Market Focus

Major sell-offs intensified on Monday as recession fears grew ahead of the key FOMC meeting this week. The S&P 500 tumbled nearly 4% to 3749.83, the lowest level since 2021. The S&P 500 is now down 21% from its high, and has closed in bear market territory. In the meantime, the Nasdaq Composite shed 4.68% while the Dow Jones Industrial Averages dropped 2.79%. The Nasdaq and the Dow are down 33% and 17% respectively from their last high.

The markets continue to digest a higher-than-expected inflation report from last week, and are beginning to anticipate an even faster pace of interest rate hikes. Some Fed policymakers are now pushing the idea of a 75 basis point rate increase this week. Meanwhile, the markets are closely monitoring the spread between the US 2-year Treasury yield and the US 10-year Treasury yield. The Two-year yield hsa now exceeded the 10-year for the first time since early April, which signals a potential recession.

Bitcoin, Ethereum, and other cryptocurrencies plunged on Monday, making two of the world’s biggest cryptocurrency platforms, Binance and Celcius,  restrict activities. Bitcoin and Ethereum were both down more than 15% intraday. Crypto-investors seem be to dumping their crypto assets amid a broader selloff in risk assets as rampant inflation continues amid the Fed’s upcoming interest rate decision.

Main Pairs Movement

AUD/USD dropped 1.72%, to 0.69204 on Monday following a collapse in the US and the global stock market. Investors are betting on the greenback as they foresee that the Fed will impose even tighter monetary policy, boosting the Greenback.

WTI had little change, and remains well supported near 120 despite risk-off conditions as China’s lockdown worries return. According to Bloomberg, China is somehow walking back some of its Covid loosening measures as the officials see some potential outbreaks.

Gold plunged more than 2%, closing with 1819.39 on Monday as the Greenback soared to fresh cycle highs. Despite inflationary pressure giving some support to gold, a potential 75 basis-point interest rate hike by the Fed has caused angst in the financial markets, hurting the price of the precious metal.

EUR/USD was down for the third consecutive trading day, closing at 1.0406 on a bloody Monday. Risk aversion dominated the financial and forex markets as the Greenback’s demand spurred, sending most of the G-10 currency pairs to new lows, including EUR/USD.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD continued to plunge on the first trading day of the week. The EURUSD is now in its third consecutive losing day. The Euro has slid more than 2% since the ECB conference held last Thursday. Inflation and worries over an impending recession has boosted demand for safe haven assets such as the Greenback. The US Dollar remains in strong demand as the benchmark 10-year Treasury yield rises past 3.35%.

On the technical side, EURUSD has broken well below our previously estimated support level of 1.064. As of writing, EURUSD is heading towards its lowest level of 2022 and the support level of 1.03783. RSI for EURUSD currently sits at 35.95. On the four hour chart, EURUSD is trading below its 50, 100, and 200-day SMAs.

Resistance:  1.07454

Support: 1.03783

GBPUSD (4-Hour Chart)

GBPUSD has continued to slide on the first trading day of the week. The British GDP contracted 0.3%, month over month, marking a larger contraction than the previous monthly figure of negative 0.1%. Slowing economy in Britain has agitated market participants as the ECB now faces the possibility of stagflation. The broad based risk averse market sentiment has only added fuel to the recent rally of the US Greenback.

On the technical side, GBPUSD has dropped below its May low of 1.21996 and is heading towards a two-year-long support at 1.20824. RSI for Cable has dropped to 33.42, as of writing. On the four hour chart, GBPUSD is currently trading below its 50, 100 and 200-day SMAs.

Resistance: 1.25944

Support: 1.20824

USDJPY (4-Hour Chart)

USDJPY continued to be traded at extremely elevated levels. The Dollar’s strength has been aided by the soaring US 10-year Treasury yield and a broad-based risk averse environment. BoJ chief Haruhiko Kuroda recently expressed concerns over the sharp drop of the Japanese yen, however, the Japanese yen will continue to fare worse against the Dollar as market participants are now pricing in a possible 75 basis point interest rate hike by the Federal Reserve.

On the technical side, USDJPY seems to have hit its near term resistance level at the 135 price region. A near term support level at 133.382 has formed, while the lower level of support remains firm. RSI for USDJPY has reached overbought territory and is indicating 74.12, as of writing. On the four hour chart, USDJPY currently trades above its 50, 100, and 200-day SMAs.

Resistance: 134.56

Support: 133.5, 132.5