Market Focus

US stock continued to stay in negative territory but closed above session lows as Federal Reserve officials’ comments have eased investors’ concerns about a recession caused by aggressive pace of monetary tightening. Federal Reserve Governor Christopher Waller said that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, adding that they would back a 75 bps rate hike after a hot inflation report. Therefore, traders shifted their bets away from a 100 bps rate hike by the Fed this month. However, people are now confused about where the economy is actually heading and whether we are going into recession. In the Eurozone, Russian energy giant Gazprom said that it would not guarantee resuming the functioning of the Nord Stream 1 pipeline after it was shut down for repairs. The uncertainty around gas deliveries is weighing on Europe’s economic outlook.

The benchmarks, S&P 500 and Nasdaq 100 both dropped on Thursday as the equity market stayed under pressure amid high inflation and fears of a global recession. The S&P 500 was down 0.3% on a daily basis and the Nasdaq 100 also declined with a 0.3% loss for the day. Eight out of eleven sectors stayed in negative territory with the financial and the energy sectors the worst performing among all groups, losing 1.92% and 1.90%, respectively. The Dow Jones Industrial Average meanwhile declined the most with 0.5% loss on Thursday and the MSCI World index fell 0.8%.

Main Pairs Movement

The US dollar edged higher on Thursday as it continues to derive support from the fears of a recession and refreshed its 20-year high above the 109 level. The DXY index was surrounded by bullish momentum during the first half of the day, but then retreated back to erase some of its daily gains in the US trading session. The comments from Fed officials yesterday has cooled down expectations of a 100 bps rate hike in the US and triggered a corrective slide in the US dollar.

GBP/USD declined with a 0.57% loss on Thursday amid the risk-off market mood across the board. Political news in the United Kingdom have exerted some bearish pressure on Cable, as the Tories begin an election process after prime minister Boris Johnson resigned. GBP/USD remained under bearish momentum and dropped to a daily low below 1.177 mark, then rebounded slightly back to recover its daily losses. Meanwhile, EUR/USD preserved its downside traction and plunged to 0.9951 before recovering some ground and trimming its earlier losses in the US session. The pair was down almost 0.45% for the day.

Gold tumbled with a 1.48% loss for the day after dropping to a daily low below $1700 mark in the early US trading session, as the rising US dollar and hawkish sentiment surrounding the Fed continued to drag the precious metal lower. Meanwhile, WTI oil regained upside traction and climbed back to $96 area during the second half of the day.

Technical Analysis

USDJPY (4-Hour Chart)

USDJPY reached as high as the 139.00 mark, the highest level in 23 years. The currency pair is tracking the renewed upsurge as there are expectations for a 100 basis points Fed interest rate hike later this month. From the technical perspective, the intraday bias of USDJPY turned sharply upside and bullish as the pair has successfully breached the bullish channel and its psychological resistance of 137.00. The immediate resistance of 139.89 would be the next major level to challenge, although it would be a major obstacle as the RSI indicator has turned way over overbought territory, suggesting that the bid tone might happen soon. The outlook of USDJPY remains bullish on the four- hour chart as long as it trades above 135.77.

Resistance:  139.38

Support: 137.88, 136.63, 135.77

XAUUSD (4-Hour Chart)

Gold slumped as low as $1,697 during the American trading session amid the high demand for the greenback. Gold later rebounded above $1,700, but is still down more than 1% despite dovish Fed commentary. Technically speaking, the intraday outlook of XAUUSD remains bearish as gold continues to trade within the descending channel. At the moment, the pivotal support level of $1,697 would be a major defendant for the bright metal. The breakout of the level would scale gold southwards. Moreover, the RSI indicator has returned to the bearish range of 20 to 40 readings, indicating a fresh leg of bearish impulsive waves ahead.

Resistance: 1740.31, 1766.70, 1788.03

Support: 1697.66

EURUSD (4-Hour Chart)

EURUSD again contested its support level below the 1.0000 mark during the European session. But later recovered from multi- decade lows following the dovish comments from the Fed in the American session. From the technical aspect, EURUSD remains under the negative pressure despite its positive attempts. The trading pattern of a fresh lower leg hints that EURUSD continues to skew southwards. In order to reclaim the upside, EURUSD needs to climb above 1.0569, which is positive territory. At the moment, the upside is supported by the MACD indicator as it has turned positive. On the contrary, the RSI indicator is hovering around 30-40 reading, suggesting that the pair still attracts sellers.

Resistance: 1.0243, 1.0423, 1.0569

Support: 1.0000, 0.9952