Powell: “Soft Landing” Not Guaranteed

13 May 2022, 02:09

Market Focus

U.S. equities markets were mixed yesterday. At the beginning of the American trading session, all three major indices rose but only the Nasdaq Composite was able to close higher for the day. The Dow Jones Industrial average lost 0.33% to close at 31730.3, the S&P 500 lost 0.13% to close at 3930.08, and the Nasdaq Composite gained 0.06% to close at 11370.96. Fed Chair Jerome Powell’s speech yesterday spooked some market participants as he iterated that a “soft landing” was not guaranteed.

The health care sector led gains in the Nasdaq composite. Allena Pharmaceuticals leaped 70.51% and Salarius Pharmaceuticals jumped 38.75%. Meme stocks, made famous by banded retail traders in the summer of 2021, were on the rise again during yesterday’s trading. GameStop and AMC both saw more than an 8% jump in share prices.

The cryptocurrency markets experienced a run as the TerraUSD stablecoin plummeted below the 30 cents mark. Bitcoin closed more than 6% below Wednesday’s closing price, while Ethereum lost more than 11%. More importantly, as market participants feared a market-wide meltdown, the world’s largest stablecoin, TetherUSD, also lost its peg to the dollar during the European trading session. TetherUSD was soon able to recover, but the same could not be said about TerraUSD. Bitcoin has lost more than 36% of its value since the beginning of the year.

Main Pairs Movement

The Dollar index soared 0.72% higher over the course of the previous trading day. The benchmark U.S. 10-year Treasury yield has cooled off and is currently sitting at 2.859%. Dollar demand remains at an all-time high as global economic growth and geopolitical reasons continue to draw market participants to the greenback.

The euro fell sharply against the dollar over the course of the previous trading day. EURUSD lost 1.28% as the Dollar showed its strength across the board. Finland’s request to join NATO has raised geopolitical tensions in the EU to new heights.

GBPUSD lost 0.4% over the course of the previous trading day. Broad market Dollar strength dragged Cable into its sixth straight losing day. The British GDP also confirmed market participants’ fears over slowing economic growth.

USDCAD climbed 0.42% over the course of the previous trading day. The Loonie fared worse against the Dollar as market participants fled to the Greenback for safety.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair tumbled on Thursday, dropping to 5-year lows around the 1.040 mark amid the resurgence of geopolitical-led risk aversion. The pair remained under bearish pressure for most of the day and started to see heavy selling at the beginning of the European session, then extended its daily losses in the US session. The pair is now trading at 1.0544, posting a 1.06% loss on a daily basis. EUR/USD stays in the negative territory amid renewed US dollar strength, as the safe-haven dollar continues to be underpinned by the panic that took over the financial markets as quantitative tightening became the new norm among central banks. For the euro, the escalating tensions between Russia and EU might continue acting as a headwind for EUR/USD, as EU member nations Finland and Sweden both decided to end strategic military neutrality to join NATO due to security concerns following Russia’s attack on Ukraine.

On the technical side, the RSI is at 30 as of writing, suggesting that the pair is facing heavy bearish momentum as the RSI has reached the oversold zone. As for the Bollinger Bands, the price moved out of the lower band so a strong trend continuation can be expected. In conclusion, we think the market will be bearish as the pair has already dropped below the previous support at 1.0485. A break below the next support at 1.0392 should open the door for more losses.

Resistance:  1.0568, 1.0622, 1.0730

Support: 1.0485, 1.0392

GBPUSD (4-Hour Chart)

GBP/USD declined on Thursday, continuing to struggle near its lowest level since May 2020 amid softer UK macroeconomic data and a stronger US dollar across the board. The pair extended its slide that started yesterday and dropped to daily lows below the 1.218 level, then rebounded slightly to recover some of its daily losses. At the time of writing, Cable remains in negative territory with a 0.44% loss for the day. The expectations for aggressive policy tightening by the Fed continue to underpin the US dollar and drag Cable lower, as the concerns about a possible recession due to tight global supply chains have escalated. For the British pound, the UK GDP report showed that the British economy expanded by 0.8% during the first quarter of 2022, which fell short of market expectations and exerted additional bearish pressures on the GBP/USD pair.

On the technical side, the RSI is at 35, suggesting that the downside is more favored as the RSI is reaching the oversold zone. For the Bollinger Bands, the price continues to move alongside the lower band, indicating that a continuation of the downtrend could be expected. In conclusion, we think the market will be bearish as the pair is now testing the 1.2180 support. The RSI indicator also highlights the increasing bearish pressure, suggesting additional losses could be possible if the support line fails to hold.

Resistance: 1.2373, 1.2631, 1.2761

Support: 1.2280

USDCAD (4-Hour Chart)

As the US dollar continues to be lifted higher by recent hot US inflation data and risk-off market mood, USD/CAD extended its rally towards multi-month highs on Thursday. The pair preserved its upside traction and climbed higher during the European session, then touched a daily top near the 1.306 mark in the US session. USD/CAD is trading at 1.3061 at the time of writing, rising 0.52% on a daily basis. The US CPI and PPI data hinted that the Fed will likely press ahead with its current aggressive tightening plans, which weighed heavily on global equities and provided support to the greenback. On top of that, consolidating crude oil prices failed to revive the commodity-linked loonie as WTI went through a choppy day, and is now sitting near the $105 per barrel area.

On the technical front, the RSI is at 62 as of writing, suggesting that the upside is more favored as the RSI continues above the midline. For the Bollinger Bands, the price has regained upside traction and risen towards the upper band, therefore, the bullish momentum should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.3046 resistance. A sustained strength above that resistance should open the road for short-term profits.

Resistance: 1.3046, 1.3113

Support: 1.2967, 1.2902, 1.2725