Market Focus

US equities fell hard on Thursday as the market’s optimism, driven by a slew of strong earnings, took a turn downwards after Facebook Meta Platforms’ disappointing earnings report on Wednesday. The Dow Jones Industrial Average dropped 1.4% while the S&P 500 slid 2.4%, the worst day in nearly a year. In the meantime, the tech-heavy weighted Nasdaq fell 3.7% for its worst day since late 2020.

On “Super Thursday,” European Central Bank (ECB) decided to keep interest rates unchanged even though the most recent inflation figure has hit a record 5.1%. The latest ECB forecast for inflation is 3.2% this year, which is above the target rate. The central bank believes that inflation will cool down following a hawkish pivot.

Meanwhile, in the UK, the Bank of England (BoE) raised its interest rates for the second time in a quarter. The BoE decided to hike its rate to 0.5% from the previous 0.25%. With UK consumer prices rising to 5.4% in December, the highest in nearly 30 years, the BoE expects that the inflation rate will possibly peak at around 7.25%. The markets are now betting that the BoE will hike its rate to 1.5% by mid-2023 in order to combat inflation.

Main Pairs Movement:

GBPUSD’s bulls took a breather on Thursday, hitting a high of 1.36277 and up 0.04% at the end of the day. The British pound was boosted as the Bank of England hiked its interest rates back-to-back to 0.5% from 0.25%. At the same time, the labour market in the UK remained robust, strengthening the pound.

EURUSD was up 1.18% on Thursday, approaching January monthly high. The eurodollar outperformed following ECB President Lagarde’s hawkish pivot.

Gold’s bulls were little affected by the Bank of England’s aggressive stance and the ECB’s hawkish comments on Thursday. During trading, gold once hit a low of $1,788 before bouncing back above $1,800 at the end of the day.

Technical Analysis:

EURUSD (4- Hour Chart)

The EUR/USD pair declined on Thursday, continuing to retreat from a two-week high that touched earlier this week after four consecutive daily advances. The pair remained under pressure most of the day, dropping to a daily low below 1.1280 level during the European session. The pair was last seen trading at 1.1278, posting a 0.21% loss on a daily basis. EUR/USD stayed in the negative territory amid a stronger US dollar across the board, as the DXY index reversed part of its recent pullback and climbed above 96.00. Despite falling US bond yields, the Greenback still managed to regain some upside momentum on Thursday. In Europe, the market’s focus has now shifted to the ECB’s interest rate decision, which is expected to be unchanged. However, ECB President Christine Lagarde’s comments on the inflation outlook will be also watched closely.

On the technical front, the RSI is at 55 as of writing, suggesting bullish movement ahead. Looking at the Bollinger Bands, the price has dropped towards the moving average after touching the upper band, which indicates that the pair could retain its downside traction. In conclusion, we think the market will be bearish as long as the 1.1311 resistance holds. On top of that, the pair could face renewed selling pressure if the ECB continues to push pack against rate hike bets.

Resistance: 1.1311, 1.1424, 1.1479

Support: 1.1196, 1.1132

GBPUSD (4- Hour Chart)

GBP/USD advanced on Thursday, gaining bullish momentum to climb above the 1.3600 mark after the key BoE event. The pair failed to keep its traction after yesterday’s rally to the 1.3590 area, once touching a daily low during the European session. However, the Bank of England’s monetary policy decision lent strong support to the the pound. At the time of writing, Cable remains in positive territory with a 0.26% gain for the day, recovering most of its intraday’s losses. The Bank of England raised the benchmark interest rate by 25bps to 0.50%, which was in line with market expectations and marked the first back-to-back interest rate raise since 2004. For now, traders await BoE Governor Andrew Bailey’s speech for fresh hints on future rate hikes.

On the technical front, the RSI is at 70, suggesting that the pair is in the overbought zone, signalling a possible trend reversal. As for the Bollinger Bands, the pair rebounded and failed to cross below the moving average, indicating that the upside momentum might persist. In conclusion, we think the market will be bullish amid the rate hike by BoE. If the BoE is hawkish about the inflationary outlook of the economy, this might push Cable to break through the 1.3633 resistance and set the stage for a further near-term upside move.

Resistance: 1.3633, 1.3680, 1.3739

Support: 1.3372, 1.3185

 

USDCAD (4- Hour Chart)

After three successive days of a losing streak to a one-week low below the 1.266 level, USD/CAD regained upside momentum on Thursday. The pair was trading higher in the Asian session and touched a two-day high above 1.2710 level before retreating slightly to surrender some daily gains. The bullish momentum witnessed in USD/CAD is mainly due to US dollar strength, as the pair is currently rising 0.14% on a daily basis. The dismal US ADP report released yesterday provided some support for the Greenback to make a solid comeback. On top of that, retreating crude oil prices have also weighed on the commodity-linked Loonie and acted as a tailwind for the pair, as WTI oil declined 0.48% for the day.

On the technical side, the RSI is at 47, suggesting that the downside appears more favoured as the RSI sits below the midline. For the Bollinger Bands, the pair is falling towards the lower band, therefore, a downside movement could be expected. In conclusion, we think the market will be bearish as long as the 1.2694 resistance line holds. The USD/CAD pair seems to lack bullish momentum and is struggling to find acceptance above the 1.2700 mark at the moment.

Resistance: 1.2694, 1.2782, 1.2829

Support: 1.2634, 1.2575, 1.2462