Market Focus

US stocks declined a little on Tuesday as Federal Reserve officials implied that their next move will be more hawkish to calm runaway inflation.  Investors are keeping eyes out for comments from Fed officials about the necessity of a more aggressive interest rate policy. It’s also worth noting that Pelosi’s trip has created  new geopolitical tensions for investors already considering the prospects of a US recession, global interest rates hikes and Russia’s war in Ukraine.  Fresh economic data also showed that US job openings in June fell to a nine-month low, which is a signal to investors that the demand for labour is moderating amid higher economic pressure.

The benchmarks, the S&P500 and Dow Jones Industrial Average both slid on Tuesday. The S&P 500 fell 0.67% as Nancy Pelosi’s arrival in Taiwan prompted China to perform a missile test, undermining geopolitical tensions. All eleven sectors stayed in negative territory with the Real Estate and Financial sectors performing worst among all groups, falling 1.3% and 1.07% respectively. The Dow Jones Industrial Average dropped 1.1% for the day, Nasdaq was little changed with a 0.3% loss, and the  MSCI world index roes 0.1% on Tuesday.

Main Pairs Movement

The US dollar surged 0.85% on Tuesday, as the market took on a risk-averse mood amid tensions caused by the news of US House Speaker Nancy Pelosi’s visit to Taiwan. The Dollar Index eased at the beginning of Tuesday, but regained bullish momentum after the hawkish comments from Federal Reserve officials, breaking consecutive days of losses and heading back to the level above 106.1.

GBP/USD dropped 0.65% for the day as investors headed for the safe haven Greenback amid risk aversion. Cable was slipping all day on Tuesday as a huge selling pressure caused by Pelosi’s trip may undermine the relationship between US and China. GBPUSD touched a daily low during the US trading session around 1.218. Meanwhile, EURUSD also lost its previous day’s gains and fell back to a level under 1.018 at end of the day, dropping 0.94%.

Gold declined with a 0.66% on a daily basis, as risk aversion markets have seen US yields rallying. WTI and Brent oil rose 0.56% and 0.51% respectively on Tuesday.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Tuesday, remaining under bearish pressure and dropping to a daily low below the 1.019 level amid the risk-averse environment. The pair is now trading at 1.0203, posting a 0.58% loss on a daily basis. EUR/USD stayed in negative territory amid a stronger US dollar across the board, as the risk-off market mood underpinned the safe-haven greenback and acted as a headwind for the EUR/USD pair. Tensions between the US and China have escalated as Nancy Pelosi, the speaker of the US House of Representatives, is expected to meet Taiwan’s President on Wednesday. The news also reported that several Chinese warplanes flew close to the median line of the Taiwan strait this morning. For the Euro, investors are awaiting the EU PMI and the Retail Sales data that will be released on Wednesday.

On the technical side, the RSI indicator is at 47, suggesting that the downside is more favoured as the RSI is below the midline. As for the Bollinger Bands, the price preserved its downside traction and dropped below the moving average. Therefore, the bearish momentum should persist. In conclusion, we think the market will be bearish as the pair is testing the 1.0175 support line. The bearish case is clear as the technical indicators head firmly lower crossing their midlines into negative territory.

Resistance:  1.0245, 1.0289, 1.0438

Support: 1.0175, 1.0111, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair slipped on Tuesday, retreating from a multi-week high and dropping below the 1.2200 mark in the early US session amid renewed strength witnessed in the US dollar. At the time of writing, Cable is in negative territory with a 0.20% loss for the day. Concerns about a global economic downturn and escalating US-China tensions ahead of US House Speaker Pelosi’s arrival in Taiwan both weighed on market sentiment, helping the greenback to find demand. For the British pound, the Bank of England is scheduled to announce its monetary policy decision on Thursday, which could be a main driver for the cable and market participants are also increasing their bets for a 50 bps rate hike by the BoE.

On the technical side, the RSI is at 57, suggesting that the near-term bullish bias stays intact with the RSI indicator holding above 50. For the Bollinger Bands, the price regained upside strength and rebounded from the moving average, so a continuation of the upside trend can be expected. In conclusion, we think the market will be slightly bullish as long as the 1.2178 support line holds. On the upside, a break above the 1.2277 resistance line could favour the bulls and lead to additional gains for the pair.

Resistance: 1.2277, 1.2317, 1.2381

Support: 1.2178, 1.2115, 1.2039

USDCAD (4-Hour Chart)

As the recession fears and US-China tensions over Taiwan drive safe-haven flows towards the US dollar, the pair USD/CAD witnessed some buying and touched a daily high near 1.2880 level during the US trading session. USD/CAD is trading at 1.2843 at the time of writing, rising 0.03% on a daily basis. Latest news showed that the plane of US House speaker Pelosi has landed in Taiwan, which increases tensions between the US and China. On top of that, the surging crude oil prices has provided stronger support to the commodity-linked loonie and capped gains for the USD/CAD pair as WTI rebounded towards $96 per barrel area. The markets expect a further gradual increase of the production targets from the OPEC+ meeting on Wednesday.

On the technical side, the RSI is at 50, suggesting that the upside is losing momentum as the RSI indicator drops toward the midline. For the Bollinger Bands, the price failed to preserve the upside strength and retreated toward the moving average, therefore some downside traction could be expected. In conclusion, we think the market will be slightly bearish as the pair failed to break above the 1.2891 resistance line. The falling RSI also reflects bear signals.

Resistance: 1.2891, 1.2944, 1.2986

Support: 1.2823, 1.2785