Market Focus

US equity markets sank on Thursday and reversed the gains from Wednesday as investors worried the Fed’s aggressive monetary policy might lead the US economy into a recession. The Dow Jones Industrial Average tumbled below the psychological and key 30,000 level for the first time since early 2021. The S&P 500 shed 3.25% while the Nasdaq Composite plunged more than 4%, to 10,646.10, the lowest level since late 2020.

Market sentiment appeared to sour and intensify once again on Thursday as several central banks started tightening their monetary policies. The Swiss National Bank raised its interest rates for the first time in more than a decade, increasing its rate from -0.75% to -0.25% while raising its inflation prediction for 2022 to 2.8%, 0.7% higher than the prediction made in March. Moreover, the Bank of England also raised rates for the fifth time in a row as inflationary pressures continued as the UK economy shrank 0.3% in April and  0.1% in March. Its monetary policy committee decided to raise rates another 25 basis point to 1.25% in an its attempts to ease the inflation.

Main Pairs Movement

EUR/USD soared above the 1.0500 level for the first time in a week following the US Fed’s interest rate hikes. EUR/USD was up 1.01%, finishing with 1.05459 at the end of the day.

GBP/USD rallied more than 1.40% on Thursday following the Bank of England aggressively lifting its interest rates for the fifth time in a row, boosting the British Pound.

USD/JPY’s rally took a pause two days in a row as investors await the Bank of Japan’s monetary policy report on Friday. In the meantime, investors also remain cautious before the speech from the Fed Chairman Jerome Powell. On Thursday, USD/JPY pared 1.23%, closing at 132.156.

AUD/USD established above the 0.7040 level, up 0.58%. The Aussie has stayed strong for two consecutive days as Reserve Bank of Australia Governor Philip Lowe has expressed confidence in bringing the inflation rate back to the 2-3% range. In the meantime, the demand for the US dollar stayed quiet ahead of a speech from Fed Chair Jerome Powell.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD extended its gain for the second consecutive day after the Federal reserve hiked interest rates by 75 basis points. The Dollar continues to lose steam as Fed chair Jerome Powell left an additional 75 basis point interest rate hike on the table for July. The weak US job report also weakened the Greenback and added to worries over a slowing US economy. Eurozone CPI is set to release during the European trading session on the 17^th.

On the technical side, EURUSD has rebounded strongly from our previously estimated support level of 1.03783. The 50% Fibonacci retracement at 1.0586 presents a near term resistance level. RSI for the pair sits at 46.75, as of writing. On the four hour chart, EURUSD currently trades below its 50, 100, and 200-day SMAs.

Resistance:  1.07691

Support: 1.03783

GBPUSD (4-Hour Chart)

GBPUSD extended its gains from the previous trading day. The BoE has hiked its rates for the fifth time of the year in an attempt to tame inflation. Economic guidance provided by the BoE still remains gloomy as energy and food prices continue to soar. Furthermore, the BoE has forecasted inflation to rise slightly above 11% by October. While the BoE is adamant on raising interest rates, the central bank is still juggling the possibility of stagflation in the near term.

On the technical side, GBPUSD has bounced strongly off our estimated support level of 1.20824. Near term resistance sits at 1.25047 and 1.27143. RSI for the pair has recovered to 47.24 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 enters its second day of retreat as the US Greenback loses demand. As the US 10 year treasury yield retreats below 3.4%, market participants are now turning their focus on to the BoJ’s monetary policy announcement scheduled during the Asia trading session on the 17^th. In the near term, the Japanese yen still remains weak compared to the Greenback as the Japanese central bank remains firm with their easy money policy.

On the technical side, USDJPY enters its second day of correction but support levels still hold firm at our previously estimated levels of 133.5 and  132.5. RSI for USDJPY currently indicates 56.2, retreating from overbought territory. On the four hour chart, USDJPY currently trades above its 50, 100, and 200-day SMAs.

Resistance: 134.56

Support: 133.5, 132.5