US stocks rebounded on Wednesday, regaining bullish momentum after swinging between gains and losses throughout the day amid the falling US Producer Price Index. The US annual PPI declined to 8.7% in August, falling at a stronger pace than expected and showing that the supply chain headwinds are easing. The moderate figure has eased the jitters about the aggressive rate hike moves by the Federal Reserve in the next meeting, meanwhile providing some support to the equity markets. As for now, the Retail Sales due on Thursday and Friday’s Michigan Consumer Sentiment report will be the key focus as investors will look for clues on the strength of the economy and inflation expectations. In the Eurozone, the weakness in Germany has spread towards other larger economies in the Eurozone as the Industrial Production fell 2.3% MoM in July, which came weaker than expected and showed the deterioration in the bloc’s economy. An ECB 75 bps rate hike in October is expected by the money market.
The benchmarks, S&P 500 and Dow Jones Industrial Average both edged higher on Wednesday as the falling US dollar and emerging dip buyers both sent the S&P 500 into the green at the close. The S&P 500 was up 0.3% on a daily basis and the Dow Jones Industrial Average was little changed for the day. Six out of eleven sectors in S&P 500 stayed in positive territory as the Energy and the Consumer Discretionary sectors are the best performing among all groups, rising 2.85% and 1.30%, respectively. The Nasdaq 100 meanwhile climbed the most with a 0.8% gain on Wednesday and the MSCI World index was down 0.3%.
Main Pairs Movement
The US dollar edged lower on Wednesday, remaining under bearish pressure and retreating to a daily low below the 109.30 mark amid the slightly improving market mood. The dollar index rebounded back in the US session as the expectations for a hawkish Federal Reserve outcome next week should limit the losses for the greenback. Wednesday’s inflation data indicated that the producer prices index (PPI) declined for a second straight month in August as gasoline prices fell further.
GBP/USD advanced 0.40% as the lower-than-expected UK Consumer Price Index (CPI) data has provided support to Cable. On the UK front, the lower CPI reading has come as a sigh of relief for the UK economy amid the severe pain of sky-rocketing energy bills. Meanwhile, EUR/USD also slightly recovered from yesterday’s losses and refreshed its daily high near the 1.002 level. The pair was up almost 0.15% for the day.
Gold was back under pressure with a 0.30% loss for the day after dropping to a daily low below the $1694 mark during the late US session, as the US dollar attempted a comeback and exerted selling pressure on the safe-haven metal. Meanwhile, WTI Oil advanced higher with a 1.58% gain for the day and refreshed its daily top above the $90 mark.
EURUSD (4-Hour Chart)
EURUSD managed to stage a rebound over the course of Wednesday’s trading. The Euro took advantage of the weaker Dollar and has found breathing room around parity. Fundamentals for the Euro, however, remain unchanged. The EU continues to suffer from a weak economy, and as winter nears, energy prices are beginning to add to the weight of the economy. Furthermore, as Russia continues to cut off natural gas supplies via Nordstream 1, European citizens are facing one of the most challenging winters. The weaker Dollar was caused by a surprise drop in the U.S. PPI, which declines 0.1% in August. While the weaker PPI indicates a possible slow down in aggregate demand, macroeconomic environment for the U.S. remains unchanged and prices are still rising in core sectors, thus a weaker PPI would not deter the hawkish Fed.
On the technical side, EURUSD has successfully defended our previously estimated support level of around 0.99. Short term resistance for the pair stands at slightly above parity. RSI for the pair sits at 44.86, as of writing. On the four hour chart, EURUSD currently trades above its 50 day SMA, but below its 100 and 200-day SMAs.
Resistance: 0.9902, 1.0011, 1.0055
Support: 0.9902, 0.985
Cable advanced over the course of Wednesday’s trading. The U.K. CPI data indicated a decline to 9.9%, compared to 10.1% in July. However, the core CPI increased to 6.3%, compared to 6.2% in July.Similar to the U.S. CPI released on Tuesday, the British CPI continues to show that prices are not declining and the most important sectors continue to exhibit sticky and upwardly moving prices. The weaker U.S. PPI allowed the British Pound to find bidding and recover above the 1.15 price region. The BoE’s next interest rate decision is now forecasted to come in at 75 basis points. On the economic docket, the U.S. is scheduled to release its August retail sales figure during today’s American trading session.
On the technical side, GBPUSD has found support at slightly above our previously estimated support level of 1.1463. Short term resistance level stands at around the 1.1714 price region. RSI for the pair sits at 48.07, as of writing. On the four hour chart, GBPUSD currently trades above its 50 day SMA, but below its 100 and 200-day SMAs.
Resistance: 1.1561, 1.1854
XAUUSD (4-Hour Chart)
After tumbling more than 1.2% over the course of Tuesday’s trading, Gold has continued to lose ground on Wednesday. The non-yielding yellow metal has failed to attract bidding as market participants seek for yields from other asset classes. Despite the broadly weakened Greenback, Gold has continued to be disfavored. The CME FedWatch tool has now indicated a 36% probability of a full percentage interest rate hike by the Fed; however, the Fed would need compelling evidence from the economy to go ahead with such a large hike. Downside for the yellow metal remains uncapped as global central banks are geared for further tightening.
On the technical side, XAUUSD has found some bidding slightly above our previously estimated support level of $1695 per ounce. We remain confident that this level should hold for the near future. Resistance for Gold stands at $1724 per ounce. RSI for the pair sits at 39.64, as of writing. On the four hour chart, XAUUSD currently trades below its 50, 100, and 200-day SMAs.
Resistance: 1740, 1800
Support: 1712, 1695