US stocks advanced higher on Friday, witnessing impressive daily gains and preserving its bullish momentum amid the risk-on market sentiment. The markets seem to have priced in a supersized 75 bps rate hike at the September FOMC meeting as the bets for an aggressive monetary tightening were reaffirmed by Fed Chair Jerome Powell, who said on Thursday that the Fed needs to keep going until it brings the inflation down. Looking ahead, markets will be focused on the August consumer-price index that will release this Thursday, which is seen as one of the key reports before the Fed rate decision on September 20-21. In the Eurozone, the hawkish comments from ECB officials provided a boost to the euro, as ECB policymakers Peter Kazimir and Klaas Knot said that their priority was policy normalization and added that they had no other option than to continue with resolute rate hikes. The ECB’s 75 bps rate hike announcement has also trimmed the Fed-ECB policy divergence.
The benchmarks, S&P 500 and Dow Jones Industrial Average both gained positive traction on Friday as the S&P 500 topped its 100-day average and snapped a three-week losing streak. The S&P 500 was up 1.5% on a daily basis and the Dow Jones Industrial Average also advanced with a 1.2% gain for the day. All eleven sectors in S&P 500 stayed in positive territory as the Communication Services and the Energy sectors are the best performing among all groups, rising 2.53% and 2.38%, respectively. The Nasdaq 100 climbed the most with a 2.2% gain on Friday, and the MSCI World index was up 1.7% for the day.
Main Pairs Movement
The US dollar suffered daily losses on Friday, coming under heavy selling pressure and retreating further from a two-decade high near the 110 mark amid the risk-on impulse across the board. However, the aggressive Fed rate hike bets and elevated US Treasury bond yields should help limit any meaningful US dollar corrective slide. The market focus now shifts to US CPI data as a consecutive decline in the headline report will confirm that the inflationary pressures are responding inversely to the higher interest rates by the Fed.
GBP/USD surged on Friday with a 0.75% gain as the cable caught aggressive bids and climbed to a near two-week high amid the broad-based US dollar weakness. On the UK front, the new UK Prime Minister Liz Truss’s plans to cap energy bills for the next two years continued to provide support to the cable. Meanwhile, EUR/USD also advanced sharply and touched a daily high above the 1.010 mark in the early European session. The pair was up almost 0.50% for the day.
Gold advanced higher with a 0.50% gain for the day after touching a daily high above the $1,728 mark during the European session, as the falling US dollar helped the safe-haven metal to find demand. Meanwhile, WTI Oil staged a goodish rebound and refreshed its daily top above the $87 mark during the US trading session, as Russia’s threat to cut oil flows has raised concerns about tight global supply.
Technical Analysis
EURUSD (4-Hour Chart)
EURUSD surged during the early trading of the Asia trading session. ECB president Christine Lagarde’s remarks on Friday provided some comfort for Euro bulls after the substantive ECB 75 basis point interest rate hike. President Lagarde pointed out that quantitative tightening would not be a norm moving forward; furthermore, the ECB’s stance remains focused on policy normalization. The weaker U.S. Greenback on Friday allowed Euro bulls to bid EURUSD above parity in more than three straight trading sessions. On the economic docket, the U.S. will release CPI and PPI figures on Tuesday and Wednesday. EU CPI data is scheduled to be released on the 16th.
On the technical side, EURUSD broke above our previously estimated resistance level at 1.0011, but we project this level to hold for the near future. The support level remains at 0.9902. RSI for the pair sits at 49, as of writing. On the four-hour chart, EURUSD currently trades below its 50, 100, and 200-day SMA.
Resistance: 0.9902, 1.0011, 1.0055
Support: 0.9902, 0.985
GBPUSD (4-Hour Chart)
Cable advanced strongly during the early trading hours of the Asia trading session. GBPUSD was able to cling to daily gains as the American trading session. U.K.’s new Prime Minister Liz Truss announced a two-year energy price guarantee that would put a ceiling on household energy bills. The bill is expected to cost British taxpayers more than 20 billion Pounds down the road. The weakened Dollar further allowed the Pound to advance. On the economic docket, the U.K. is set to release GDP figures and Manufacturing Production figures on the 12th, CPI data on the 14th, and the BoE is scheduled to announce interest rate decisions on the 15th; however, due to the passing of Queen Elizabeth II, Britain’s public sector could be affected and report dates could be postponed.
On the technical side, GBPUSD climbed to a weekly high of 1.164 during the European trading session but faced resistance soon. A new short-term support level for Cable sits at around the 1.15584 price level. Long-term support for GBPUSD sits at 1.1463. RSI for the pairs sits at 57.72, as of writing. On the four-hour chart, GBPUSD currently trades above its 50, 100, and 200-day SMA.
Resistance: 1.1561, 1.1854
Support: 1.1463
XAUUSD (4-Hour Chart)
The non-yielding yellow metal advanced slightly amid a weaker U.S. Greenback. After touching its two-decade high, the Dollar index retreated below the key 110 level. Short-term selling of the U.S. Greenback is not likely to become a pattern as the Fed remains hawkish and is willing to increase the pace of tightening. Expectations of a 75 basis point interest rate hike by the Fed during the next FOMC have increased significantly after the better-than-projected jobs released during the previous week. The 13th and 14th could be volatile for XAUUSD as the U.S. is set to release CPI and PPI figures, which are both critical indicators for the Fed’s rate hike considerations.
On the technical side, XAUUSD has touched our previously estimated resistance level at the $1,762 per ounce price level and began retreating. The short-term support level for the precious metal remains at $1,688 per ounce. RSI for the pair sits at 43.71, as of writing. On the four-hour chart, XAUUSD currently trades below its 50,100, and 200-day SMA.
