Markets experienced a mild rally on the first trading day of May. The Dow Jones Industrial Average increased 0.26 percent to 33061.5, the S&P 500 increased 0.57 percent to 4155.38, and the Nasdaq Composite increased 1.63 percent to 12536.02. The technology and telecoms sectors were instrumental in Nasdaq’s recovery. With the Federal Reserve’s interest rate decision planned for Thursday, market players should anticipate further downside in the near term as markets continue to price in a more than probable 50 basis point rate hike.
This week’s earnings season continues with Pfizer Inc, Advanced Micro Devices Inc, BP PLC, and Airbnb Inc all expected to report on the 3rd. Thus far, the FAANG companies have failed to meet analyst earnings projections, with Netflix and Amazon both falling short. Global growth concerns have discouraged market players from “buying the dip,” resulting in a prolonged period of declines in the major indices.
Main Pairs Movement
The yield on the benchmark US ten-year treasury note reached 3% during yesterday’s trading. At the moment, the benchmark yield is hovering at 2.987 percent. Market investors have gradually priced in the Fed’s 50 basis point interest rate hike, as reflected by the Dollar index’s ongoing rise.
EURUSD declined 0.36 percent in yesterday’s trading session to settle at 1.05036. Fears over the ongoing conflict between Ukraine and Russia, as well as concerns about the European Union’s economic prospects, continue to surround the shared currency.
Sterling fell 0.62 percent versus the dollar during yesterday’s trading. GBPUSD finished at 1.24901, retaining some of last Friday’s gains. In the immediate term, increased demand for the Dollar will continue to put Cable under selling pressure.
USDCAD increased 0.14 percent in yesterday’s trading. Commodity-linked currencies, such as the Canadian Dollar, suffered as global commodities prices fell; however, strong US dollar demand helped the USDCAD pair’s recovery.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair edged lower on Monday, remaining under bearish pressure below the 1.056 level despite the disappointing US data. The pair witnessed a goodish rebound to touch a daily high in the early European session, but then failed to preserve the upside momentum and dropped towards the 1.050 area. The pair is now trading at 1.0521, posting a 0.19% loss daily. EUR/USD stays in the negative territory amid slightly US dollar strength, as the rising US bond yields and expectations for a 50 bps rate hike by the Fed both lend some support to the greenback. However, the US ISM Manufacturing PMI in April falls to 55.4, which is weaker than the market’s expectations. For the Euro, the European Central Bank vice-president said that a rate hike in July is possible but unlikely, but the comment failed to push the pair higher.
For the technical aspect, the RSI indicator is 40 figures as of writing, suggesting that the downside is more favored as the RSI stays below the mid-line. As for the Bollinger Bands, the price failed to cross above the moving average, which showed that downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.048 support, which is the 5-year low for EUR/USD pair. A break below that support might open the road for additional losses.
Resistance: 1.0730, 1.0925, 1.1174
Support: 1.0485
GBPUSD (4-Hour Chart)
The pair GBP/USD declined on Monday, extending its slide towards the 1.250 area that started last Friday amid growing concerns about the UK economy. The pair were surrounded by bearish pressure for most of the day despite trying to rebound in the early European session, then started to see heavy selling heading into the American session. At the time of writing, the cable stays in negative territory with a 0.50% loss for the day. The rising US bond yields continued to help the US dollar to find demand, meanwhile, the weaker-than-expected ISM Manufacturing PMI failed to act as a tailwind for the cable. For the British pound, the less hawkish BoE compared to Fed has undermined the cable, as markets expect BoE to only hike interest rates by 25 bps. The growing concerns about the UK economy might also be made the BoE to further soften its tone on the need for further rate hikes.
For the technical aspect, the RSI indicator is 38 figures as of writing, suggesting that the downside is more favored as the RSI stays below the mid-line. For the Bollinger Bands, the price fell from the upper band and crossed below the moving average, indicating a continuation of the downside trend. In conclusion, we think the market will be bearish as long as the 1.2585 resistance line holds. The falling RSI also reflects bear signals, market focus now shifts to the key policy announcements from the Fed and BoE on Wednesday and Thursday.
Resistance: 1.2585, 1.2761, 1.3071
Support: 1.2430
USDCAD (4-Hour Chart)
As the risk-off mood lends some support to the safe-haven US dollar today, the pair USD/CAD gained upside tractions and extended its rally to a 2022 top. The pair were flirting around the 1.284~1.288 area most of the day, then touched a daily high above the 1.2900 mark in the early American session. USD/CAD is trading at 1.2892 at the time of writing, rising 0.27% daily. The concerns about China’s Covid-19 spread have weighed on market sentiment and pushed the greenback higher, as Shanghai reported 58 new cases, and restrictions are threatened to be imposed once again. On top of that, retreating crude oil prices also undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair. WTI now hovers around the $104.00 per barrel area, meanwhile, the oil demand in China is expected to decrease after the weak data.
For the technical aspect, RSI indicator 62 figures as of writing, suggesting that upside is more favored as the RSI stays above the mid-line. As for the Bollinger Bands, the price rose from the lower band and crossed above the MA line, therefore the upper band becomes the profit target. In conclusion, we think the market will be bullish as the pair is testing the 1.2882 resistance, a sustained strength above that level should favor the bulls.
