US stocks declined lower on Monday, surrendered their early gains and ended a choppy session lower after two Federal Reserve officials highlighted the central bank’s resolve to be persistent until it brings inflation down meaningfully. Fed Vice Chair Lael Brainard said that it would be appropriate soon for the central bank to slow its pace of interest-rate hikes, which provided some support to the market sentiment. However, she further emphasized that the Fed had additional work to do to bring inflation down, keeping some investors on the edge.
Meanwhile, market players struggled to digest negative news coming from China, as the country keeps reporting record coronavirus contagions in Beijing and other big cities. The concerns about stricter lockdowns and the interruption of global shipments exerted bearish pressure on equity markets.
On the Eurozone front, the data released on Monday showed a bigger-than-expected increase in Industrial Production. The Gross Domestic Product (GDP) data today will also be important as the economy is facing the turbulence of soaring inflation, energy crisis, and supply chain bottlenecks due to Russia-Ukraine tensions.
The benchmarks, S&P 500 and Dow Jones Industrial Average both retreated lower on Monday as the S&P 500 snapped a two-day rally and treasury yields climbed. The S&P 500 was down 0.9% on a daily basis and the Dow Jones Industrial Average also dropped slightly with a 0.6% loss for the day.
Ten out of eleven sectors in the S&P 500 stayed in negative territory as the Real Estate sector and the Consumer Discretionary sector are the worst performing among all groups, losing 2.65% and 1.71%, respectively. The Nasdaq 100 meanwhile dropped the most with a 1.0% loss on Monday and the MSCI World index was up 1.8% for the day.
Main Pairs Movement
The US dollar advanced higher on Monday, regaining upside momentum and enjoyed some temporal demand at the beginning of the week amid mixed market sentiment. The anxiety ahead of the US midterm elections is providing some support to the safe-haven greenback, but the upside is restricted due to rising odds for a slowdown in the pace of rate hikes by the Federal Reserve (Fed). Fed Vice Chair Lael Brainard also supported the view of reducing the pace of policy tightening.
GBP/USD retreated lower on Monday with a 0.63% loss after the cable faced barricades around the 1.1800 level and dropped towards 1.1750 ahead of UK Employment/Autumn Statement. On the UK front, the contents of the UK Autumn Budget Statement from Chancellor Jeremy Hunt will be watched closely by investors. Meanwhile, EUR/USD remained under pressure and struggle around the 1.0330 area amid a stronger US dollar across the board. The pair was down almost 0.20% for the day.
Gold was nearly unchanged with a 0.01% gain for the day after climbing higher to a fresh three-month high around the $1,774 mark during the US session, as the yellow metal continues to garner demand as investors expect the Fed would ease off on a big interest rate hike.
Meanwhile, WTI Oil declined sharply with a 3.47% loss for the day amid negative Chinese news.
Technical Analysis
EURUSD (4-Hour Chart)
The EURUSD pair eases from a three-month high of 1.0363 on Monday as risk appetite cooled at the beginning of the new week. The pair was trading at the 1.0330 area at the time of writing, as investors keep a close eye on comments from central bankers, which, in turn, allows the US Dollar to hold its ground and limits the pair’s upside. In the Eurozone, Industrial Production was up by 0.9% MoM in September, also rising by 4.9% compared to a year earlier and beating market expectations. Moreover, there are growing hopes tensions between Russia and Ukraine could soon ease after Moscow retreated and Ukraine President Volodymyr Zelenskyy noted the country is ready for peace. However, the news should be taken with a pinch of salt, as it seems quite unlikely Russia will back from the separatist regions.
From the technical perspective, the four-hour scale RSI indicator remained above 70 figured as of writing, which suggested that the pair was still amid strong upside traction, but needed to be cautious about the corrective pullback. As for the Bollinger Bands, the euro was pricing in the higher area, above the 20-period moving average. Therefore, we think the positive buying would persist unless the price dropped below the 20-period moving average or the 1.0163 support.
Resistance: 1.0610, 1.0368
Support: 1.0163, 0.9951, 0.9730
GBPUSD (4-Hour Chart)
The GBPUSD has lost its recovery momentum after reaching above 1.1800 earlier in the day and retreated below 1.1750, with investors taking a step back and reassessing the market situation following last week’s risk rally. While commenting on the market reaction to the soft October Consumer Price Index data, Federal Reserve Governor Christopher Waller pushed back against optimism by saying that markets were “way out in front.” Waller added that the 7.7% annual CPI was still “enormous.” In the absence of high-impact macroeconomic data releases, market participants will pay close attention to what Fed officials say. In case safe-haven flows return to markets and Wall Street’s main indices turned south after last week’s impressive upsurge, the US Dollar could keep its footing and limit the British pound’s upside room and vice versa. In the domestic, investors could refrain from making large bets while waiting for the UK government to unveil its budget plan on Thursday. Chancellor Jeremy told the BBC on Sunday that he has been completely explicit that taxes are going to go up.
From the technical perspective, the four-hour scale RSI indicator slightly edged lower to 62 figured as of writing, suggesting that the pair witnessed less buying than last week. As for the Bollinger Bands, the pair was still pricing above the 20-period moving average, which is a signal that the pair was more favoured to the upside path. As a result, the price remained the positive tendency but the strength is mild unless there are any surprising events or breaking through the critical resistance/ support levels.
Resistance: 1.1901, 1.2157
Support: 1.1639, 1.1353, 1.1140
XAUUSD (4-Hour Chart)
The gold started the day with a soft tone and declined to an intraday low of $1753 and was trading at $1775 at the moment of writing, as the American Dollar recovered some ground on Monday but quickly resumed its decline ahead of the US opening as investors keep moving away from it. The financial markets are quieter following two days of wild price action spurred by signs of easing inflation in the United States. The October Consumer Price Index (CPI) rose at an annual pace of 7.7%, much lower than the 8% anticipated by the market or the record peak of 9.1% from last June. Investors rushed to drop the US Dollar amid the mounting speculations that the Federal Reserve will pivot on the monetary policy in their upcoming December meeting. Apart from this, US President Joe Biden met with his Chinese counterpart Xi Jinping. The versions of the outcome differ by country. On the one hand, Biden said that they are not looking for conflict and that there will not be a new Cold War. On the other hand, Chinese media reported that President Xi warned the US about crossing a “red line” in Taiwan.
From the technical perspective, the four-hour scale RSI indicator remained above 70 figured as of writing, suggesting that the gold has preserved its upside strength, but market anticipants needed to be cautious of a corrective pullback. As for the Bollinger Bands, the yellow metal was pricing in the upper area. Therefore, we think an upside movement in the near future could be expected.
