The markets turned cautious after explosions in Afghanistan and ahead of a Federal Reserve gathering that may provide more clues about its approach to paring stimulus

27 August 2021, 04:19

Market Focus

U.S. equities fell Thursday as markets turned cautious after explosions in Afghanistan and ahead of a Federal Reserve gathering that may provide more clues about its approach to paring stimulus. The S&P 500 and Nasdaq slid as U.S. and civilian casualties were reported from blasts outside the Kabul airport, escalating tensions as the U.S. evacuates the area. Energy shares led to the decline as crude oil fell. Dow Jones closed red as well, down 0.54%.

Escalating concerns about the crisis in Afghanistan added to the risk-off mood. The Pentagon confirmed on Thursday that an explosion took place at the Kabul airport, leaving an unconfirmed number injured or dead as the U.S. evacuation of the region continued.

Investors have also been awaiting the start of the Federal Reserve’s Jackson Hole symposium, which is being held as a virtual event due to the virus. Fed Chair Jerome Powell is set to give a closely watched speech on the economic outlook on Friday, which will divulge more of his and the central bank’s thinking about the timing and scope of tapering the Fed’s pandemic-era asset purchase program.

Some Fed officials have struck a more hawkish tone in recent remarks, however, adding to jitters that a shift away from the accommodative monetary policy may come in the near term. Esther George, the president of the Federal Reserve Bank of Kansas City, told Yahoo Finance in a recent interview that she was in favor of beginning the tapering process “sooner rather than later.”

Main Pairs Movement

The US dollar bounced back on Thursday, ending its four-day losing streak. The DXY index is at 93.072 as of writing, posting a 0.27% gain on the day. The bullish momentum witnessed on the US dollar might result from the fact that worries about the Delta variant of the coronavirus have been dissipated. As the US Food and Drug Administration (FDA) granted full approval to the Pfizer/BioNTech Covid-19 vaccine, which convinced investors that the Fed might still start bond tapering later this year. The focus now shifts to Powell’s speech at the Jackson Hole Symposium this Friday, as the Fed Chairman will talk about the recovery status of the US economy.

GBP/USD and EUR/USD both declined on Thursday amid a stronger US dollar across the board, trading at 1.3698 and 1.1750, respectively. EUR/USD reached a fresh weekly high then pulled back towards 1.1750 level during the American session, losing 0.17% daily. The ECB Publishes Account of Monetary Policy Meeting was released earlier in the day, which showed that the ECB will continue the bond purchases and review its monetary policy at the September meeting. Hence, we may see a further decline in EUR/USD.

USD/JPY consolidated on Thursday, hovering around 110.02. The pair is rising 0.01% on the day as of writing. AUD/USD was surrounded by selling pressure, losing 0.50% daily.

Gold edged higher on Thursday as the precious metal took a lift during the American session, trading at 1792.24 with a 0.12% gain on the day at the time of writing. WTI Crude Oil, on the contrary, failed to continue its rally from Monday while posted a 0.21% loss on the day.

Technical Analysis

AUDUSD (4-hour Chart)

The AUD/USD pair was trading lower on Thursday, touching a fresh daily low during the American session. The pair is now trading at 0.7248 at the time of writing, losing 0.37% daily. The selling pressure witnessed in AUD/USD is attributable to the US dollar’s strength across the board, as the greenback is now posting a 0.19% gain on the day. For the technical aspect, if we take a look at the MACD indicator, a near-zero MACD histogram suggests bear-movement ahead. For Bollinger Bands, the price is falling from the upper band and crossing below the moving average, which also indicates a selling signal and the lower band becomes the loss target.

In conclusion, we think the market will be bearish as the pair is now testing the 0.7237 support line. If the price breaks below that level, it will open the door for additional near-term losses. And the next resistance is at 0.7201. On top of that, Covid-19 cases in Australia hit a new daily high on Wednesday as New South Wales reported 919 new infections, which can be negative for the Australian dollar.

Resistance: 0.7280, 0.7341

Support: 0.7237, 0.7201, 0.7107

GBPUSD (4- Hour Chart)

The GBP/USD pair declined on Thursday as it failed to persist in a six-day rally, despite attempting to rebound during the American session. The pair is now trading at a daily low of 1.3695 as of writing, losing 0.50% daily. An increase in the demand for the US dollar and rising US Treasury bond yields put selling pressure around the cable. For the technical aspect, the MACD indicator shows a death cross, which is considered a selling signal. For Bollinger Bands, the price is now trading below the 20 SMA line and touching the lower band, suggesting that the market is bearish.

In conclusion, we think the market will be bearish as the pair heads to test the 1.3691 support, further losses can be expected if the price dig under that level. The next support sits at 1.3602. In addition to that, the epidemic situation in the UK seems like not improving at all, despite the government’s successful vaccination program. New cases are over 35k a day now in the UK.

Resistance: 1.3768, 1.3888, 1.3958

Support: 1.3691, 1.3602

USDCAD (4- Hour Chart)

The USD/CAD pair was trading higher in early trade on Thursday and preserved its bullish traction to gain further profits during American session. The pair is now trading at 1.2684 at the time of writing with an outstanding 0.75% gain on the day. USD/CAD surged on oil’s weakness, as the WTI crude oil is losing 0.77% on Thursday. For technical aspect, RSI indicator 55 figures as of writing, suggesting tepid bull-movement ahead. If we take a look at MACD indicator, a positive MACD histogram shows that the market is bullish.

In conclusion, we think market will be bullish as the Bollinger Bands shows that the price moves out of the upper band, which means a strong upward trend continuation can be expected. Moreover, the Canada Raw Materials Price Index (RMPI) will be released on Friday. It is a leading indicator of consumer inflation, and a higher-than-expected reading is positive for the Canadian dollar.

Resistance: 1.2731, 1.2834, 1.2949

Support: 1.2587, 1.2502