U.S. equities traded lower over the course of yesterday’s trading. The Dow Jones Industrial Average slid 0.33% to close at 30423.81. The S&P 500 lost 0.67% to close at 3695.16. The tech-heavy Nasdaq Composite lost 0.85% to close at 10680.51. U.S. equities snapped a two-day winning streak as treasury yields rallied; however, the three major indices are still on track for a positive week.
U.S. treasuries rallied as recession fears mounted. The 10-year treasury yield soared past 4.1% and was last seen trading at 4.144%. The U.S. 2-year treasury yield, which has historically been viewed as an early indicator of the Fed interest rate target, is currently trading at above 4.5%.
Shares of ASML, one of the world’s most important companies in the semiconductor supply chain, jumped 6% on Wednesday as the company reported better-than-expected earnings. ASML reported 5.77 billion euros in revenue, beating analyst forecasts of 5.41 billion euros. ASML showed resilience in earnings despite a downtrend in the semiconductor sector.
EV giant, Tesla, reported adjusted earnings of $1.05 per share, beating analyst estimates of 99 cents per share. Tesla shares dropped 5% in extended trading, however, as revenue came in below analyst estimates at $21.45 billion. Tesla CEO, Elon Musk, has been critical of the pace of the Fed’s interest rate hike. When asked if Tesla is concerned about the impending recession, Elon Musk replied that Tesla would be “pedal to the metal come rain or shine.”
Main Pairs Movement
The Dollar index gained 0.81% over the course of yesterday’s trading. The soaring short-term U.S. treasury yield and souring market sentiment have both acted as tailwinds for Dollar bulls.
EURUSD dropped 0.82% over the course of yesterday’s trading. EU CPI came in at 9.9%, year over year, slightly more than the expected 10%; however, the 9.9% still marks a multi-decade high. Inflation continues to weigh on the Euro and the economic outlook of Europe.
GBPUSD dropped 0.9% over the course of yesterday’s trading. U.K. CPI came in at a red hot 10.1%, year over year, beating estimates of 10%; furthermore, the core inflation climbed to 6.5%.
Gold dropped 1.4% over the course of yesterday’s trading. The non-yielding metal snapped its two-day winning streak amid demand returning for the U.S. Greenback.
Technical Analysis
EURUSD (4-Hour Chart)
The EUR/USD pair declined lower on Wednesday, extending its daily losses and dropping towards the 0.978 area during the US session amid mounting recession fears and a risk-off market mood. The pair is now trading at 0.9766, posting a 0.87% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the rising bets for aggressive rate hikes by the Fed and renewed growth-related concerns both provided support to the greenback. The central bank is widely expected to increase the Federal Funds Rate by 75 basis points for the fourth consecutive time, which would translate into a further economic slowdown. For the Euro, the Eurozone inflation arrives at 9.9% YoY in September, which missed market expectations of 10.0%. However, the soaring bets for European Central Bank’s (ECB) hawkish monetary policy should limit the losses for the shared currency.
For the technical aspect, RSI indicator 45 figures as of writing, suggesting that the pair is preserving its bearish momentum as the RSI dropped towards 40. As for the Bollinger Bands, the price witnessed persistent selling and crossed below the moving average, so a downtrend continuation can be expected. In conclusion, we think the market will be bearish as long as the 0.9861 resistance line holds. A bearish extension could be expected if the pair break below the 0.9718 support.
Resistance: 0.9861, 0.9921, 0.9986
Support: 0.9718, 0.9667, 0.9551
GBPUSD (4-Hour Chart)
The GBP/USD pair suffered from losses on Wednesday, failing to preserve its upside traction and accelerating its decline below the 1.1240 mark on a hotter UK inflation release and a worsening market mood. At the time of writing, the cable stays in negative territory with a 1.01% loss for the day. The rising US Treasury bond yields continued to lift the US dollar higher as there is nearly a 100% chance of the fourth successive supersized 75 bps rate increase at the next FOMC meeting in November. For the British pound, the headline UK Consumer Price Index (CPI) refreshes a 30-year high and rises by 10.1% YoY in September, which comes higher than market expectations of 10.0%. The data lifted bets for a jumbo 100 bps rate hike by the Bank of England in November but failed to lift the GBP/USD pair higher as the looming recession risks have overshadowed the hotter UK CPI figures.
For the technical aspect, RSI indicator 42 figures as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price remained under pressure and dropped towards the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.1162 support. Sustained weakness below that level could pave the way for a further near-term downward move.
Resistance: 1.1390, 1.1476, 1.1566
Support: 1.1162, 1.0968, 1.0797
XAUUSD (4-Hour Chart)
XAUUSD continues losing ground through the early North American session and hits a fresh three-week low, pricing at $1631 as of writing. The downtick was sponsored by a strong pickup in demand for the US dollar, which tends to weigh on the dollar-denominated yellow metal. At the writing time, the DXY index has regained a significant part of its weekly losses amid rising bets for an aggressive rate hike by the Fed. The US central bank remains committed to bringing inflation under control and is expected to deliver another supersized 75bps rate increase at the next policy meeting in November. Hawkish Fed expectations triggered a fresh leg up in the US Treasury bond yields and continue to act as a tailwind for the buck. The yields on the rate-sensitive 2-year US government bond rallied to a new 15-year peak and the benchmark 10-year Treasury note hit its highest level since 2008. This is another factor driving flows away from the non-yield gold.
For the technical aspect, RSI indicator 33 figured as of writing, suggesting that the gold amid heavy selling pressure, edging lower in the near-term could be expected. As for the Bollinger Bands, gold priced below the lower band and the gap between the upper and lower band became larger, indicating the price would be slide back towards the YTD low, around the $1,615 area, which remains a distinct possibility.
