Markets Quiet Ahead of Key Fed Data

26 July 2022, 02:16

Market Focus

US stocks edged higher on Monday, flirting in a choppy session amid the lowest intraday volatility and volume of the year ahead of the key Fed meeting this week. Big technology companies remained under bearish pressure as markets are expecting bad news from the earnings report season. Investors are waiting for the outcome of the crucial FOMC monetary policy meeting on Wednesday, where it is expected that interest rates will be hiked 75 bps despite recession fears. However, growing concerns about a global economic downturn could continue weighing on the market’s mood as investors are skeptical that the Fed can tame inflation without driving the economy into a recession. In the Eurozone, the German Ifo Business Climate Index in July dropped to a two-year low of 88.6, which came in worse than anticipated and reflected German companies’ fear of a gas crisis.

The benchmarks, the S&P 500 and Dow Jones Industrial Average both moved higher on Monday as investors are waiting for earning reports from technology companies amid the threats of a hawkish Federal Reserve. The S&P 500 was up 0.1% on a daily basis and the Dow Jones Industrial Average also advanced with a 0.3% gain for the day. Eight out of eleven sectors stayed in positive territory with the Energy and the Utilities sectors the best performing among all groups, rising 3.71% and 1.26%, respectively. The Nasdaq 100 meanwhile dropped the most with a 0.5% loss on Monday, while the MSCI World index was little changed on the day.

Main Pairs Movement

The US dollar decreased a little on Monday, falling under the 106.3 level as the central bank is widely expected to raise interest rates by 75 basis points at the conclusion of the FOMC meeting on Wednesday. The DXY index declined the most of Monday and touched daily lows around the 106.2 level, then rebounded to above 106.6 level during the US session.  As well as rate hikes, the dollar’s rally toward multi-year highs has been driven by structural strengths of the U.S. economy, especially greater energy resiliency.

GBP/USD advanced with a 0.37 % gain on Monday amid the weakness of the US dollar and the uncertainty of UK politics. Cable dropped to a daily low near the 1.196 level at the beginning of the week, then found bullish momentum to rise above the 1.208 level during the late Asia session. Meanwhile, EUR/USD also slipped to a level around 1.018 at the start of yesterday, and rebounded to a daily high near the 1.026 level. The pair is stable for the day as traders await fresh clues from the US CB consumer confidence for July and FOMC on Wednesday.

Gold saw a 0.46% loss at the beginning of the week, coming under overwhelming selling pressure during the late Asian, and at the start of the US trading sessions. XAUUSD declined to a daily low below the $1715 mark. Now,  prices are moving sideways ahead of the Fed’s interest rate decision. Meanwhile, WTI oil surged with a 2.11 % gain and reached around $96 on Monday.

Technical Analysis

XAUUSD(4-Hour Chart)

Gold initially attempted to rally early Monday, but turned around to show signs of weakness. Gold hovered around the $1,715 region during the American trading session. From the technical perspective, the intraday decline brought gold below the resistance of $1,722. The four-hour outlook turned down following a double-bottom formation. The RSI indicator has turned southward, suggesting that buyers are on the sidelines and sellers are back in the market. If gold breaks below the midline of the Bollinger band, gold is likely to see further downward pressure and an acceleration of the downside. In order to regain positive traction, gold needs to climb above $1,722.

Resistance: 1722, 1748, 1769

Support: 1680.99

USDJPY (4-Hour Chart)

USDJPY turned upside down as the US dollar rallied a bit during the trading session. From the technical aspect, the overall outlook of USDJPY is back to bullish after the pair started trading within the ascending channel. The recovery suggests that the corrective phase has come to an end. The acceptance above 136.52 would confirm the bullish stance of the pair. The upside is also supported by the RSI indicator, which has turned upwards, attracting some follow-through buyers back into the market. On the contrary, failure to stand above 136.52 and trade within the ascending channel would make the currency pair return to a bearish mood.

Resistance: 136.52, 137.06, 137.61

Support: 136.84, 134.75

EURUSD (4-Hour Chart)

EURUSD showed uncertainty during the course of sessions on Monday as markets continue to be cautious ahead of the FOMC meeting. Technically speaking, EURUSD showed that it is struggling to overcome the 20 SMA. The near- term outlook of EURUSD is neutral-to-bullish as the RSI slightly skewed to the north while the MACD indicator tends to be bullish. The upside momentum remains limited if the pair cannot overcome the resistance of 1.0284, breaching the consolidation. On the flip side, if EURUSD declines below the current support of 1.0205, then the outlook would turn bearish on the four-hour chart. Further price movement has eyes on the FOMC meeting later this week.

Resistance: 1.0284, 1.0362

Support: 1.0284, 1.0109, 0.9952