After positive inflation data, stock markets continued their climb, marked by modest gains in the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average. However, despite a notable drop in the producer price index, retail sales declined, painting a mixed economic picture. Corporate highlights included Target’s 18% surge on strong Q3 results and V.F. Corp’s 14% rise post-JPMorgan’s upgrade. Currency markets saw the US dollar rebound after strong retail sales, influencing US Treasury yields and readjusting rate-cut forecasts. EUR/USD faced resistance, while USD/JPY surged and GBP/USD declined amidst varied economic data. Commodity-linked currencies like CAD and AUD held steady amid global growth expectations and the dollar’s resurgence despite falling oil prices.
Stock Market Updates
Wednesday saw stocks maintaining their upward momentum after favorable inflation data. The S&P 500 inched up by 0.16%, reaching 4,502.88 at closing, and the Nasdaq Composite recorded a slight 0.07% rise, closing the day at 14,103.84. The Dow Jones Industrial Average climbed by 0.47%, gaining 163.51 points to close at 34,991.21. The 10-year U.S. Treasury yield rose by 9 basis points, reaching 4.537%, rebounding after slipping below 4.5% previously.
October’s producer price index, a measure of wholesale prices, experienced its most significant drop since April 2020, decreasing by 0.5%. However, retail sales also declined, presenting a mixed picture of economic data. These movements followed a strong prior session triggered by the consumer price index remaining flat for October, contrary to expectations of a slight increase.
In the corporate world, Target’s stocks surged almost 18% after surpassing third-quarter expectations, while V.F. Corp’s shares rose 14% post an upgrade from JPMorgan. Meanwhile, the focus shifted to Washington as lawmakers aimed to avert a government shutdown. The House of Representatives passed a bill for a “laddered” continuing resolution, moving it to the Senate for a vote to avoid a potential federal shutdown by week’s end.
On Wednesday, the market showed a mix of positive and negative movements across sectors. Sectors like Consumer Staples (+0.70%), Communication Services (+0.60%), and Financials (+0.57%) saw gains, while Information Technology (-0.08%), Utilities (-0.33%), and Energy (-0.34%) experienced slight declines. Overall, the market displayed a balanced but somewhat subdued performance with some sectors in the positive territory and others marginally down.
Currency Market Updates
Recent currency market fluctuations, especially regarding the US dollar, reflect a responsive pattern to economic data and evolving rate forecasts. Following Tuesday’s post-CPI decline, the US dollar index saw a rebound fueled by stronger-than-expected US retail sales. This upward momentum in sales contributed to a rise in US Treasury yields, which helped alleviate the intensified selling pressure on the US currency. As a result, the extreme dovish predictions for Federal Reserve rate cuts in the second quarter of 2024 and beyond were tempered, with the market recalibrating its year-end rate-cut estimates.
The EUR/USD pair encountered a 0.3% drop to 1.0848 amidst the surge in US Treasury yields, unable to breach the resistance level of around 1.0882 for the second consecutive session. In contrast, USD/JPY surged past the 151 mark, targeting the 2022 high at 151.94, buoyed by favorable US-Japan rate spreads and the absence of pronounced dovishness from the Fed or hawkishness from the BoJ. Conversely, GBP/USD faced downward pressure, initially triggered by lower-than-expected UK CPI figures and further exacerbated by the robust performance of US retail sales. Additionally, commodity-linked currencies like CAD and AUD maintained modest gains despite a decline in oil prices, leveraging the rise in global growth expectations prompted by falling rates and the US dollar’s resurgence.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Retracement Amidst Fed Sentiment: Analyzing Dollar Dynamics
The EUR/USD pair experienced a corrective dip from its recent highs near 1.0900 to around 1.0830. Nevertheless, the prevailing bias suggests an upward trajectory, driven by declining confidence in the US Dollar. The Federal Reserve’s apparent conclusion on interest rate hikes following subdued inflation data triggered a Dollar retreat. However, the USD showcased resilience post-data release, backed by a rebound in US yields. While the negative Dollar sentiment prevails, the USD’s strength is evident against a backdrop of comparatively robust US economic performance. This correction in EUR/USD is viewed as a temporary adjustment in light of ongoing market expectations regarding the Fed’s stance on rates. The coming US economic data could further impact the pair’s movement.
Technical analysis shows a slight downward movement in the EUR/USD on Wednesday as it eased from the upper band of the Bollinger Bands. Presently, the pair is trading between the middle and upper bands, hinting at a potential slight decline towards the middle band. Additionally, the Relative Strength Index (RSI) stands at 71, indicating a sustained bullish bias.
Resistance: 1.0890, 1.0935
Support: 1.0835, 1.0772
XAU/USD (4 Hours)
XAU/USD Edges Lower Amid Dollar Rebound: Short-Term Upside Bias Persists
Spot Gold, represented by XAU/USD, encountered a retreat after hitting a weekly peak at $1,975, struggling to maintain ground above $1,970. This pullback was influenced by a US Dollar correction and a resurgence in US yields. Despite this, the immediate trajectory for Gold seems inclined toward further upward movement. Recent economic data, including the Producer Price Index (PPI), decline and softer Retail Sales, suggests a cooling of inflationary pressures, reinforcing the Dollar’s dip on Tuesday. Factors such as ongoing risk appetite, sturdy US bonds, and the Dollar’s vulnerability may continue to bolster Gold’s prospects. However, upcoming US releases like the Jobless Claims report and Industrial Production could potentially sway market sentiments, impacting Gold’s trajectory amid changing yield dynamics.
Technical analysis indicates that XAU/USD remained stable on Wednesday, aiming for the middle band of the Bollinger Bands. Currently, the gold price hovers slightly above this band, hinting at a potential minor decline towards this level. The Relative Strength Index (RSI) is currently at 52, indicating that the XAU/USD pair is still exhibiting a neutral bias.
