The Federal Reserve’s global supply chain pressure index indicates a slight recede from 2021’s peak

5 January 2022, 02:34

Market Focus

The broad U.S. equity markets closed with mixed tones. The Dow Jones Industrial Average gained an impressive 0.59% to close at a record of 36799.65; on the other hand, the S&P 500 trended towards a record high but could not hold on and closed at 4793.54, the tech-heavy Nasdaq composite experienced a strong pullback to close at 15622.72, losing 1.33%. The benchmark U.S. 10-year Treasury yield retreated slightly to 1.649%.

Since the beginning of COVID-19, global supply chain issues have been at the back of every business’s mind. However, hope has arisen as the New York Federal Reserve’s global supply chain pressure index indicates a slight recede from 2021’s peak. This could provide some forward guidance on multi-national businesses that are extremely dependent on global logistic networks, and provide a positive tone for the year to come.

Main Pairs Movement

The DXY, which measures the Greenback against a basket of major foreign currencies, gained a modest 0.06% over the course of yesterday’s trading. Without much movement from the Greenback, most currencies recovered some ground against the Dollar.

Cable recovered 0.37% after losing 0.41% from the previous trading day. Britain’s UK Consumer Credit showed a positive reading providing some bullish momentum for Sterling.

The Euro continued to trend lower against the Greenback. Despite positive market signals from Germany, the shared currency lacks demand due to the ECB’s unwillingness to increase interest rates.

Gold was able to recover some lost ground after a sharp selloff that happened on the 3rd. The safe-haven asset, however, still faces tremendous uncertainty as market participants are still reassessing Omicron risks.

Technical Analysis

GBPUSD (Daily Chart)

Cable stepped on the 1.3500 threshold during the European session and carried its momentum into the Wall Street opening. The pair is now trading at around 1.3530, up near 1% from the week low. The rally of the British pound may derive from upbeat readings in today’s released market sentiment data, where the UK Consumer Credit in November reached £1.233B rather than the £0.8B consensus, and the Markit Manufacturing PMI in December reported better-than-anticipated 57.9. At the same time, the disappointing US PMI may also be a headwind for the greenback.

On the technical front, Cable’s regaining 1.3500 makes its rebound stories again convincing. The next resistance ahead of the pair lies at 1.3600, where also inhabits the pair’s 200 DMA. The RSI for Cable is 62.5, a healthy reading showing the bullish outlook. The price action is now above the 20, 50 DMA, which, along with the strong 1.3500 support, underpinned the Cable’s upside efforts.

Resistance: 1.3570, 1.3670

Support: 1.3500, 1.3400, 1.3180

EURUSD (Daily Chart)

The shared currency is once again left behind by its British peer. The Euro pair struggled around the 1.1290 price level, showing no upside tractions even though the EU labour figures outplayed those of the US. The lack of demand for Euros may come from the rate discrepancies between the dovish ECB and the relatively hawkish Fed. The investors are waiting for another catalyst, which probably will be Friday’s US NFP or the Retail Sales data of both the EU and the US.

On the technical front, the pair remains below all of its major moving averages. The RSI indicator lingers slightly below the average line, indicating a bearish sentiment weighing on. As mentioned yesterday, the next support for the pair is at 1.12000, and the pair must breach 1.1400 resistance to prove a convincing comeback.

Resistance: 1.1400, 1.1620, 1.1700

Support: 1.1200, 1.1000, 1.0780

XAUUSD (Daily Chart)

Gold prices rose on Tuesday after strengthening during the American session even as the US yields remain high. XAU/USD held above $1800 and recently climbed to $1,814, reaching a fresh daily high. Gold is trimming Monday’s losses and is heading to recover levels above $1,815. However, the looming Fed’s rate hikes will continue to be a huge headwind against gold’s uplift. Predictably, the gold price will consolidate fiercely at the upcoming Fed’s minutes.

On the technical side, if the bounce to the upside in gold continues, the next level to watch is the $1,830 resistance area. A close clearly above $1,830 would suggest more gains ahead for the metal. On the flip side, a slide under $1,800 should increase the bearish pressure, targeting $1,790.

Resistance: 1830, 1860, 1900

Support: 1800, 1765, 1725