Market Focus

U.S. equity markets endured another selloff over the course of Tuesday’s trading. The Dow Jones Industrial Average climbed 0.15% to close at 31928.62, the S&P 500 lost 0.81% to close at 3941.48, and the Nasdaq Composite slid 2.35% to close at 11264.45. The technology and consumer discretionary sectors bore most of the brunt of the selloff.

The technology sector dipped after Snapchat issued a warning of a slowdown in online advertising revenue. Shares of the social media giant fell 43% after the company stated that it would miss earnings and revenue targets for the current quarter. Meta Platforms and Alphabet were also affected, with shares of the respective companies dropped 7.6% and 5%. 

The benchmark U.S. 10-year Treasury yield continues to fall further and is currently sitting at 2.756%. Fears of recession have driven bond prices higher as market participants rotate into fixed income securities. Bond prices and yield move in opposite directions. New home sales dropped 16.6% for the month of April.

Main Pairs Movement:

The Dollar Index, which measures the U.S. Dollar against a basket of major foreign currencies, continued to fall for the second day. The Dollar Index lost 0.32% over the course of yesterday’s trading.

The euro rose 0.4% against the Dollar over the course of yesterday’s trading. The euro continues to be favored as the ECB hints at a possible rate hike as soon as July. The change in monetary policy would see the ECB exit a decade-long negative interest rates environment.

GBPUSD lost 0.46% over the course of yesterday’s trading. Britain’s disappointing PMI data sent the Sterling falling against the Dollar, but Cable was able to limit its losses amid a broad-based Dollar weakness.

USDCAD rose 0.4% over the course of the previous trading day. The Canadian Loonie fell as oil prices retraced back below the $110 per barrel mark. The Canadian CPI rose to 6.7% for March, exceeding expectations of 6.1%.

Technical Analysis:

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Tuesday, continuing its rally that started on Monday and climbing higher towards monthly highs above the 1.0730 mark amid hawkish ECB commentary. The pair was trading lower and touched daily lows during the Asian session, but then staged an impressive rebound to recover all of its daily losses heading into the US session. The pair is now trading at 1.0733, posting a 0.42% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the weaker-than-expected US PMI data exerted bearish pressure on the Greenback, making it difficult to find demand. The headline US Services PMI came in at 53.5, which is below expectations for a reading of 55.2 and indicated that growth momentum is waning. For the euro, ECB President Christine Lagarde’s hawkish comments continued to act as a tailwind for EUR/USD, as she said that rates are likely to be positive by the end of the third quarter.

On the technical side, the RSI is at 75 as of writing, suggesting that the pair is facing heavy bullish pressure as the RSI has reached the overbought zone. As for the Bollinger Bands, the price continued to move alongside the upper band, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair is testing the 1.0728 resistance. A four-hour close above that level could lead the pair toward the 1.0800 area.

Resistance:  1.0728, 1.0810, 1.0922

Support: 1.0661, 1.0549, 1.0464

GBPUSD (4-Hour Chart)

GBP/USD declined on Tuesday, losing its recent upside strength and tumbling back below the 1.2500 mark after the release of downbeat UK PMI data. The pair was flirting with 1.2560-1.2590 area during the Asian session, then started to see heavy selling and retreated back to a daily low below the 1.2480 level in the European session. At the time of writing, Cable stays in negative territory with a 0.33% loss for the day. The US Services PMI data in May missed the market expectation of 57.3 by a wide margin, suggesting that business activity is starting to lose momentum. However, broad US dollar weakness failed to lend support to the GBP/USD pair today. Looking at the British pound, the weaker UK PMI data released earlier in the session have dampened the prospect for further BoE monetary tightening and added fears about a possible recession this year. Therefore,Cable came under selling pressure today as a dismal PMI report signals a slowing in the rate of economic growth.

On the technical side, the RSI indicator is at 58, suggesting that the upside is more favored as the RSI stays above the midline. For the Bollinger Bands, the price regained bullish strength and crossed above the moving average, indicating that the upside traction should persist. In conclusion, we think the market will be bullish as long as the 1.2487 support line holds. A sustainable strength above that level will favor the bulls and the rising RSI also reflects bull signals.

Resistance: 1.2587, 1.2631, 1.2761

Support: 1.2487, 1.2341, 1.2180

USDCAD (4-Hour Chart)

As the Canadian dollar remained one of the worst performers during the US session on Tuesday, USD/CAD regained its upside strength and reached a six-day high above the 1.2860 mark. The pair stayed quiet during the Asian session in the 1.279-1.281 area, then attracted fresh buying and extended its intra-day gains toward the 1.2870 level in the early US session. USD/CAD is trading at 1.2844 at the time of writing, rising 0.59% on a daily basis. The weaker-than-expected US PMI data weighed on the US dollar today, but failed to drag the USD/CAD pair lower amid the falling Loonie. On top of that, sliding crude oil prices also exerted bearish pressure on the commodity-linked Loonie as WTI dropped back toward $109 per barrel area. Oil traders will remain focused on geopolitical headlines as the EU’s proposed ban on Russian oil looks increasingly unlikely.

On the technical front, the RSI is at 54, suggesting that the upside is losing some momentum but remains within positive levels. Looking at the Bollinger Bands, the price crossed above the moving average and moved toward the upper band, therefore the upside traction should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.2847 resistance. A break above that resistance could be seen as a confirmation of the bullish trend in the near-term outlook.

Resistance: 1.2847, 1.2890, 1.2966

Support: 1.2763, 1.2725, 1.2684