Markets Largely Sideways as Stocks Slip

12 August 2022, 02:35

Market Focus

US stocks slid on Thursday and erased gains on speculation that the rally that followed softer inflation data went too far, with Federal Reserve still setting tight monetary policies.  A key measure of US producer prices unexpectedly fell for the first time in more than two years, largely reflecting a drop in energy costs. A similar result to the consumer prices report on Wednesday, both the overall and core figures were softer than forecast. However, inflation remains stubbornly high and will likely keep the Fed on a hawkish path to curb it. Meanwhile, equities have been bolstered by a better-than-expected earnings season. Companies that have trailed analysts’ estimates were rewarded with the biggest gains in at least five years.

The benchmarks, there S&P 500 and Dow Jones Average Industrial, both changed little on Thursday after the market consumed CPI numbers. Five out of eleven sectors stayed in positive territory, with the Energy and Financial sectors performing best among all groups, rising 3.19% and 1.02% respectively. It’s worth noting that big Tech underperformed even as the Nasdaq 100 hit more than 20% above its June lows. The index slid 0.6% for the day.

Main Pairs Movement

The US dollar was slightly lower on Thursday, following a dramatic 1% loss the previous day when data showed U.S. inflation was not as hot as anticipated in July. The DXY index edged lower during the Asian trading session and touched a daily-low level below 104.6, and then rebounded to a level above 105.2.

GBP/USD slid 0.11 % amid a risk-off impulse while the greenback weakened. Cable witnessed fresh upbeat transactions during the Asian trading session and then lost bullish momentum and fell to a level below 1.220. Apart from that, investors needed to keep eyes out for the critical GDP report on Friday, to confirm the slowdown of economic growth across the UK. Meantime, EURUSD has turned sideways around 1.032, and the pair advanced with a 0.2% gain for the day.

Gold declined 0.15%, as Federal officials maintained their hawkish stance. XAUUSD oscillated in a range from $1783 to $1799 marks. WTI and Brent oil both surged on Thursday, rising 2.62% and 2.13% respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Thursday, preserving its upside traction and extending its previous rebound towards the 1.036 mark after the release of softer-than-expected US PPI data. The pair is now trading at 1.03281, posting a 0.28% gain on a daily basis. EUR/USD stayed in the positive territory amid a weaker US dollar across the board, as the easing US inflation figures lent support to market sentiment and kept the safe-haven greenback on the back foot. The US Producer Price Index (PPI) declined to 9.8% year-on-year in July, which came in lower than the market’s expectations and pushed the EUR/USD pair higher. For the Euro, European indexes struggled to advance, and the EUR/USD pair is up for the fifth consecutive day.

On the technical side, the RSI is at 66 as of writing, suggesting that the upside is more favored as the RSI stays above the midline. As for the Bollinger Bands, the price failed to climb higher but hovered around the upper band. Therefore, some upside traction can be expected. In conclusion, we think the market will be slightly bullish as the pair is testing the 1.0325 resistance line. A sustained strength above that level might open the road to additional gains.

Resistance:  1.0325, 1.0438, 1.0484

Support: 1.0282, 1.0158, 1.0111

GBPUSD (4-Hour Chart)

The GBP/USD pair edged higher on Thursday, failing to gather bullish momentum and remaining under pressure below the 1.225 mark during the US session amid risk-off market sentiment. At the time of writing, Cable stays in positive territory with a 0.11% gain for the day. The cooler-than-expected US inflation report and upbeat US Initial Jobless Claims figure both exerted bearish pressure on the safe-haven greenback and underpinned the GBP/USD pair. The economic data showed that supply-chain conditions are improving and inflationary pressures on the wholesale side have also begun to ease. For the British pound, Bank of England Chief Economist Huw Pill said on Thursday that higher rates in the short term could also mean some slowing in the UK economy.

Meanwhile, the RSI indicator is at 61 figures, suggesting that sellers remain on the sidelines as the RSI on the four-hour chart stays near 60. For the Bollinger Bands, the price failed to preserve upside traction and started to retreat back, therefore a continuation of the downside trend can be expected. In conclusion, we think the market will be bearish as long as the 1.2248 resistance line holds. On the upside, if the pair climbs above that level and starts using it as support, bulls could show interest and lift the pair higher.

Resistance: 1.2248, 1.2317, 1.2381

Support: 1.2154, 1.2068, 1.2027

XAUUSD (4-Hour Chart)

Despite the renewed weakness witnessed in the US dollar amid the softer-than-expected US PPI report on Thursday, XAU/USD struggled to gather bullish momentum and retreated back to the $1787 area to erase most of its daily gains during the US trading session. XAU/USD is trading at 1789.87 at the time of writing, losing 0.13% on a daily basis. Signs that inflation might have peaked already continue to support speculations for a less aggressive policy tightening by the Fed, as the softer-than-expected US PPI data have also reinforced market expectations. For the time being, a 50 bps rate hike by the Fed seems likely in the September meeting. Moreover, the risk-on market mood might keep a lid on any further gains for the safe-haven metal.

The RSI is at 52 as of writing, suggesting the pair’s indecisiveness in the near term as the RSI indicator stays near the midline. For the Bollinger Bands, the price witnessed fresh selling and dropped below the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1785 support line. A break below that level could favour the bear and skew the risk to the downside.

Resistance: 1811, 1822, 1831

Support: 1785, 1769, 1756