US Shares Sink on Hawkish Stance at Jackson Hole

29 August 2022, 02:19

Market Focus

US stocks tumbled on Friday as Jerome Powell gave a clear message that rates will likely stay high for some time, throwing cold water on the idea of a Federal Reserve pivot that could jeopardize its war against inflation. Moreover, the Fed chief reiterated that another ‘’unusually large’’ hike could be appropriate next month, though he stopped short of committing to one, adding that the decision will depend on incoming data. Overall, traders should expect more volatility and tougher conditions for equities with the Fed expected to remain aggressive at the expense of growth.

The benchmark S&P 500 and Dow Jones Industrial Average plunged on Friday, with the S&P 500 seeing its worst day since mid-June. All eleven sectors stayed in negative territory, as Information Technology performed the worst among all groups, dropping 4.28% on a daily basis, while six out of eleven sectors declined with more than 3% for the day. The Dow Jones Industrial Average fell 3%, the Nasdaq 100 tumbled with a 4.1% loss, and MSCI world index decreased 2.5% for the day.

Main Pairs Movement

The US dollar rallied on Friday, following Federal Reserve Chair Jerome Powell adopting a hawkish tone to battling inflation. The DXY dropped to a level below 107.8 ahead of the US trading session, then regained bullish momentum after Powell’s hawkish talk, surging from 107.6 to a daily high of 108.8.

GBPUSD dropped 0.74% on Friday. Cables witnessed fresh transactions during the UK trading session and touched a level above 1.188, then tumbled to a level below 1.174  after Powell took the stand at the Jackson Hole symposium. Meanwhile, EURUSD fell to a level below 0.997 due to a strong greenback  and unchanged pessimism about the economic future in the Eurozone. The pair was little changed for the day.

Gold tumbled on Friday, as the Fed Chair kept a hawkish tone, saying high interest rates will persist for some time, which heavily weighed on XAUUSD. XAUUSD confronted selling pressure during the UK session and further declined to a daily low of $1735 afer Jerome Powell’s hawkish speech.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair surged on Friday, extending its rally that started in the European session and refreshing its daily high near the 1.007 mark amid the emergence of some US dollar selling ahead of Powell’s speech at the Jackson Hole symposium. The pair is now trading at 1.0067, posting a 0.92% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the softer-than-expected US PCE inflation data exerted bearish pressure on the greenback and provided support to the EUR/USD pair. For the Euro, concerns about an extreme energy crisis in Europe has escalated amid the embargo on Russian energy imports. The Nord Stream 1 pipeline will remain shut for the last three days of August.

On the technical side, the RSI is at 62 writing, suggesting that the upside is preserving strength as the RSI keeps heading north. As for the Bollinger Bands, the price climbed higher and moved out of the upper band, therefore a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.0082 resistance line.

Resistance:  1.0082, 1.0171, 1.0188

Support: 0.9991, 0.9960, 0.9924

GBPUSD (4-Hour Chart)

The GBP/USD pair edged lower on Thursday, failing to preserve its bullish momentum and retreated back to 1.182 area after the highly-anticipated speech from Fed Chair Jerome Powell at the Jackson Hole Symposium. At the time of writing, the cable stays in negative territory with a 0.36% loss for the day. The hawkish remarks on the policy outlook from Fed Chair Jerome Powell has underpinned the safe-haven greenback, as he said that higher interest rates will persist for some time. Moreover, the market now sees greater odds of a 75 basis point rate hike, which rose back to 60% after the speech. The University of Michigan Consumer Sentiment also came in at 58.2 in August, which is better than expected. For the British pound, the bleak outlook for the UK economy continues to act as a headwind for the currency and weigh on the GBP/USD pair.

The RSI is at 42, suggesting the GBP/USD pair’s downside bias as the RSI started to drop sharply toward 40. As for the Bollinger Bands, the price witnessed fresh selling and crossed below the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as long as the 1.1849 resistance line holds. On the downside, a break below 1.1780 could open the door for additional losses.

Resistance: 1.1849, 1.1922, 1.1980

Support: 1.1780, 1.1763

XAUUSD (4-Hour Chart)

Gold plunged to the $1,730 level after having advanced above $1,750 level during the American trading hours on Friday as Fed Chair Jerome Powell reiterated his hawkish stance and helped the US dollar to rise strongly again.

Federal Reserve Chair Jerome Powell signaled the U.S. central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course. “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.” The comments of Powell were taken as “hawkish”. After all the dust settled, gold price turned south and plunged below $1,740 level, snapping its winning streaks and erasing all its weekly gains.

Meanwhile, the RSI is at 34, below the midline, suggesting that the following bearish trend could be expected as RSI slumped from above 50. As for the Bollinger Bands, the price dropped sharply across the moving average from its formerly upward trend, which is a typical pattern of turning weak, suggesting a downside momentum. In conclusion, we think the market will be bearish as fundamental and technical aspects both favor downside traction. If price closes below $1,730, it might head to test the next support region at $1,714 level.

Resistance: 1765, 1783, 1803

Support: 1730, 1714, 1685