Energy Shares Outperform in Dipping Market

24 August 2022, 02:02

Market Focus

US stocks declined on Tuesday as traders are bracing for a hawkish outlook at the Fed’s Jackson Hole event after recent comments from officials convinced many investors the Fed will continue to tighten even with a slowing economy. Apart from that, data Tuesday showed sales of new US homes fell for the sixth time this year to the slowest pace since early 2016, while business activity contracted for a second straight month.  Moreover, quantitative tightening by the US central bank is set to kick into gear next month, presenting another potential headwind for equities.

The S&P 500 and Dow Jones Industrial Average fell and saw their third straight drop after swinging between gains and losses throughout the session on Tuesday. Seven out of eleven sectors stayed in negative territory, with Real Estate and Health Care performing the worst among all groups, plunging 1.45% and 1.39% respectively. Energy outperformed all the other groups, surging 3.62%. The Dow Jones Industrial Average fell 0.5%, the Nasdaq 100 was little changed, and the MSCI world index decreased 0.3% for the day.

Main Pairs Movement

The US dollar declined on Tuesday, failing to extend its fourth straight rise after data showed that U.S. private sector activity was weaker than expected in August, prompting bets that the Federal Reserve may be less aggressive in its rate hiking cycle. The DXY witnessed heavy selling and fell to a daily low below 108.1 in the early US trading session, then rebounded to oscillate in a range from 108.4 to 108.7.

GBPUSD surged 0.59% for the day as US economic data reignited recession fears. Cables observed fresh upbeat traction during early US trading session following a drop in the greenback caused by dismal US data. The pair touched a daily high level above 1.187, then lost bullish momentum and oscillated between 1.185 and 1.181. Meanwhile, EURUSD surged and touched a daily high level above 1.001. The pair advanced with 0.27% on a daily basis.

Gold surged and ended the sixth consecutive day drop on Tuesday as the US dollar plunged across the board. XAUUSD gained bearish momentum and touched a daily high of $1754 following the  announcement of dismal US macro data, which may slow the pace of rate hiking.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair rebounded on Tuesday, recovering sharply from 20-year lows that it touched earlier in European session and climbed to a daily top above 1.000 mark after the release of dismal US PMI data. The pair is now trading at 0.9971, posting a 0.29% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the release of weaker-than-expected flash US PMI prints for August exerted bearish pressure to the greenback and helped the EUR/USD pair to find demand. The US Manufacturing PMI declined to 51.3 and the Services PMI plunged to 44.1 in August, falling short of market expectations and showing that the business activity in the US private sector contracted at a stronger pace. For the Euro, the mixed Eurozone and German PMI data provide some support to the shared currency, as well as the better-than expected Eurozone Consumer confidence that was released in the US session.

On the technical side, the RSI is at 34, suggesting that the downside is still more favored as the RSI stays below the midline. As for the Bollinger Bands, the price witnessed fresh buying and rose toward the moving average, therefore some upside traction can be expected. In conclusion, we think the market will be slightly bullish as long as the 0.9924 support line holds. The rising RSI also reflects bull signals.

Resistance:  0.9991, 1.0038, 1.0082

Support: 0.9924

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced on Tuesday, observing strong daily gains and touching a daily high above the 1.1860 level during the US trading session amid the weak US economic data. At the time of writing, Cable stays in positive territory with a 0.65% gain. The US Dollar Index (DXY) retreated from its monthly high and dropped to a daily low near 108.1, as the report showed that business activity in the US contracted for the second consecutive month. However, fears of recession and increasing hawkish Fed bets should limit the losses for the safe-haven greenback. Meanwhile, investors expect a more hawkish outlook from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday. The UK Manufacturing PMI in August also fell to 46.0 – mainly due to supply chain disruptions and high energy prices across Europe.

The RSI is at 44, suggesting that the pair has regained bullish momentum as the RSI rose sharply toward the midline. As for the Bollinger Bands, the price staged a rebound and crossed above the moving average, therefore a continuation of the upside trend can be expected. In conclusion, we think the market will be bullish as the pair is testing the 1.1830 resistance. A sustained strength above that level could confirm the bullish shift in the near-term outlook.

Resistance: 1.1830, 1.1922, 1.2050

Support: 1.1780, 1.1763

XAUUSD (4-Hour Chart)

Gold caught some upside traction on Tuesday and recovered from a multi-week low. The price reversed an intraday dip to the $1,730 level and surged to a daily high in the US session. XAUUSD seems to have snapped a six-day losing streak to a nearly four-week low and is currently placed around the $1,745 level.

Gold prices rebounded as the US dollar retreated modestly on the back of dismal August PMI figures. That said, expectations for a more hawkish outlook from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday still supports a stronger US dollar. This, along with elevated U.S. bond yields, should limit further gains on gold price.

On the technical side, the RSI is close to the midline at 47, suggesting that the pair has staged a strong upside correction. As for the Bollinger Bands, the price surged and crossed above the moving average, now testing the pressure region at $1,757 level. Besides, the moving average is still downward. In conclusion, we think the price is now right between pressure and support regions. Price might test both sides here. Investors should wait for breakout to determine clear direction. To the upside, the price should advance above $1,757 level first. To the downside, if the price closes below $1,730 level, it might head to test the next pivotal support at $1,714 level.

Resistance: 1757, 1783, 1803

Support: 1730, 1714, 1685