Yellen warns Congress to raise the debt limit by Oct 18. Else, defaulting on debts could lead to recession.

6 October 2021, 01:47

Market Focus

Major indices rebounded on Tuesday following a major sell-off in the technology-centered markets in the previous session. Dow Jones rebounded 0.92%. S&P 500 climbed 1.05% while Nasdaq rallied 1.25%, led by advances in mega-cap technology companies. However, the 10- year yield surged to 1.53%. Investors are awaiting the latest job data later this week, and are closely following the Federal Reserve’s next move.

US Treasury Secretary Janet Yellen said that the economy would fall into recession if Congress ends up failing to raise the debt ceiling before a default happens on the US debt. Meanwhile, President Biden also called on Congress to raise the ceiling this week to avoid the catastrophe of not paying the government’s bill. While the US has never failed to pay the bill on time, a default will have a high possibility of resulting in a jump in interest rates, damaging Washington’s ability to fulfill its future obligations on time.

Oil prices continue to surge, hitting multi-year highs as OPEC+ sticks to its original output plan. Earlier this week, OPEC+ agreed to adhere to its pact in July, rather than raising the output further. As a result, the fuel market is likely to be undersupplied for the next couple of months.

Main Pairs Movement

The Japanese Yen is testing its downside as US stocks recover and US yields climb with investors concerned about inflation. USDJPY is trading above the 111.00 level, with an eye on the 112 region, where selling pressure is prone to emerge.

GBPUSD climbed higher, approaching 1.3650. After dipping last week, the pound rebounded as the markets seem to have shifted the focus from the fuel shortage to the impact of the Bank of England and whether it will lead the way for major central banks on rate hikes.

Gold declined, trading at $1759 as Treasury yields edged higher after US data from last week boosted optimism about economic recovery. In the meantime, the decline in gold also came from the dollar rebound, pressuring bullion, which did not earn interest.

Technical Analysis

GBPJPY (4-Hour Chart)

GBP/JPY has breached both the 200-DMA at 150.18 and the 50-DMA at 151.36 and bounced once off the 152.00 price level. It is trading at 151.90 as of writing.

If GBP/JPY buyers would like to resume the uptrend, they would need a daily close above 152.00. In case of that outcome, it could pave the way for further gains. The first resistance level would be 152.55, with the key zone being the confluence of the September 28 high and the 100-DMA. A breach of that level would expose July’s peak, 153.50, followed by the yearly peak of 156.08.

On the other hand, a retreat heading to the 50-DMA could exert downward pressure in the cross-currency. The first support level would be the 50-DMA, 151.30. A daily close below that level could push the price towards the 200-DMA at 150.18, immediately followed by October’s first low at 149.22.

Both the RSI indicator and MACD histogram are above the middle line, supporting the upside bias, but caution is warranted as the negative macro impact looms.

Resistance: 152.55, 153.50, 156.08

Support: 151.30, 150.18, 149.22

EURUSD (4-Hour Chart)

EURUSD retreated from its Monday gains, sliding during the U.S. session by 0.22%, and is trading at 1.1598 as of writing. During the day, the pair bottomed at 1.158 but bounced back on slight Greenback weakness. The U.S. dollar index advanced 0.18% and is hovering around 93.98, underpinned by higher U.S. 10 years Treasury yields, which sit at 1.534%.  

From a technical perspective, the RSI index slid slightly to 42.8, suggesting weakening guidance. On the MACD side, the indicator continued to converge to the zero horizontal.

On price action, we expect the first barricade ahead to be 1.1645, following a strong resistance at 1.168 for the upside. In contrast, we expect the immediate support to be set at 1.1564, and psychological support at 1.15. In all, we foresee that the market will be choppy between 1.1564 and 1.1645 consolidation channels.

Resistance: 1.1612, 1.1645, 1.168

Support: 1.1564, 1.15

USDCAD (4-Hour Chart)

Loonie was falling in the New York session, trading below 1.26, down over 0.24% in the day market at the time of writing. However, market sentiment has improved throughout the day. European and U.S. share indices are advancing between 0.8% and 1.56%, whereas Asian stocks ended the day with losses, except for the Hang Seng. Meanwhile, WTI is edging higher for the fifth consecutive day, breaching seven year-highs, and is trading at $78.95, up almost 2%.

From a technical perspective, the RSI index shows 36.7, which slightly improves bearish momentum, still suggesting bear movement ahead. On the other hand, MACD shows another downside guidance where figure successive print negative figure as of writing.

For the slipway, it doesn’t seem to have much downside support level past the last support at 1.256. We expect effective support will be between 1.255 and 1.256. On the way up, the first resistance will be the psychological level at 1.26.

Resistance: 1.26, 1.2638

Support: 1.256