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US Stocks Rally, Spurred By Earnings and Fed

August 4, 2022

US stock rallied on Wednesday, snapping a two-day loss since the beginning of this week, as earnings buoyed the market mood. Investors could clear their concerns about earnings disaster after 70% through the season, as more cheering data like a solid report from Moderna.Inc and Paypal Holding Inc. released.

However, Jerome Powell signalled that the pace of future rate increases may slow later this year, which boosted the speculations for cuts next year in market-implied measures, as even several Fed leaders said central banks still keep their eyes out for the hottest inflation in four decades. Moreover, after House Speaker Nancy Pelosi left Taiwan, the market is calmer amid the undermining relationship between China and the United States.

The benchmarks, S&P500 and Dow Jones Industrial Average both advanced on Wednesday as tech earnings performed better than expected. S&P500 rose with a 1.56 % gain on a daily basis, and ten out of eleven sectors stayed in positive territory, as Information Technology, Consumer Discretion, and Communication Service got the best performance, with a 2.69%, 2.52% and 2.48% growth rate respectively for the day. Besides, the Dow Jones Industrial Average rose 1.3%, Nasdaq 100 rose 2.7%, but the MSCI world index slid with a 0.8% loss on Wednesday.

Main Pairs Movement

US dollar rose on Wednesday, as the upbeat prints of US data and hawkish comments from the Fed mixed with recession fears put a firm floor for the safe-haven greenback. The DXY index surged at the beginning of the US trading session as stronger than forecast earnings were released, but lost bullish momentum and reversed from a weekly top to a depressed around 106.5 level. It’s worth noting that, US ISM Services PMI for July rose to 56.7 from 55.3, far above the market expectation of 53.5, and the Final reading of the US S&P Global Services PMI for July dropped to 47.3, which is the first contraction in two years.

The GBP/USD slid for the day, market amid a strong US dollar across the board and the expectation of a 50-bps rate hike by the Bank of England (BOE), however, the price pressure has risen up to 9.4%. The cables suffered selling during the selling pressure as upbeat US data and US stock and to a daily low level around 1.210. Meanwhile, EURUSD dropped to a daily low level below 1.013, then regain bullish momentum back to a 1.016 level. The pairs remained unchanged on Wednesday.

Gold advanced with a 0.28% gain on a daily basis and closed at $1765 marks for the day. However, investors put focused on upbeat US data and comments from Fed during the US trading session, which caused the XAUUSD to fall below $1755 marks. It’s also worth noting that WTI and BRENT oil dropped 3.74% and 3.98% respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Wednesday, extending its previous day’s slide and refreshed its daily low below the 1.013 mark in the early US session after the release of upbeat US ISM Services PMI data. The pair is now trading at 1.01282, posting a 0.37% loss on a daily basis. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the tensions between the US and China still remain after US House Speaker Nancy Pelosi left Taiwan during the European morning. China has planned military exercises around Taiwan for the next three days. Meanwhile, the US ISM Services PMI also came in higher than expected at 56.7 in July, which lend support to the greenback. For the Euro, the dismal Eurozone Retail Sales data weighed on the shared currency, as the report showed that Eurozone’s Retail Sales fell by 1.2% MoM in June.

For the technical aspect, the RSI indicator is 38 figures as of writing, suggesting that downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price witnessed heavy selling and dropped toward the lower band, therefore the bearish momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0111 support line. The falling RSI also reflects bear signals.

Resistance: 1.0221, 1.0287, 1.0438

Support: 1.0111, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair dropped on Wednesday, failing to preserve the upside traction that was witnessed in the first half of the day and touched a daily low near the 1.210 mark amid renewed US dollar strength. At the time of writing, the cable stays in negative territory with a 0.41% loss for the day. A combination of factors continued to help the safe-haven greenback to find demand, as recession fears and US-China tensions both undermined the market sentiment. For the British pound, the currency came under bearish pressure today as the data from the UK revealed that the business activity in the service sector expanded at its weakest pace in 17 months. The Services PMI declined to 52.6 in July and missed the market’s expectations.

For the technical aspect, the RSI indicator is 44 figures as of writing, suggesting that the pair is facing bearish pressure as the RSI indicator continues to move south. For the Bollinger Bands, the price also gained downside traction and touched the lower band, indicating that the pair is surrounded by bearish momentum. In conclusion, we think the market will be bearish as the pair tests the 1.2115 support line. On the upside, a break above the 1.2198 resistance line could favour the bulls and lead to additional gains toward 1.2277.

Resistance: 1.2198, 1.2217, 1.2317

Support: 1.2115, 1.2039, 1.1940

USDCAD (4-Hour Chart)

Despite the US dollar capitalising again on Wednesday versus G10 currencies amid rising US 10-year Treasury yield, the pair USD/CAD failed to climb higher and dropped to a daily low below 1.284 level in the late European session. USD/CAD is trading at 1.2869 at the time of writing, losing 0.09% on a daily basis. The market focus now shifts to July’s Nonfarm Payrolls report this Friday after the upbeat US Services PMI data showed that the business activity expanded at a more robust pace. On top of that, the falling crude oil prices failed to lift the USD/CAD pair higher as WTI slipped back towards the $92 per barrel area. The latest news showed that OPEC+ have agreed to raise the oil output by 100,000 barrels per day in September.

For the technical aspect, the RSI indicator is 54 figures as of writing, suggesting that the upside is more favoured as the RSI stays above the mid-line. For the Bollinger Bands, the price regained upside strength and rebounded from the moving average, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair might head to re-test the 1.2891 resistance line. A break above that level could confirm the bullish bias and lift the pair higher toward 1.2944.

Resistance: 1.2891, 1.2944, 1.2986

Support: 1.2823, 1.2785

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPConstruction PMI (Jul)16:3052.0
GBPBoE Interest Rate Decision (Aug)19:001.75%
GBPBoE Gov Bailey Speaks19:30 
USDInitial Jobless Claims20:30259K