Inflation-related reports indicate price pressures easing

January 17, 2023

U.S. equities traded higher on the first trading day of the week. The Dow Jones Industrial Average rose 0.33% to close at 34302.61. The S&P 500 gained 0.4% to close at 3999.09. The tech-heavy Nasdaq composite climbed 0.71% to close at 11079.16.

Numerous inflation-related reports, which all point to easing price pressures, have buoyed equity markets across the globe. The re-opening of China has also provided market participants confidence towards the overall global trade and supply chains. Recessionary concerns seemed to have been completely left behind in 2022 as equity has all started the year with positive gains.

The benchmark U.S. 10-year treasury yield edged higher over Monday and was last seen trading at 3.525%. The short-term 2-year treasury yield traded lower and sits at 4.24%, as of writing.

On the earnings calendar, Goldman Sachs and Morgan Stanley will report F2022 Q4 earnings before the start of the American trading session. United Airlines will report earnings after the American equity markets close. Earnings season will remain one of the largest threats to the recent equity markets rally. Q4 earnings should begin to reflect the effects of the Fed’s aggressive rate hikes in 2022.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, rose 0.12% throughout Monday’s trading. The Dollar index, which shed more than 7% over the last four months of 2022, has continued to lose an additional 1.15% since the beginning of 2023.

EURUSD lost 0.1% throughout Monday’s trading. Germany is scheduled to release its CPI figures and economic sentiment reports, both should affect volatility surrounding the Euro.

GBPUSD lost 0.3% throughout yesterday’s trading. The Dollar rebound on Monday worked against the British Pound. The U.K. will release claimant count change and hourly wage reports during today’s European trading session.

XAUUSD dropped 0.22% throughout Monday’s trading. The Dollar denominated gold lost ground as the Dollar rebounded across markets.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Monday, failing to preserve its upside traction and fell back towards the 1.0800 area amid a cautious market mood on the Martin Luther King holiday. The pair is now trading at 1.0827, posting a 0.04% loss daily. EUR/USD stays in the negative territory amid the recovery witnessed in the US Dollar, as the risk-off sentiment and thin market conditions help the greenback stage a comeback. The worries about a deeper global economic downturn have revived demand for safe-haven Dollars in the absence of any relevant economic data. Meanwhile, the release of the US Consumer Price Index (CPI) report for December has accelerated the odds of further decline in the policy tightening pace by the Fed. On the economic data front, investors will focus on the release of the US Producer Price Index (PPI) data on Wednesday. In the Eurozone, the European Central Bank (ECB) is looking to reach the terminal rate by the summer.

For the technical aspect, RSI indicator 56 figures as of writing, suggesting that the upside is more favoured as the RSI stays above the mid-line. As for the Bollinger Bands, the price regained upside traction and rebounded from the moving average, therefore some upside movements can be expected. In conclusion, we think the market will be bullish as the pair might head to re-test the 1.0868 resistance level. There should be limited selling interest as technical indicators have also turned flat within positive levels.

Resistance:  1.0868, 1.0921

Support: 1.0794, 1.0722, 1.0624

GBPUSD (4-Hour Chart)

The GBP/USD pair dropped lower on Monday, coming under modest selling pressure and retreated from a one-month high above the 1.2280 mark that touched earlier today amid a goodish US Dollar recovery. At the time of writing, the cable stays in negative territory with a 0.19% loss for the day. The latest US CPI report has lifted the bets that the Fed will soften its hawkish stance amid signs of easing inflationary pressures. Therefore, investors now have been pricing in a smaller 25 bps rate hike in February. For the British pound, the speculations that the Bank of England (BoE) could be nearing the end of its rate-hiking cycle and a bleak outlook for the UK economy have both exerted bearish pressure on the GBP/USD pair. The market focus now shifts to BoE Governor Andrew Bailey’s speech on Tuesday, which might influence the British Pound and provide some impetus.

For the technical aspect, RSI indicator 52 figures as of writing, suggesting that the upside traction could remain in the near-term technical outlook as the RSI is moving northward above the mid-line. As for the Bollinger Bands, the price regained upside traction and rebounded from the moving average, therefore some upside movements can be expected. In conclusion, we think the market will be slightly bullish as long as the 1.2168 support line holds. On the upside, a break above the 1.2271 resistance level could open the door for additional gains and favour the bulls.

Resistance: 1.2271, 1.2334, 1.2426

Support: 1.2168, 1.2106, 1.2013

XAUUSD (4-Hour Chart)

Despite Wall Street will remain closed in observance of Martin Luther King Jr. day, the pair XAU/USD witnessed some selling pressure and retreated from a nine-month peak around the $1,929 area during the European trading session. XAU/USD is trading at 1913.53 at the time of writing, losing 0.35% daily. A goodish intraday US Dollar recovery drives flow away from the US Dollar-denominated Gold, as the greenback stalled its recent downtrend and staged a solid recovery from a seven-month low. However, the growing expectations that the Fed will soften its hawkish stance could cap any meaningful upside for the US Dollar. Several Fed officials backed the case for smaller rate hikes and reaffirmed bets for a smaller 25 bps lift-off in February, which could act as a tailwind for the Gold price.

For the technical aspect, RSI indicator 64 figures as of writing, suggesting the pair’s lack of near-term directions as the RSI remains flat. For the Bollinger Bands, the price witnessed selling pressure and retreated from the upper band, therefore a continuation of the downside trend can be expected. In conclusion, we think the market will be slightly bearish as long as the 1,924 resistance line holds. A pullback below the 1,893 mark is more likely to attract fresh sellers and remain limited near the 1,893-1,873 region.

Resistance: 1924, 1952, 1962

Support: 1893, 1873, 1832

Economic Data