Market Focus

U.S. equities were mixed on Friday, with big tech companies being the worst performers and energy companies gaining the most. Market players are now looking closely at the next possible moves by the US Federal Reserve. The S&P 500 closed down roughly 0.3% after attempting a comeback to end a three-week winning streak, while the Dow shook off earlier losses to climb 140 points or 0.4%. The Nasdaq Composite shed 1.3% after underperformance in tech stocks held the index firmly in the red the entire session.

Cleveland Fed Chair Loretta Mester said she’s confident that the U.S. will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% going into next year. “I think that it will take some time to get inflation down,” Mester said on CBS’s “Face the Nation,” citing rising energy and commodity prices. “So I think inflation will remain above 2% this year and even next year, but the trajectory will be that it’ll be moving down.”

China’s attempts to stamp out Covid-19 are also contributing, Mester said. “Certainly the lockdown in China is going to exacerbate the problems that we have in supply chains,” she said. “So that is putting upward pressure on prices.”

Fed officials raised rates by a quarter-point last month to a target range of 0.25% to 0.5% and signalled they expect to lift rates to 1.9% by the end of 2022 and 2.8% by the end of next year, according to their median forecast.

Main Pairs Movement:

In an otherwise calm week of data, Wednesday’s release of the FOMC minutes stirred things up as they showed committee members agreeing that elevated inflation and the tight labour market warrant a balance sheet reduction to start soon. With more certainty that the Fed will embark on a faster wind-down this cycle, the yield curve has generally steepened, notably with the 2s/10s spread turning positive.

The Greenback outperformed all its major rivals last week. The EUR/USD pair closed the week 1.50% lower at 1.0877, while GBP/USD was down 0.68% at the same time, last seen at 1.3025. The Japanese Yen depreciated by 1.49%, at 124.34 against the US dollar, while its Chinese peer stayed sidelined in value. Commodity-linked currencies were also limp during last week’s trading, with USD/CAD up 0.40% to 1.2572, and  AUD/USD down 0.51% to 0.7458.

As for commodities, Gold climbed 1.18% to $1,947.68 a troy ounce, while crude closed the week in the red, with WTI closing lower by 1.61% at $97.76, and Brent at $102.32, down 1.99%.

Technical Analysis:

AUDUSD (4- Hour Chart)

AUDUSD held lower ground below the 0.7500 level despite upbeat RBA FSR as the US dollar index advanced to 100 for the first time in almost two years, boosted by the prospect of a more hawkish Federal Reserve. From the technical perspective, the overnight strong move down validated a near-term bearish breakout through the support level at 0.7471. The downward break-through triggers bearish traders. At the time of writing, the next immediate support at 0.7432 seems to hold the defensive land. Failure to defend 0.7432 will accelerate the downside momentum toward the psychological support at 0.7300. From the RSI indicator, the reading continues to hover within the negative territory. At the same time, a negative MACD shows that AUDUSD is in the negative stance on the four-hour chart.

Resistance:  0.7471, 0.7536, 0.7640, 0.7700

Support:  0.7432, 0.7300

USDCAD (4- Hour Chart)

USDCAD edged lower, intent on testing its support level at 1.2600, with the latest decent Canadian employment figures. From a technical standpoint, the four-hour outlook of USDCAD looks neutral at the time of writing since the currency pair is hovering around the support level. Acceptance above 1.2600 would attract more buying interests, boosting USDCAD further north toward the next hurdle at 1.2700. On the flip side, failure to defend the 1.2600 level would support USDCAD’s bearish stance. Looking ahead, more dynamic fluctuations will be expected to happen next week as the US is going to release some key tier data.

Resistance: 1.2700

Support: 1.2600, 1.2463

EURUSD (4- Hour Chart)

EURUSD dropped on Friday amid the strong demand for the US dollar. From the technical perspective, the outlook of EURUSD continues to align its bearish stance as it has been trading within the descending trend line since late March. On the four-hour chart, the RSI remains at nearly 35, proving that it is having a difficult time making a steady upward correction. In the meantime, the MACD continues to fall heavily in the negative territory, suggesting a bearish outlook for EURUSD. If the US dollar keeps up its strong demand, then EURUSD is looking to challenge the next immediate resistance at 1.0806.

Resistance: 1.0969, 1.1069, 101150

Support: 1.0806