July 21, 2023
The Dow Jones Industrial Average continued its impressive winning streak for the ninth consecutive day, fueled by the better-than-expected earnings results of pharmaceutical giant Johnson & Johnson. With a 6% rise in Johnson & Johnson’s shares, the Dow recorded its best daily performance since 2017. Additionally, insurer Travelers surpassed revenue expectations for the quarter, contributing to the Dow’s overall gains.
However, the broader market faced challenges as post-earnings declines hit popular tech stocks like Netflix and Tesla. Netflix’s revenue fell short of analysts’ estimates, causing a more than 8% drop in its stock value, despite a positive year leading up to the report. Meanwhile, Tesla’s shares tumbled by 9.7% after CEO Elon Musk announced a slowdown in vehicle production during the third quarter for factory improvements.
Overall, corporate earnings have shown strength, with 74% of S&P 500 companies surpassing expectations. This has generated optimism for a favorable economic outlook, despite concerns from some about a potential bear market rally. The Dow’s outperformance compared to the tech-heavy Nasdaq 100 index marked a significant trend, emphasizing the market’s current dynamics.
Data by Bloomberg
On Thursday, the market declined by 0.68%. Utilities, Health Care, and Energy sectors showed gains of 1.85%, 1.65%, and 1.29%, respectively. Information Technology and Communication Services sectors experienced the most significant declines, dropping by 2.04% and 2.49%, while Consumer Discretionary sector faced the largest setback, declining by 3.40%.
Major Pair Movement
On Thursday, the dollar index rose by 0.6% as positive jobless claims and Philly Fed data boosted Treasury yields, leading to a risk-off sentiment in the market. The Nasdaq declined by about 2% as investors turned cautious. The dollar’s recovery was driven by its earlier decline in July, caused by hopes of U.S. disinflation, despite steady core PCE figures.
The dollar’s gains were fueled by the Bank of Japan’s Governor dismissing tightening speculation, doubts raised by an ECB hawk about multiple rate hikes, and below-forecast UK CPI affecting BoE rate hike expectations. The EUR/USD fell by 0.67% due to Germany’s real estate crisis and uncertainty surrounding China’s efforts to boost the yuan and economic growth. Sterling sank by 0.6%, testing BoE rate hike expectations. USD/JPY gained 0.33%, but caution remains ahead of Japan’s CPI report. The AUD/USD’s earlier gains were trimmed amid dollar strength and derisking despite solid jobs data and PBoC’s action to weaken USD/CNY.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Falls on Stronger US Dollar Ahead of Fed and ECB Meetings
The EUR/USD pair experienced its second consecutive daily decline and worst daily loss in a month as the US Dollar gained strength, pushing the pair towards 1.1100. Market participants are closely monitoring next week’s Federal Reserve (Fed) and European Central Bank (ECB) meetings, which have contributed to short-term momentum favoring the Dollar. Data on both sides, including improved consumer sentiment in the Euro area and tight US labor market indicators, influenced the Dollar’s rise and bond yields on both sides of the Atlantic.
Chart EURUSD by TradingView
According to technical analysis, the EUR/USD pair is moving lower on Thursday creating a push to the lower band of the Bollinger Band and creating a wider gap between the bands. The Relative Strength Index (RSI) is currently at 37, suggesting that the EUR/USD pair has the potential of moving lower.
Resistance: 1.1208, 1.1291
Support: 1.1086, 1.0977
XAU/USD (4 Hours)
XAU/USD Slides as US Dollar Gains Ground: Fed Policy Decision Looms
On Thursday, the XAU/USD pair experienced a decline to $1,965.30 per troy ounce as the US Dollar strengthened. The Dollar Index (DXY) surged towards 101.00, prompted by an upward correction after a consolidative phase at multi-month lows. Market sentiment for XAU/USD was mixed, with initial pessimism during Asian trading hours but a return to optimism in the American afternoon. While Wall Street saw mixed trades, only the Dow Jones Industrial Average remained in the green, while rising Treasury yields provided additional support to the USD. Market participants assessed a range of US data ahead of the Federal Reserve (Fed) monetary policy decision, which includes an anticipated 25 basis points (bps) rate hike as indicated by the Federal Open Market Committee (FOMC) dot-plot.
Chart XAUUSD by TradingView
According to technical analysis, the XAU/USD pair moved lower on Thursday and managed to reach the middle band of the Bollinger Bands. Currently, the price is slightly below the middle band, indicating a potential move towards the lower band. Additionally, the Relative Strength Index (RSI) is at 53, suggesting that the XAU/USD pair has returned to a neutral stance.
Resistance: $1,992, $2,013
Support: $1,970, $1,954
