Market Focus

U.S. equities slipped Monday as investors shifted attention to the upcoming earnings season and a heavy economic calendar this week as the US Fed is ready to speed up its moves to fight inflation. The S&P 500 lost 1.69% on top of last week’s losses. Nasdaq plummeted over 2% as big tech companies encountered fresh selling pressure. Dow Jones dropped the least, only down 1.19% thanks to its defensive and industrial components.

The feel-good days for the global markets seem over. Everything from stocks to bonds is falling — even oil has pulled back from near records — in a concerted cross-asset selloff that has echoes of the rate-spurred rout of October 2018.

Blame it on the Fed’s intent on restricting policy to tamp down the worst inflation in four decades, even if that threatens economic growth. Unlike four years ago, when Fed Chair Jerome Powell faced market upheaval that would eventually force him to reverse policies, investors in recent weeks have been subject to one Fed official after another pledging higher and higher rates.

With monetary support rapidly receding and recession risks rising, investors are hunkering down. Companies resilient to an economic slowdown such as health care, are back in favour, as well as cash and dividend-paying stocks. Meanwhile, demand for hedging is creeping up in the options market.

“The common denominator in each case is the fear of recession, which has superseded the textbook effect of rising interest rates,” said Robert DeLucia, senior economic adviser at Empower, a retirement services company. “We are seeing a stampede into defensive stocks and an aversion to economically sensitive stocks.”

Main Pairs Movement:

Sentiments were sour at the beginning of the week, with the US dollar initially falling but later regaining strength against its major rivals. Yields surged amid concerns related to skyrocketing inflation and the Fed’s aggressive response to it.  The threat of recession looms, with investors all scared off by the previous yield curve inversion, which is said to be a sign of an economic downturn. The yield of the 10-year Treasury note peaked at 2.793%, while that on the 2-year note hit 2.594%.

The EUR/USD pair and GBP/USD ended the day little changed, at 1.0880 and 1.3020 respectively. Commodity-linked currencies were the worst performers, with AUD/USD down to the 0.7410 price zone and USD/CAD up to 1.2636. Demand for safety pushed USD/CHF lower, to the 0.9300 region. However, soaring US government bond yields helped USD/JPY to reach a fresh multi-year high of 125.76, and is currently trading a handful of pips below the latter.

As for commodities, gold is lingering around $1,950 a troy ounce, trying to cling to Monday’s gains. Crude oils fell sharply amid a strong Greenback, with WTI closed Monday at $95.17, and Brent at $99.35. Cryptocurrencies are also falling, as the benchmark bitcoin fell below the critical $40,000 level while Ethereum below the key $3,000 level.

Technical Analysis:

AUDUSD (4- Hour Chart)

AUDUSD continues to decline following a higher China CPI at 1.5%. From the technical perspective, the four-hour outlook of AUDUSD has turned downside as the currency pair breaks its support pivot at 0.7432. However, as the RSI indicator has reached the oversold territory, any meaningful pullback might attract fresh buying near the 0.7400 mark. In the meantime, AUDUSD is also trading in the lower band of Bollinger Band, prospecting a retreat from the bottom. Failure to find a decent pullback will bring the pair to the next psychological support at 0.7300, followed by 0.7277.

Resistance:  0.7432, 0.7471, 0.7536, 0.7640, 0.7700

Support:  0.7300, 0.7277

XAUUSD (4- Hour Chart)

Gold extends daily rally as high as $1960, boosted by the souring market mood amid recession fears and tensions between Russia and Ukraine. From the technical perspective, the four-hour outlook of gold has turned upside following the breakout of the consolidated phase and the sustainably trade above the 20 Simple Moving Average. In order to sustain its bullish tone, gold needs to find an acceptance level above the immediate hurdle at $1959, 38.2% of the Fibonacci Retracement. On the flip side, the immediate support is pegged near $1934; failure to defend the level could negate prospects for any further near-term appreciation.

Resistance: 1959, 1980, 2001

Support: 1934, 1890

EURUSD (4- Hour Chart)

EURUSD has lost traction amid broad US dollar strength, boosted by risk sentiment and the rising Treasury bonds. From a technical standpoint, EURUSD is facing stiff resistance at 1.0969. EURUSD remains under selling pressure as it continues to trade below the 20 Simple Moving Average and is aligning with the lower bound of the Bollinger band. At the time of writing, EURUSD has consolidated in the range of 1.0969 and 1.0806 with directionless strength as the RSI reading falls on the midline. To the upside, the pair needs to find an acceptance level above the immediate resistance at 1.0969 in order to attract some fresh buying.

Resistance: 1.0969, 1.1069, 101150

Support: 1.0806