Market Focus

US exchanges remained closed on Monday amid the Labour Day holiday in the US, causing trading volumes to maintain their lows and major pairs to stay within a limited intraday range. Despite market moves being restricted due to the holiday, the escalating US-China tussles over trade deals and Taiwan has weighed on market sentiment as the Biden administration announced its intention to continue with the Trump-era tariffs for now. Market focus has now shifted to the US ISM Services PMI for August. A higher-than-expected number could renew the hawkish Fed bets amid looming recession fears and escalating geopolitical tension. The extremely hawkish Fed might lead to declining US economic activity, as the unavailability of cheap money has forced corporations to postpone their expansion plans and decrease the investment opportunities.

In the Eurozone, the region’s worsening energy crisis has exerted heavy bearish pressure on the euro and added to the fears of high inflation and monetary tightening. Russian gas provider Gazprom has decided to shut down the Nord Stream 1 pipeline last Friday. However, the latest news on Monday reported that Moscow’s decision to cut energy to Europe would continue until Western nations lift sanctions imposed after the Ukraine invasion. Therefore, the halting of energy supplies has worsened the situation for the Eurozone.

Main Pairs Movement

The US dollar was little changed on Monday, failing to extend its upside traction amid a Federal holiday in the US. The DXY witnessed some buying and climbed to a daily high above the 110.2 level during the Asian trading session, but then retreated back to the 109.8 area to surrender most of its daily gains. The expectations for aggressive rate hikes by the US Federal Reserve (Fed) might continue to act as a tailwind for the safe-haven greenback, as the greenback hit a 20-year high against a basket of peers at the start of the week.

GBP/USD advanced higher with a 0.38% gain on Monday as Liz Truss’s win highlights the political instability in the UK economy. Liz Truss has been elected as the next UK Prime Minister after fighting for the leadership of the Conservative Party for more than two months. The GBP/USD pair dropped to a daily low below 1.145 in the late Asian session, but regained positive traction and climbed towards the 1.1520 area heading into the European session. Meanwhile, EUR/USD remained under bearish pressure and retreated to a two-decade low amid the escalating fears of the energy crisis. The pair was down almost 0.05% for the day.

Gold dropped 0.15% for the day after climbing to a daily top above $1715 during the European session as the escalating recession fears in Europe and the expectations of aggressive rate hikes by the Fed both undermined the precious metal. Meanwhile, WTI oil extended its intra-day rally and rose to $90 area during the US session, as OPEC+ unexpectedly agreed to make a token oil supply cut for October.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD plunged at the start of the new trading week. The Euro-Dollar pair met strong selling pressure as global market sentiment soured. The Euro was weakened significantly against the Dollar as Russia’s Gazprom halted gas flow to Europe via Nordstream 1 as the oil conglomerate cited leakage issues with the pipeline. Further energy supply shocks within the European region will only pose more downside pressure on the shared currency. U.S. markets are closed on the 5^th due to Labor Day. U.S. ISM non-manufacturing PMI will be released during today’s American trading session.

On the technical side, EURUSD has found support around the 0.9902 price region. The Dollar parity remains a strong resistance for EURUSD. RSI for the pair sits at 42.72, as of writing. On the daily chart, EURUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance:  1.0033, 1.0055, 1.0082

Support: 0.9902

GBPUSD (4-Hour Chart)

GBPUSD saw large trading volumes as the British government announced its latest Prime Minister. Liz Truss from the Conservative Party has been elected as Boris Johnson leaves office. Truss’ hawkish reputation has provided an upward boost for Cable and allowed the pair to erase most of its intraday losses. Cable touched its lowest level since March of 2020 during the Asia trading session, but the pair bounced back to above 1.15 during the American trading session. It remains to be seen whether Prime Minister Truss will be able to pull Britain out of one of the worst inflationary environments Britain has seen in recent decades.

On the technical side, GBPUSD bounced back from its intraday low of 1.14511 but we do observe 1.1463 as the pair’s near term support. Near term resistance sits around the 1.1561 and 1.1854 price region. RSI for the pair sits at 53.58, as of writing. On the daily chart, GBPUSD currently trades below its 50, 100, and 200 day SMA.

Resistance: 1.1561, 1.1854

Support: 1.1463

XAUUSD (4-Hour Chart)

Gold enjoyed a modest gain during last Friday’s trading as the U.S. reported 315K nonfarm payrolls added in the month of August. Despite the figure being lower than the previous month’s figure, August hiring still came in above consensus estimates. The narrative surrounding the FMOC next interest rate decision has been skewed towards a 75 basis point interest rate hike, thus the non-yielding gold will continue to struggle against the U.S. Greenback without volatility-heightening news events.

On the technical side, XAUUSD has found short term support around the $1695 per ounce price region but long term support for the precious metal sits at a lower $1688.129 per ounce price region. RSI for XAUUSD sits at 37.53, as of writing. On the daily chart, XAUUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1762, 1800

Support: 1688.129, 1695