as the dollar ended the day mixed across the board. The dollar managed to add some ground against its European rivals, although EUR/USD held above 1.1400, while GBP/USD settled at around 1.3530. ECB President Christine Lagarde poured cold water on rate hikes speculation. Speaking before the EU Parliament, she said that there was no sign that inflation will measurably exceed the bank’s 2% target in the medium term.

Commodity-linked currencies, on the other hand, managed to advance with AUD/USD trading at around 0.7120 and USD/CAD accelerating its slide at the end of the day to trade in the 1.2660 price zone.

Gold maintained its bullish stance throughout the day, ending the American session at $1,820 a troy ounce. Crude oil prices, however, retreated from their multi-year highs and WTI settled at $91.20 a barrel, Brent at $92.90. US Treasury yields were sharply up ahead of the opening, holding on to gains, but pulling back from intraday highs.

 

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Monday, retreating from multi-week highs above the 1.1470 mark that touched last Friday. The pair was trading lower and dropped to a daily low during the Asian session, and is now starting to see fresh selling again after trying to rebound earlier in the session. The pair was last seen trading at 1.1441, posting a 0.08% loss on a daily basis. EUR/USD stays in the negative territory amid the recovering US dollar, despite the greenback remaining on the back foot most of the day and failing to build on the post-NFP recovery. A softer tone around the US Treasury bond yields also weighed on the greenback. In Europe, ECB’s Lagarde will speak before the European Parliament later in the session. The expectation for a potential ECB lift-off in September or December might continue acting as a tailwind for the euro.

On the technical front, the RSI is at 63 as of writing, suggesting that the upside is more favoured as the RSI has stayed above the midline. Looking at the Bollinger Bands, the price dropped towards the moving average after touching the upper band, which indicates that the pair could retain its downside traction. In conclusion, we think the market will be bearish as long as the 1.1479 resistance holds. But if the pair breaks through that level, a rally towards the 1.1550 region could be expected.

Resistance: 1.1479, 1.1599

Support: 1.1284, 1.1132

GBPUSD (4-Hour Chart)

GBP/USD edged lower on Monday, trading broadly flat at the start of the week within the 1.3500-1.3550 area. The pair was surrounded by bearish momentum and dropped to a daily low below 1.3500 level during the European session, then rebounded back to eliminate most of the intraday’s losses. At the time of writing, Cable stays in negative territory with a 0.01% loss for the day having witnessed some fresh selling. The pair is having a difficult time making a decisive move in either direction ahead of Fed policymakers and BoE Governor Andrew Bailey’s speech this week. The upbeat US job data and renewed speculations for a larger Fed rate hike at the March policy meeting should undermine the British pound and keep a lid on the upside for Cable.

On the technical side, the RSI is at 48 as of writing, suggesting that the downside appears more favoured as the RSI sits below the midline. But the Bollinger Bands showed the pair is now rising from the lower band, therefore the pair should experience some upside movements. In conclusion, we think the market will be slightly bullish as markets weigh on Fed/BoE tightening themes in the coming days. Cable might continue to flirt with the 1.3500-1.3600 area.

Resistance: 1.3608, 1.3687, 1.3739

Support: 1.3456, 1.3372

 

USDCAD (4-Hour Chart)

After last Friday’s rally to a weekly high above 1.278 level, USD/CAD was surrounded by downside momentum today amid modest US dollar weakness. The pair remained under pressure most of the day and dropped to a daily low during the American session, losing 0.60% on a daily basis. The bearish momentum witnessed in USD/CAD is caused by the weaker US dollar, as the Greenback suffered from a softer tone around the US Treasury bond yields. On top of that, crude oil is now swinging between $91.00 and $92.00, remaining well supported by expectations that global supply would remain tight amid the conflict between Russia and Ukraine. The US/Iran nuclear negotiations would also be looked upon by investors.

On the technical side, RSI is at 44 as of writing, suggesting bearish movement ahead. As for the Bollinger Bands, the pair crossed below moving average after moving out f the upper band, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.2622 support. The demand for oil might remain strong and act as a headwind for the USD/CAD pair in the near term, as many analysts also expect WTI to hit $100.

Resistance: 1.2791, 1.2829

Support: 1.2622, 1.2575, 1.2462