Market Focus

US stocks halted their three-day rally on Monday as hawkish comments from the Federal Reserve and data showing slower growth undermined market risk sentiment. Stocks surged in July on speculation that rampaging inflation may have peaked and the central bank was signalling an end to the rate-hiking cycle. While more than half of the S&P 500 firms earnings have exceeded analyst estimates so far, the rate of earnings is still under the 62% average pace set in the last five quarters. Moreover, Fed officials’ suggestions to the central bank pointed out that more aggressive interest hikes were necessary, bringing the markets back down.

The S&P 500 and Dow Jones Industrial Average both slid on Monday. S&P500 declined 0.28% after reaching its best month since 2020. Seven of eleven sectors stayed in negative territory with Energy, Financial, and Real Estate performing the worst among all groups, falling 2.18%, 0.89%, and 0.89% respectively. It is worth noting that CONS Staples outperformed, rising 1.21%. The Nasdaq 100 remained largely unchanged, while the MSCI World index advanced with a 1.2% rally for the day.

Main Pairs Movement

The US dollar declined on Monday, as investors weighed the possibility that the Federal Reserve will not raise interest rates as hawkishly as it has done for the past months. Additionally, US jobs data will be announced at the end of this week, which may confirm that the labour market is slowing down. The DXY dropped 0.43%. However, the greenback has risen roughly 10% for the year so far, triggered by Fed’s aggressive rate hike policy.

GBP/USD advanced 0.65% for the day, with Cable witnessing fresh transactions as the US dollar is under selling pressure caused by dialled-down Fed monetary policy. GBP/USD reached a daily high level above 1.229 in the middle of the US trading session. Meanwhile, EURUSD also touched its daily high level above 1.027 at the beginning of the US session.  Nevertheless, the EU’s unchanged unemployment rate played a key role in the European Central Bank (ECB) pushing its  interest rate hike.

Gold rose  0.35% on a daily basis. Ahead of the NFP and jobs data on Friday,  XAUUSD witnessed  fresh upside traction and touched a daily high above the 1774$ mark. Meanwhile, WTI and BRENT dropped 3.79% and 4.80% respectively on Monday.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Monday, regaining upside momentum and touching a daily high above the 1.027 level after the release of dismal US ISM Manufacturing PMI data. The pair is now trading at 1.0268, posting a 0.41% gain on a daily basis. EUR/USD stayed in the positive territory amid weaker US dollar across the board, as the risk-on market sentiment exerted bearish pressure on the greenback and helped the EUR/USD pair to find demand. The US ISM Manufacturing PMI declined to 52.8 in July, which was the lowest reading since June 2020 and showed slowing signs in business activity. For the Euro, investors continued to fuel their speculations of an impending recession in the Eurozone amid downbeat German Retail Sales data, which plunged the most since 1994 and dropped 8.8% YoY in June.

On the technical side, the RSI is at 61, suggesting that upside is more favored as the RSI is above the midline. As for the Bollinger Bands, the price preserved its bullish momentum and continued to climb toward the upper band, therefore the upside traction should persist. In conclusion, we think the market will be slightly bullish as the pair is testing the 1.0264 resistance line. A sustained strength above that resistance might open the road for additional gains.

Resistance:  1.0264, 1.0438, 1.0484

Support: 1.0177, 1.0153, 1.0111

GBPUSD (4-Hour Chart)

The GBP/USD pair surged on Monday, jumping back above the 1.220 mark and refreshing its daily high during the US trading session amid renewed weakness in the US dollar. At the time of writing, Cable stays in positive territory with a 0.88% gain for the day. Investors continue to scale back their expectations for more aggressive rate hikes by the Federal Reserve amid the fear of recession, which acted as a headwind for the safe-haven greenback. Markets are now pricing in a 30% probability of a 75 bps Fed rate hike in September. For the British pound, despite the data from the UK showing that the S&P Global Manufacturing PMI fell to 52.1 in July, Cable remained underpinned by the rising bets for a 50 bps rate hike by the Bank of England.

On the technical side, the RSI is at 70, suggesting that the pair is facing heavy upside pressure as the pair is in the overbought zone. For the Bollinger Bands, the price moves out of the upper bands so a strong trend continuation can be expected. In conclusion, we think the market will be slightly bearish as long as the 1.2284 resistance line holds. The pair might witness some short-term technical corrections before climbing higher amid the overbought condition.

Resistance: 1.2284, 1.2317, 1.2381

Support: 1.2218, 1.2200, 1.2115

USDCAD (4-Hour Chart)

Despite the diminishing odds for more aggressive Fed rate hikes continuing to weigh on the US dollar, USD/CAD gained positive traction and rebounded from seven-week lows near 1.2835 during the US session. USD/CAD is trading at 1.2846 at the time of writing, rising 0.23% on a daily basis. Last week, the Fed hinted that it could slow the pace of the rate hike campaign at some point, which  continued to undermine the safe-haven greenback. On top of that, retreating crude oil prices has acted as a headwind for the commodity-linked Loonie and pushed USD/CAD higher as WTI slides towards $96 per barrel area. Oil prices remained under pressure amid cautious mood ahead of this week’s OPEC meeting.

On the technical side, the RSI is at 50 as of writing, suggesting that there is no obvious direction for the pair now. For the Bollinger Bands, the price regained some bullish strength and crossed above the moving average, therefore the upside traction should persist. In conclusion, we think the market will be slightly bullish as the pair is heading to test the 1.2841 resistance. A break above that resistance could open the road for additional gains.

Resistance: 1.2841, 1.2891, 1.2944

Support: 1.2785, 1.2698