Market Focus

Investors were concerned that the Fed’s aggressive stance on inflation could force the economy into recession, even as equities finished higher Friday, recouping some of the week’s more dramatic losses. All major indices ended the day in the green.

The Dow Jones Industrial Average (DJI) closed at 32,196.66, up 1.5 percent. The S&P 500 index rose 2.4 percent to 4,023.89, just avoiding bear market territory. The index had its highest single-day performance since March 4, with the top performers being Non-Essential Consumer Discretionary, Energy, and Technology.

The technology-led Nasdaq surged 3.8 percent to 11,805, the largest one-day rise since November 2020. The CBOE Volatility Index (VIX) dropped to 28.87 points. On the New York Stock Exchange, the ratio of rising to falling stocks was 3.73:1. The 2.91:1 ratio on the NASDAQ benefited from rising equities. On Friday, 13.32 billion shares were traded, which was higher than the 20-day average of 13.17 billion shares.

 Elon Musk stoked speculation that he could seek to renegotiate his takeover of Twitter Inc., saying a viable deal at a lower price wouldn’t be “out of the question.”

Twitter shares fell 8.2% at the close of trading in New York. The stock has been dropping on speculation that Musk could walk away from the $44 billion acquisition. Concerns have grown in the past week as Musk has questioned Twitter’s publicly disclosed data on the percentage of spam and fake accounts on its social media service.

Musk pressed further on that front Monday at a Miami tech conference, estimating that fake users make up at least 20% of all Twitter accounts. That was the low end of his estimate on the number of bots on the network, and he asked rhetorically if it could be as high as 90%, according to a live streamed video of his remarks posted by a Twitter user. “Currently what I’m being told is that there’s just no way to know the number of bots,” Musk said at the conference.

Main Pairs Movement

Early in the week, the dollar strengthened, while most of its competitors closed the day with slight losses. European indices were neutral at the closing, while Wall Street managed to post gains. Because of the ongoing tensions with Russia, the bullish potential is restricted. The European Commission revised its projection for negative growth during the Ukraine crisis, with inflation growing higher this year and continuing above the ECB’s target foreseeably until 2023, after EU ministers failed to agree on an embargo on Russian oil imports.

Furthermore, Bank of England Governor Andrew Bailey expressed dissatisfaction with the inflation prognosis, claiming that energy and tradable goods were responsible for more than 80% of the UK’s inflation overshoot. Michael Saunders, a Bank of England member, warned that the UK’s exit from the European Union could aggravate inflation.

Due to continued tensions with Russia, EUR/USD closed around 1.0430 with limited upward potential. GBP/USD changed hands around 1.2310. AUD/USD traded near 0.6960 with the help of gold, which traded above $1,820 per troy ounce. With crude oil prices surging, USD/CAD fell to 1.2646 and WTI is now trading at $111.30 per barrel.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged higher on Monday, continuing to rebound slightly from its weakest level since early 2017 near the 1.0350 mark. The pair witnessed some upside momentum and touched a daily high above 1.043 level during the European session, then started to see fresh selling and erased some of its daily gains in the US session. The pair is now trading at 1.0417, posting a 0.08% gain on a daily basis. EUR/USD continues in the positive territory amid renewed US dollar weakness, as the softer risk tone and falling US Treasury bond yields both exerted bearish pressures on the safe-haven greenback. On the economic data side, the Empire State Manufacturing Index plunged to -11.6 in May, which marked the largest miss on expectations since April 2020. For the Euro, hawkish comments from ECB’s Villeroy provided support to the EUR/USD, as he expected a decisive policy meeting in June and will carefully monitor developments in the effective exchange rate.

On the technical side, the RSI is at 45 as of writing, suggesting that the pair is in a consolidation phase as the RSI lacks direction. As for the Bollinger Bands, the price is climbing towards the moving average, showing that some upside traction could be expected. In conclusion, we think the market will be slightly bullish as long as the 1.0359 support line holds. A break below that level will favor the bears.

Resistance:  1.0485, 1.0568, 1.0622

Support: 1.0359

GBPUSD (4-Hour Chart)

GBP/USD edged higher on Monday, stabilising in the 1.2250 area and going into a consolidation phase ahead of a busy week of US/UK economic events. The pair was trading flat for the most of the day and dropped to a daily low in the early European session, then regained some upside traction to recover most of its daily losses. At the time of writing, Cable stays in positive territory with a 0.07% gain for the day. The unexpected decline in the US Empire Manufacturing Index undermined the US dollar, as the disappointing data has resulted in heightened calls that the US might be going into a recession. For the British pound, the prospects that the UK economy could go into recession this year and worsening UK economic outlook might keep acting as a headwind for GBP/USD.

On the technical front, the RSI is at 52, suggesting that the upside is more favoured as the RSI keeps heading north. For the Bollinger Bands, the price crossed above the moving average and rose towards the upper band, therefore the upside momentum should persist. In conclusion, we think the market will be bullish as the pair is heading to test the 1.2290 resistance level. A four-hour close above that resistance could be taken as a bullish development and open the door for additional profits toward 1.2390.

Resistance: 1.2290, 1.2390, 1.2631

Support: 1.2180

USDCAD (4-Hour Chart)

As the sliding US bond yields weighed on the US dollar on Monday, USD/CAD declined towards 1.287 mark and extended the slide that started last week. The pair was trading higher and touched a daily top above the 1.297 level during Asian session, then started to see heavy selling to surrender all of its intraday gains. USD/CAD is trading at 1.2871 at the time of writing, losing 0.31% on a daily basis. The US dollar lost its upside traction due to a weaker tone surrounding the US Treasury bond yields, which also exerted bearish pressure on the USD/CAD pair. On top of that, surging crude oil prices also underpinned the commodity-linked Loonie as WTI extended its rally towards the $114.00-per-barrel area. The Foreign Ministers from both Germany and Austria said that they expect the EU to agree on a deal on the proposed embargo of Russian oil imports later this week.

Meanwhile, the RSI is at 39 as of writing, suggesting that the downside is more favoured as the RSI stays below the midline. For the Bollinger Bands, the price remained under pressure and dropped to the lower band. Therefore, a continuation of downside traction can be expected. In conclusion, we think the market will be bearish as the pair is testing the 1.2902 support. The falling RSI also reflects bear signals, but a recovery above 1.2966 should change the outlook to bullish.

Resistance: 1.2966, 1.3046

Support: 1.2902, 1.2725