US Shares Snap Longest Weekly Rally Since Nov 2021

22 August 2022, 02:02

Market Focus

US stocks declined on Friday, snapping the longest weekly rally since November 2021. Investors turned cautious and short-sellers resurfaced as the US Federal Reserve signalled further rate hikes. The pullback in equities this week follows a rally that has propelled the S&P 500 from its mid-June nadir slump speculation that the Fed may scale back its aggressive path of rate hikes. However, more Fed officials joined the chorus of a hawkish stance in the runup to the annual symposium at Jackson Hole in August 25-27. A force that contributed to the rally is now showing signs of fatigue, with hedge funds dialling down purchases of shares.

The benchmarks, S&P 500 and Dow Jones Industrial Average both dropped on Friday, as the S&P 500 notched its biggest daily decline since June, its first weely loss in five weeks. Nine out of eleven sectors stayed in negative territory, and six of them fell more than 1% on daily basis. It’s worth noting that the Consumer Discretionary and Financials sectors performed the worst among all groups, sliding 2.10% and 2.02% for the day. The Dow Jones Industrial Average fell 0.9%, the Nasdaq 100 dropped 1.9%, and MSCI world index decreased 1.3% on Friday.

Main Pairs Movement

The US dollar surged on Friday, posting its biggest weekly advance since April 2020.  The minutes of theJuly meeting suggested that the Fed will continue to raise interest rates at the next few meetings, but the pace of the rate hikes will be data-dependent, which supported the greenback. The DXY witnessed fresh transactions during the UK trading session and edged higher to a level above 108.1.

GBPUSD dropped 0.85% for the day, as sentiment shifted sour after the Fed’s hawkish commentary. Cable dipped to a daily low level below 1.180 during the middle of the US trading session with a strong US dollar across the board, then oscillated in a range from 1.181 to 1.184. Meanwhile, EURUSD slid to a level below 1.004. The pair decreased 0.50% on Friday.

Gold plunged 0.66%, with a fifth-consecutive day of losses amid a backdrop of fear and volatility.  Although under selling pressure, XAUUSD observed fresh transactions before the  US trading session and touched a daily high of $1758. However, gold then witnessed downside traction and fell to the daily low below $1746 at the beginning of the US trading session.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Friday, extending its previous slide and held lower ground near the monthly low below 1.005 mark amid fears of a German recession and geopolitical concerns. The pair is now trading at 1.0048, posting a 0.36% loss. EUR/USD stayed in the negative territory amid a stronger US dollar across the board as the DXY just printed new multi-week tops above the 108.00 hurdle on Friday, exerting bearish pressure on the EUR/USD pair. The hawkish comments from the Fed policymakers in recent days continued to drive flows toward safe-haven assets like the greenback, as the markets seem convinced that the Fed will stick to its policy tightening cycle amid incoming positive US macro data. For the Euro, the Germany’s Producer Price Index (PPI) for July came at 5.3% MoM, which is higher than markets’ expectations.

On the technical side, the RSI is at 24 as of writing, suggesting that the pair might witness some upside correction as the RSI stays in the oversold zone. As for the Bollinger Bands, the price continued to move alongside the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as long as the 1.0082 resistance line holds. But the pair could see some short-term correction before edging lower amid the oversold RSI.

Resistance:  1.0082, 1.0111, 1.0188

Support: 1.0111, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair tumbled on Friday, coming under heavy selling pressure and dropping to a monthly low below the 1.1840 level in the US trading session amid renewed US dollar strength. At the time of writing, Cable stays in negative territory with a 0.88% loss for the day. The prospects for further rate increases by the Fed and the prevalent risk-off mood both acted as a headwind for the GBP/USD pair as the US central bank is expected to stick to its policy tightening path due to recent comments by several Fed officials. For the British pound, the better-than-expected July UK Retail Sales figure of a 0.3% increase failed to provide bullish strength to Cable, which is being weighed by the Bank of England’s gloomy economic outlook and a possible recession that would start in the fourth quarter.

The RSI is at 30, suggesting that the pair could stage a correction before extending its slide if the RSI drops below 30. As for the Bollinger Bands, the price preserved its downside traction and moved alongside the lower band. Therefore, a continuation of the downtrend can be expected. In conclusion, we think the market will be bearish as the pair is testing the 1.183 support. A break below that level could drag the pair toward the next support at 1.1780.

Resistance: 1.1922, 1.2050, 1.2119

Support: 1.1830, 1.1780

XAUUSD (4-Hour Chart)

Gold prices declined to $1,750 during the European trading hours on Friday. The price continually slumped to below $1,750 in the US session after managing to erase its losses in the late EU session. With 10-year US Treasury bond yield rising on the trade of the day amid a stronger US dollar, it seems challenging for gold to gather bullish momentum. Any further advance is taken as a sell opportunity by investors now.

On the technical side, gold prices have dropped below the $1,757 support level, which turns out to be the pressure level to the upside. The RSI is at 32, suggesting downside momentum.  As for the Bollinger Bands, the price tumbled along with lower bound, staying right above it rather than dropping into oversold zone, which means further decline to the downside can be expected. In conclusion, gold prices have dropped below the previous support zone at $1,757 and failed to regain the losses. The price could head to the next pivotal support zone for gold at the $1,714 level, which is the most possible path for gold price from technical analysis.

Looking ahead, in absence of any top-tier US economic events, the repricing of Fed expectations will play a key role in the gold price action. For more price action, all eyes now turn towards the Fed’s Jackson Hole Symposium next week.

Resistance: 1757, 1783, 1803

Support: 1714, 1685