The cryptocurrency market is also experiencing a major revaluation as treasury yields continue to climb

10 May 2022, 02:02

Market Focus

U.S. equities fell sharply on the first trading day of the week. The Dow Jones Industrial Average dropped 1.99% to close at 32245.7, the S&P 500 slid 3.2% to close at 3991.24, and the Nasdaq Composite tumbled 4.29% to close at 11623.25. The benchmark U.S. 10 year treasury yield, on the other hand, climbed well past the 3% mark during trading. The technology sector continues to bear the brunt of this wave of equity revaluation. FAANG+ has plunged, despite beating earnings estimates. Risks of stagflation have initiated a frenzied selloff by market participants.

Palantir Technologies, once a heavy weighted stock in Cathie Wood’s Ark Technologies ETF, reported 2 cents per share earnings and 446 million in revenue. Although the company was able to deliver better than expected earnings, the board of the company issued weak guidance that sent the share price of Palantir in a downward spiral, falling more than 21%.

The cryptocurrency market is also experiencing a major revaluation as treasury yields continue to climb. Bitcoin has dropped back to the $30,000 territory and Etherium is now trading at $2250. The drop in cryptocurrency valuation also affected cryptocurrency-linked equities, such as Nu Holdings.

This week’s U.S. CPI data is getting more crucial for market participants as markets get increasingly volatile. This CPI figure could indicate whether inflation has peaked and it could also indicate whether the Fed’s tightening has delivered on its purpose.

Main Pairs Movement

The Dollar Index continued to climb higher on the first trading day of the week. With treasury yields rising, so did the demand for the U.S. Greenback. Currently on the FOMC dot plot, the consensus terminal interest rate for 2022 sits at around 2.67%.

EURUSD rebounded 0.11% over the course of yesterday’s trading. Despite a stronger U.S. dollar, market participants flocked to the Euro as it is now sitting near 2017 lows. Bearish signals continue to surround the EURUSD pair.

GBPUSD ended the day trading mostly sideways. The pair closed 0.01% lower than its previous close. During the American trading session, Cable was able to recover most of its intraday losses due to the plummeting U.S. equities market.

USDCAD climbed 0.77% over the course of the previous trading day. The dollar rallied against the Canadian Loonie as global commodity prices continue to correct from recent highs.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged lower on Monday as it failed to continue its rebound in the second half of the day amid safe-haven flows. The pair staged a goodish rebound during the European session after touching daily lows, but then lost its bullish momentum and surrendered its daily gains. The pair is now trading at 1.0529, posting a 0.15% loss on a daily basis. EUR/USD stays in the negative territory amid renewed US dollar strength, as further sharp downside in the global equity markets lent support to the safe-haven US dollar. Concerns about central bank tightening and slowing global growth both weighed on market sentiment. For the euro, the Fed/ECB policy divergence might keep acting as a headwind for the EUR/USD pair, as the ECB isn’t expected to tighten monetary policy at a faster pace.

On the technical side, the RSI is at 46, suggesting that the downside is more favored as the RSI stays below the midline, reflecting bearish signals. Looking at the Bollinger Bands, the price is dropping from the moving average, therefore a continuation of the downside trend could be expected. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0485 support, a break below that level might open the road for near-term losses.

Resistance:  1.0622, 1.0728, 1.0922

Support: 1.0485

GBPUSD (4-Hour Chart)

GBP/USD declined on Monday, losing its positive traction and failing to extend its rebound amid the risk-averse market environment. Despite touching a daily high above the 1.240 level during the European session after dropping to daily lows, the pair started to see heavy selling and dropped towards the 1.230 area heading into the US session. At the time of writing, Cable stays in negative territory with a 0.16% loss for the day. Negative factors such as central bank tightening, slowing global growth and recession fears both helped the US dollar to find demand, which regained upside traction in the US session. For the British pound, the dovish Bank of England and its gloomy economic outlook might keep exerting bearish pressure on Cable, as the outlook indicated that the UK economy is at the risk of a recession.

On the technical side, the RSI is at 40 as of writing, suggesting that the pair is facing selling pressure as the RSI continues to head south. For the Bollinger Bands, the price has failed to cross above the moving average and dropped towards the lower band, indicating that the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.2270 support. On the upside, a break above 1.2430 level could be seen as a bullish sign and will open the door to the next resistance at 1.2631.

Resistance: 1.2430, 1.2631, 1.2761

Support: 1.2270

USDCAD (4-Hour Chart)

As the downbeat mood around the equity markets drove some flow towards the US dollar, USD/CAD regained upside traction and extended its rally that started last week. The pair was flirting with the 1.293-1.295 area for the most of the day and touched a daily low near 1.291, but started to see fresh buying to erase all of its daily losses. USD/CAD is trading at 1.2964 at the time of writing, rising 0.43% on a daily basis. The expectations for a more aggressive policy tightening by the Fed could further extend USD/CAD’s bullish momentum. On top of that, retreating crude oil prices also undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair. Signs of weaker demand for oil in China still remain, as China authorities continue to struggle with their zero-Covid-19 strategy.

On the technical side, the RSI is at 70, suggesting that the pair is facing heavy buying pressure and is in the overbought zone, so a trend reversal could be expected.  As for the Bollinger Bands, the price continues to move alongside the upper band, therefore the upside momentum should persist. In conclusion, we think the market will be bullish as the pair is now testing the 1.2939 resistance. Consistent strength above that level would favor the bulls.

Resistance: 1.2939

Support: 1.2902, 1.2725, 1.2665