Market Focus

US stocks rallied on Wednesday, snapping a two-day loss since the beginning of this week as earnings buoyed the market mood. Investors cleared their concerns about an earnings disaster after 70% through the season as upbeat reports from Moderna.Inc and Paypal Holding Inc. were released. Fed Chair Jerome Powell also signaled that the pace of future rate increases may slow later this year, which boosted the speculations for cuts next year in market-implied measures, as even several Fed leaders said central banks are still keeping an eye on the hottest inflation in four decades. Moreover, after House Speaker Nancy Pelosi left Taiwan, the market calmed down amid an uncertain relationship between China and the United States.

The benchmarks, S&P500 and Dow Jones Industrial Average both advanced on Wednesday as tech earings performed better than expected. The S&P 500 rose 1.56 % on a daily basis. Ten out of eleven sectors staying in positive territory, with Information Technology, Consumer Discretion, and Communication Services performing the best,  with a 2.69%, 2.52% and 2.48% growth rate respectively for the day. The Dow Jones Industrial Average rose 1.3%, Nasdaq 100 rose 2.7%, but MSCI world index slid with a 0.8% loss on Wednesday.

Main Pairs Movement

The US dollar rose on Wednesday, as the upbeat prints of US data and hawkish comments from Fed mixed with recession fears put a firm floor for the safe haven greenback. The DXY surged at the beginning of the US trading session as stronger-than-forecast earnings were released, but lost bullish momentum and reversed from a weekly to around the 106.5 level. It’s worth noting that the US ISM Services PMI for July rose to 56.7 from 55.3, far above the market expectations of 53.5. The final reading of the US S&P Global Services PMI for July dropped to 47.3, which is the first contraction in two years.

GBP/USD slid for the day amid US dollar strength across the board and the expectation of a 50-bps rate hike by the Bank of England (BOE), however, the price pressure has risen up to 9.4%. Cable suffered selling pressure amid upbeat US data and US stock, dropping to a daily low level around 1.210. Meanwhile, EURUSD dropped to a daily low level below 1.013, then regained bullish momentum back to a 1.016 level.

Gold advanced with a 0.28% gain in a daily basis and closed at $1765 for the day. However, investors focused on upbeat US data and comments from the Fed during the US trading session, which caused XAUUSD to fall below the $1755 mark. It’s also worth noting that WTI and BRENT oil dropped 3.74% and 3.98% respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Wednesday, extending its previous day’s slide and refreshing its daily low below the 1.013 mark in the early US session after the release of upbeat US ISM Services PMI data. The pair is now trading at 1.01282, posting a 0.37% loss on a daily basis. EUR/USD stayed in the negative territory amid a stronger US dollar across the board, as the tensions between the US and China still remain after US House Speaker Nancy Pelosi left Taiwan during the European morning. China has planned military exercises around Taiwan for the next three days. Meanwhile, the US ISM Services PMI also came in higher than expected to 56.7 in July, which lent support to the greenback. For the Euro, the dismal Eurozone Retail Sales data weighed on the shared currency, as the report showed that Eurozone’s Retail Sales fell by 1.2% MoM in June.

On the technical side, the RSI is at 38 as of writing, suggesting that downside is more favoured as the RSI stayed below the midline. As for the Bollinger Bands, the price witnessed heavy selling and dropped toward the lower band, therefore the bearish momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0111 support line. The falling RSI also reflects bear signals.

Resistance:  1.0221, 1.0287, 1.0438

Support: 1.0111, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair dropped on Wednesday, failing to preserve the upside traction that witnessed in the first half of the day and touched a daily low near 1.210 mark amid renewed US dollar strength. Cable stayed in negative territory with a 0.41% loss for the day. A combination of factors continued to help the safe-haven greenback to find demand, as recession fears and US-China tensions both undermined market sentiment. For the British pound, the currency came under bearish pressure today as data from the UK revealed that business activity in the service sector expanded at its weakest pace in 17 months. The Services PMI declined to 52.6 in July and missed market’s expectations.

On the technical side, the RSI is at 44, suggesting that the pair is facing bearish pressure as the RSI indicator continues to move south. For the Bollinger Bands, the price also gained downside traction and touched the lower band, indicating that the pair is surrounded by bearish momentum. In conclusion, we think the market will be bearish as the pair is testing the 1.2115 support line. On the upside, a break above the 1.2198 resistance line could favor the bulls and lead to additional gains toward 1.2277.

Resistance: 1.2198, 1.2217, 1.2317

Support: 1.2115, 1.2039, 1.1940

USDCAD (4-Hour Chart)

Despite the US dollar capitalising again on Wednesday versus G10 currencies amid rising US 10-year Treasury yields, USD/CAD failed to climb higher and dropped to a daily low below 1.284 level in the late European session. USD/CAD is trading at 1.2869 at the time of writing, losing 0.09% on a daily basis. Market focus now shifts to July’s Nonfarm Payrolls report this Friday after the upbeat US Services PMI data showed that the business activity expanded at a more robust pace. On top of that, the falling crude oil prices failed to lift the USD/CAD pair higher as WTI slipped back towards $92 per barrel area. Latest news showed that the OPEC+ have agreed to raise the oil output by 100,000 barrels per day in September.

On the technical side, the RSI is at 54, suggesting that the upside is more favoured as the RSI stays above the midline. For the Bollinger Bands, the price regained upside strength and rebounded from the moving average, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair might head to re-test the 1.2891 resistance line. A break above that level could confirm the bullish bias and lift the pair higher toward 1.2944.

Resistance: 1.2891, 1.2944, 1.2986

Support: 1.2823, 1.2785