Equities Stage Goodish Rebound as Markets Await Central Bank Decisions

20 September 2022, 02:17

Market Focus

US stocks staged a goodish rebound on Monday, regaining upside strength and pushing higher in the final hour of the US trading session as the financial markets remain in a wait-and-see mood ahead of central banks’ decisions. Traders geared for another super-sized US rate increase amid multiple central banks’ announcements scheduled for later in the week, as the Fed is expected to hike rates by 75 basis points regardless of the potential effects on economic growth. On top of that, US President Biden’s readiness to back Taiwan in case China attacks Taipei and upbeat covid updates from China both favoured the market mood yesterday and acted as a tailwind for the equity market. In the Eurozone, comments from ECB President Christine will remain the focus for traders ahead of the key Wednesday amid the EU policymakers’ readiness to use emergency powers to avoid a supply crisis, as ECB Vice President Luis de Guindos said on Monday that growth slowdown is not enough to ease inflation.

The benchmarks, S&P 500 and Dow Jones Industrial Average both climbed higher on Monday as the rally in megacaps like Apple Inc. and Tesla Inc. drove a late-day rebound for the market. The S&P 500 was up 0.7% on a daily basis and the Dow Jones Industrial Average also edged higher with a 0.6% gain for the day. Nine out of eleven sectors in the S&P 500 stayed in positive territory as the Materials and the Consumer Discretionary are the best performing among all groups, rising 1.63% and 1.34%, respectively. The Nasdaq 100 meanwhile advanced the most with a 0.8% gain on Monday and the MSCI World index was up 0.4% for the day.

Daily Return vs US Dollar(%)

Main Pairs Movement

The US dollar was little changed on Monday, failing to preserve its upside traction and retreating to a daily low near the 109.6 level in the late US session amid recovering market sentiment. Traders are bracing for major central bank decisions as over fifteen institutions are set to decide between Wednesday and Thursday, including the US Federal Reserve, the Bank of England, the Bank of Japan, and the Switzerland National Bank.

GBP/USD rebounded slightly on Monday with a 0.14% gain as the slightly positive market sentiment has lifted Cable higher towards the 1.143 area. On the UK front, the Bank of England is expected to increase the Bank’s Rate by 50 bps on Thursday. Meanwhile, EUR/USD recovered slightly from daily lows and extended its late-day rebound toward 1.003 mark touched a three-day top above 1.003 level amid a light calendar and an absence of the UK and Japan. The pair was up almost 0.10% for the day.

Gold was nearly unchanged for the day after recovering from daily lows around the $1660 mark during US trading session, as the pre-event cautious, a light calendar and quiet macro both contributed to the metal’s inaction. Meanwhile, WTI Oil advanced higher with a 0.22% gain for the day and rebounded back to $86 area as markets remain in anticipation of the Federal Reserve and a slew of other central banks that meet this week.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD (4-Hour Chart)

After rising for three straight trading sessions, EURUSD reversed course on the first trading day of the week. The shared currency fared worse against the Greenback as demand for the Dollar rose on Monday. Trading for the pair, however, has been rather thin and range bound ahead of the key FOMC meeting, scheduled for Wednesday’s American trading session. Markets are now fully pricing in at least a 75 basis point interest rate hike by the Fed. Should the Fed deliver a super sized rate hike of 1 percentage point, the U.S. Dollar could surge as short term interest rates are likely to soar into historical territory. On the economic docket, ECB president Lagarde is scheduled to speak on the 21st.

On the technical side, EURUSD has continued to trade below our previously estimated resistance level of near parity. Support level for EURUSD rests at 0.9956. Further down support for EURUSD rests at 0.9902. RSI for the pair sits at 50.31, as of writing. On the four hour chart, EURUSD is currently trading below its 50, 100, and 200-day SMA.

Resistance:  1.0011, 1.0055

Support: 0.9969, 0.9902

GBPUSD (4-Hour Chart)

GBPUSD (4-Hour Chart)

Cable saw thin trading and limited price movement on the first trading day of the week as Britain trading hours are limited due to the national funeral of Queen Elizabeth II. Range bound trading for Cable should be expected before the 21st, which will see both the Fed and BoE announce its latest monetary policy and interest rate decisions. The Fed is expected to hike interest rates by 75 basis points, while the expectation for the BoE is 50 basis points. The interest rate differential between the two countries could thus create an arbitrage opportunity for carry trades; however, market participants should keep in mind the disappointing recent economic data releases from the U.K.

On the technical side, GBPUSD has rebounded from our previously estimated support level of around 1.1371. Short term resistance for Cable now forms around a previous support level at 1.1463. A super sized rate hike from the Fed could send Cable well below 1.13. RSI for the pair sits at 40.59, as of writing. On the four hour chart, GBPUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1.1561, 1.1854

Support: 1.1463

XAUUSD (4-Hour Chart)

XAUUSD (4-Hour Chart)

XAUUSD dropped a combined 2.43% over the course of last week’s trading. The non-yielding metal has continued to face heavy selling pressure as global central banks continue to raise interest rates in order to combat inflation. Rising U.S. 10 year treasury yields has not helped the case for Gold bulls as the yellow metal continues to fare worse against the U.S. Greenback. Market participants should be aware of Wednesday’s Fed interest rate decision, as a super sized rate hike could cause extreme price volatility for the non-yielding metal.

On the technical side, XAUUSD has found support around the $1660 per ounce region. This level is key for the precious metal as $1660 per ounce is near the price level just prior to March of 2020 when Gold prices suffered a more than 8% drop in the following week. RSI for the precious metal sits at 40.66, as of writing. On the four hour chart, XAUUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1740, 1800

Support: 1712, 1695