Market Focus

US stocks fell lower on Friday, remaining under bearish pressure and capping the worst week since the market hit its low for the year in June amid the growing concern over outsized Federal Reserve interest-rate hikes. On the economic data side, the University of Michigan’s (UoM) Consumer Confidence Index improved modestly to 59.5 but came in below the market expectation of 60. Moreover, the one-year inflation expectation declined to 4.6% and the five-year inflation expectation edged lower to 2.8% from 2.9%. Therefore, the decline in medium and long-term inflation expectations weighed on the US dollar but failed to lift the equity markets higher. In the Eurozone, further policy tightening measures are expected by the investors amid soaring fears of stagflation, as the European Central Bank (ECB) policymakers have admitted that the central bank underestimated the pace of inflation.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined on Friday as the S&P 500 fell for a third day this week amid emerging dip buyers in afternoon trading. The S&P 500 was down 0.7% on a daily basis and the Dow Jones Industrial Average also declined with a 0.5% loss for the day. Nine out of eleven sectors in the S&P 500 stayed in negative territory, with the Energy and the Industrials sectors the worst performing among all groups, losing 2.17% and 2.06%, respectively. The Nasdaq 100 meanwhile dropped slightly with a 0.6% loss on Friday, while the MSCI World index was down 1.0% for the day.

Main Pairs Movement

The US dollar edged lower on Friday, witnessing fresh selling and retreating to a daily low below the 109.5 mark during the US session following the release of the University of Michigan’s Consumer Sentiment report. The data showed that US consumers remain slightly upbeat regarding the US economy and inflation expectations are also dropping. For now, the key event ahead is the FOMC meeting on Wednesday as the central bank is expected to raise rates by 75 basis points.

GBP/USD suffered a 0.43% loss as weaker-than-estimated retail sales data has fueled speculations of a recession. UK retail sales in August fell 1.6% MoM and added to recession fears amidst a tightening cycle by the Bank of England. Meanwhile, EUR/USD recovered slightly from weekly lows and touched a three-day top above the 1.003 level amid a reversal of the US dollar across the board. The pair was up almost 0.15% for the day.

Gold staged a solid rebound with a 0.67% gain for the day after climbing to a daily high near the $1680 mark during the US trading session, as the US Consumer Sentiment report showed a decline in inflation expectations and provided support for the safe-haven metal. Meanwhile, WTI Oil advanced slightly with a 0.18% gain for the day and remained near the weekly low around the $85 area as investors remain concerned that a deeper global economic downturn will dent the fuel demand.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD continued on its third straight day of rallying after dropping more than 1.5% on the 13^th. The euro saw bidding at below parity, allowing the euro-dollar pair to close out the week above parity. EU CPI came in as expected at 9.1%, climbing 0.2% since July. Remarks from the ECB may have provided a lift for Euro bulls as the central bank admits its underestimation of the pace of inflation. While the ECB continues to ponder over monetary policy, the Fed is set to raise interest rates by 75 basis points and continue their tightening policies. Market participants should be aware of trading during Wednesday’s American trading session as volatility is expected to surge during the release of the FOMC minutes.

On the technical side, EURUSD has successfully defended our previously estimated support level of 0.9956. Short term resistance for the pair rests slightly above parity at 1.0055. However, should the Fed surprise markets by hiking rates more than 75 basis points, EURUSD could break below the 0.9 price level. RSI for the pair sits at 49.75, as of writing. On the four hour chart, EURUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance:  1.0011, 1.0055

Support: 0.9969, 0.9902

GBPUSD (4-Hour Chart)

Cable closed out the week trading lower, despite seeing a weaker Dollar on the last trading day of the week. The disappointing retail sales figures from the U.K. adds to the uncertainty that the BoE faces at its next interest rate decision meeting. Fears of stagflation in the Eurozone have spilled over to the U.K. as both regions face similar issues of surging energy prices. British Prime Minister Lizz Truss’ plan to cap energy bills for businesses and households could be a step too late as consumption has not slowed significantly compared to the previous month’s print. On the economic docket Wednesday’s American session will see the FOMC announcing its interest rate decision, while on Thursday the ECB is set to announce its interest rate decision during the late European trading session.

On the technical side, GBPUSD has successfully defended our previously estimated support level of 1.1371. Our previously estimated support level of 1.1463 has changed polarity to a near term resistance for the pair. RSI for the Cable sits at 34.39, as of writing. On the four hour chart, GBPUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1.1561, 1.1854

Support: 1.1463

XAUUSD (4-Hour Chart)

Gold prices rebounded on the last trading day of the week after slumping more than 1.9% over the course of last Thursday’s trading. The brief rebound of Gold was aided by the broadly weaker Greenback. Stagflation concerns have also weighed on Gold’s recent price movements as the global central bank sees inflation continuing to rise after rounds of quantitative tightening. Next week sees the Fed and BoE announce new rounds of interest rate hikes, which could add further downside risk to the non-yielding yellow metal. Gold as an inflation hedge has continued to be proven untrue as the non-yielding metal fails to attract bidding after falling more than 6% since the beginning of the year. Global geopolitical events have propped up gold prices during the beginning of the year, but prices have entered a long cycle of retreat since then.

On the technical side, Gold has found footing near our previously estimated support level of the $1650 per ounce price level. Resistance for the pair now forms near the $1680 per ounce price level. RSI for the yellow metal sits at 36.83, as of writing. On the four hour chart, XAUUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1740, 1800

Support: 1712, 1695