Market Focus

US shares advanced on Wednesday, the first back-to-back gain in almost two weeks. Risk sentiment remains fragile, and any upbeat surprises may lead to dramatic gains for the markets amid investors’ expectations for potential disappointments. Tesla briefly jumped in extended trading after its earnings beat estimates. Besides the war in Ukraine, a slowdown in China and the prospect of a US recession, geopolitics are adding to investor skittishness. The European Union is preparing for a situation where Russia halts gas export to retaliate against sanctions over its invasion of Ukraine. It is worth noting that the rate decision for the Bank of Japan and Bank of England are this week. Overall, the markets are still in fear of uncertainty, and investors will likely wait for more information to plan their next moves.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced for a second straight trading session while the US dollar remained under selling pressure. The S&P 500 increased 0.59% on a daily basis and Dow Jones Industrial Average was up 0.15% for the day, seven of eleven sectors got in positive territory with the Consumer Discretionary and Information Technology sectors performing the best among all groups, rising 1.77% and 1.56% respectively. Meanwhile, the Nasdaq 100 also rose 1.6% on Wednesday.

Main Pairs Movement

The US dollar advanced on Wednesday, ending its previous slide and rebounding towards the 107 area amid recession fears and cautious market mood ahead of the European Central Bank monetary policy announcement. The DXY index was surrounded by bullish momentum during the first half of the day, then preserved its upside traction to touch a daily high above 107.2 in the US session. The US dollar has benefitted from its safe haven status as investors are awaiting the outcome of the ECB meeting on Thursday, which is expected to hike rate by 25 bps in July or even a potential 50 bps move.

GBP/USD declined with a 0.27% loss on Wednesday amid the stronger US dollar across the board. The worse-than-anticipated UK inflation data exerted bearish pressure on Cable as the UK Consumer Price Index (CPI) jumped to 9.4% year on year in June. The GBP/USD climbed to a daily high above the 1.203 mark in the Asian session, but then witnessed heavy selling to surrender all of its daily gains. Meanwhile, EUR/USD remained under downside pressure and dropped to a daily low below the 1.016 level during the US trading session. The pair was down almost 0.50% for the day.

Gold tumbled with a 0.85% loss for the day after dropping to a daily low below the $1694 mark in the late US trading session, as rising US bond yields and a stronger Greenback yesterday both weighed on the precious metal. Meanwhile, WTI oil failed to preserve its upside traction and dropped to the $99 area during US session, as the recession fears escalated amid central banks’ rate hike.

Technical Analysis

XAUUSD(4-Hour Chart)

Gold seemed to consolidate along the descending channel on Wednesday. The outlook of the precious metal will stay bearish as long as it trades within the bearish channel. In order to regain upside traction, gold needs to at least climb above the descending channel. To the downside, the RSI indicator continues to stay within the negative territory, suggesting that gold buyers are still on the sidelines. The breakout of the immediate support of 1697.66 would confirm another decline.

Resistance: 1,740.31, 1,766.70, 1,788.03

Support: 1,697.66

USDJPY (4-Hour Chart)

USDJPY rebounded after hitting the support level of 137.43. The intraday bias remains upside as it continues to trade within the strong bullish channel. At the time of writing, USDJPY is clinging on the upper bound of the bullish channel; a break of 138.18 will resume a larger uptrend to its next resistance of 139.38. The break would be significantly important for USDJPY’s bulls as it is where the upper band of the channel and the 20 Simple Moving Average intersect. On the flip side, USDJPY’s bears need a decline below 136.22 in order to claim the downside momentum. Further price action eyes the BOJ Press Conference and the FOMC meeting next week.

Resistance: 138.18, 139.38

Support: 137.43, 136.82, 136.22

EURUSD (4-Hour Chart)

EURUSD edged lower but steadily stayed above 1.0200 after Existing Home Sales in the US fell sharply in June. Investors remain on the sidelines waiting for the ECB meeting. From the technical perspective, bulls of EURUSD face rejection after hitting the resistance of 1.0266. However, the short-term outlook remains upside as EURUSD is still trading above the 20 SMA and within the upper band of the Bollinger band. The upside momentum will hold as long as the RSI indicator does not fall towards the negative levels and the MACD does not become bearish. On the flip side, the decline will likely pick up pace on a break below the support level of 1.0146.

Resistance: 1.0266, 1.0363, 1.046

Support: 1.0146, 0.9952