Market Focus

US stocks advanced higher on Monday, preserving their bullish momentum and rising four straight days ahead of the key US consumer-price data. The speculation that inflation is nearly peaking has provided support to the equity markets, as the US CPI data is expected to show that headline CPI cooled in August to an 8% annual pace. The falling US dollar also acted as a tailwind for the stock markets despite the firm anticipation that the Federal Reserve will hike interest rates by 75 basis points at its September 20-21 meeting. The upside strength witnessed in equity markets could be linked to the market’s optimism and likely preparations for today’s inflation numbers. In the Eurozone, the hawkish comments from the European Central Bank (ECB) policymakers and updates that Ukraine is gaining success in pushing back the Russian military from some of its areas have both underpinned the market’s cautious optimism. For today, the final readings of Germany’s August month Harmonized Index of Consumer Prices (HICP) will be crucial for immediate direction.

The benchmarks, S&P 500 and Dow Jones Industrial Average both preserved their bullish strength on Monday as the S&P 500 extended last week’s rally and notched the biggest gain over a four-day span since June. The S&P 500 was up 1.1% on a daily basis and the Dow Jones Industrial Average also advanced 0.7% for the day. All eleven sectors in the S&P 500 stayed in positive territory as the Energy and the Information Technology sectors are the best performing among all groups, rising 1.81% and 1.63%, respectively. The Nasdaq 100 meanwhile climbed the most with a 1.2% gain on Monday and the MSCI World index was up 1.3%.

Main Pairs Movement
The US dollar remained under pressure on Monday, extending its previous slide and falling to the lowest level in more than two weeks below the 108 mark amid the risk-on market environment. The news that Ukrainian forces have made significant progress in pushing back Russian troops has favored investors’ sentiment and exerted bearish pressure on the safe-haven greenback. However, losses could be limited as the policymakers from the US Federal Reserve and the European Central Bank (ECB) remain hawkish.

GBP/USD climbed higher on Monday with a 0.45% gain as Cable witnessed fresh buying and touched a daily high near the 1.1710 level amid broad-based US dollar weakness. On the UK front, recession worries were further fueled by the mostly disappointing UK macro data released earlier this Monday. Meanwhile, EUR/USD also edged higher and touched a daily high above the 1.018 mark in the early European session. The pair was up almost 0.20% for the day.

Gold preserved its upside strength with a 0.44% gain for the day after touching a daily high around the $1734 mark during the US session, as the falling US dollar underpinned the safe-haven metal’s recovery. Meanwhile, WTI Oil extended its previous rally and refreshed its daily top near the $89 mark during the US trading session amid mixed concerns over the supply and demand of crude.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD rose for the second straight trading day as the shared currency continued to recover from its lowest level since the beginning of the year. The shared currency took advantage of the broad based selling of the US Greenback. Markets seem to have already priced in a supersized 75 basis point interest rate hike at the next FOMC policy meeting, which is set to happen on the 20^th and 21^st of September. The U.S. 10-year Treasury yield also saw a decline during Monday’s trading as risk on sentiment returns to equity markets. Market participants will now turn their attention to the U.S. CPI release, scheduled during today’s American trading session.

On the technical side, EURUSD has broken above out previously estimated resistance level of around 0.9902 and 1. We project the next level of resistance to sit around the 1.019 price region and the previous resistance level at 1.0055 would change in polarity and act as a near term support level for the pair. RSI for the pair sits at 60, as of writing. On the four hour chart, EURUSD is currently trading above its 50, 100, and 200-day SMAs.

Resistance:  0.9902, 1.0011, 1.0055

Support: 0.9902, 0.985

GBPUSD (4-Hour Chart)

Cable extended its winning streak into the new trading week as broad based selling surrounded the U.S. Greenback. An upbeat market sentiment surrounding equities also allowed the British Sterling to find demand that has seemingly gone away for months. The short term reversal of Cable should be taken with caution, as the U.K.’s National Statistics revealed GDP growth below market estimates. A weak British economy combined with an ongoing energy crisis could further hinder any monetary tools that the BoE could utilize in order to reign in inflation. Market participants should note that the BoE has postponed its interest rate announcement by a week to September 22^nd. A better than expected CPI figure from the U.S. could send Cable back into correction trajectory.

On the technical side, GBPUSD has broken above our previously estimated resistance level of 1.1561, but is still trading below our secondary resistance level of 1.1854. Support level for GBPUSD continues to sit at 1.1463. RSI for the pair sits at 65.43, as of writing. On the four hour chart, GBPUSD is currently trading above its 50 and 100 day SMAs, but below its 200 day SMA.

Resistance: 1.1561, 1.1854

Support: 1.1463

XAUUSD (4-Hour Chart)

Gold prices continue to recover for the second straight trading day as the Dollar index dives to a monthly low of below 109. As markets have now seemingly priced in the 75 basis point interest rate hike by the FOMC, the Dollar has entered a cycle of exhausted demand; however, with U.S. CPI scheduled to be released during the American trading session, the U.S. Dollar could be met with fresh demand. Risk on sentiment across equity markets have made the case for a weaker Dollar and thus room for the yellow metal to gain back some lost ground. Market participants should be aware while Gold was able to gain more than 1% since the past two days, Gold prices have mainly depended on the weakness of the Dollar to rise. However, with inflation still acting as economic headwinds around the world, the non-yielding Gold provides little to no upside for longer term investing horizons.

On the technical side, XAUUSD has broken above our previously estimated resistance level of $1724 per ounce and is heading towards the next level of resistance at $1740 per ounce. A fresh short term support level for Gold has formed around the $1712 per ounce price level. RSI for the pair sits at 59, as of writing. On the four hour chart, XAUUSD currently trades above its 50 day SMA, but below its 100, and 200 day SMAs.

Resistance: 1740, 1800

Support: 1712, 1695