US Shares Decline for 6th Straight Day Amid Recession Fears

28 September 2022, 02:08

Market Focus

US stocks declined on Tuesday, dropping for the sixth session and ending a volatile session lower as the fears of a worldwide recession continue leading the market sentiment. The safe-haven US dollar continued to find demand after the Fed delivered a third jumbo hike and warned of more pain to come. Meanwhile Federal Reserve’s James Bullard also added to a chorus of officials saying more rate hikes are needed and the risks to the economy remain elevated. Some US Federal Reserve officials tried to pour cold water onto the dollar’s recent strength but failed despite Fed’s Charles Evans saying he was getting concerned about going too far, too fast with rate hikes. In the Eurozone, multiple leaks in Russia’s gas pipeline in the Baltic Sea raised concerns about the escalating energy conflict between Europe and Russia, which pushed European natural gas prices higher and exerted bearish pressure on investors’ moods.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Tuesday as the harsh central bank tightening programs sparked the S&P 500’s longest losing streak since February 2020. The S&P 500 was down 0.2% on a daily basis and the Dow Jones Industrial Average also dropped lower with a 0.4% loss for the day. Seven out of eleven sectors in the S&P 500 stayed in negative territory with the Consumer Staples sector and the Utilities sector the worst performing among all groups, losing 1.76% and 1.70%, respectively. The Nasdaq 100 meanwhile advanced slightly with a 0.2% gain on Tuesday and the MSCI World index was down 1.3% for the day.

Daily Return vs US Dollar(%)

Main Pairs Movement

The US dollar climbed higher on Tuesday, extending its previous rally and touching a daily high above 114.40 mark during the US session amid the risk-off market sentiment. On top of that, the former US Durable Goods Orders and CB Consumer Confidence data also acted as a tailwind for the safe-haven greenback, as the US Durable Goods Orders declined by only 0.2% in August and US CB Consumer Confidence also improved to 108.00 for September.

GBP/USD rebounded slightly on Tuesday with a 0.43% gain after Cable recovered towards the 1.080 level amid the overnight special statement from the Bank of England. On the UK front, the BoE added that it is monitoring developments in financial markets very closely. Meanwhile, EUR/USD remained under pressure and finished the day right below the 0.9600 mark amid risk-off market mood. The pair was down almost 0.15% for the day.

Gold rebounded with a 0.40% gain for the day after climbing to a daily top above the $1640 mark during the European session, as some profit-taking witnessed in US dollar earlier in the day has provided support to the safe-haven metal. Meanwhile, WTI Oil advanced higher with a 1.94% gain for the day after recovering towards the $79 area despite hawkish rhetoric from Fed officials.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD (4-Hour Chart)

EURUSD continued to fall for the second straight day despite efforts to recover above 0.96. The energy crisis continues to trouble the European economy. Furthermore, with Russia expanding its aggression by the day, the spillover effect of the Russian-Ukrainian war will quickly take a toll on the whole European economy. On Wednesday, ECB President Chritine Lagarde will participate in the Frankfurt Forum alongside Fed Chair Jerome Powell. Both heads of central banks are expected to deliver a speech.

On the technical side, EURUSD has traded slightly below our previously estimated support level of 0.96. The pair is attempting to defend this support level, but with the U.S. Greenback gaining more demand by the day, we expect a lower support level for the pair at around 0.95. RSI for the pair sits at 32.08, as of writing. On the four hour chart, EURUSD is trading well below its 50, 100, and 200 day SMAs.

Resistance:  1.0011, 1.0055

Support: 0.98, 0.96

GBPUSD (4-Hour Chart)

GBPUSD (4-Hour Chart)

Cable, after sinking to historical lows during Tuesday, has recovered 0.43% by yesterday’s close. The broadly weaker Dollar across markets have allowed the British Pound to gain traction against the U.S. Greenback. The British Pound was also stimulated by the BoE’s ,seemingly emergency, statement after the Pound’s plunge. The statement by the BoE stated that the central bank will intervene the decline shall the British Pound continue to fall uncontrollably. Markets are still pricing in an  80% chance that the BoE will raise rates to 3.5% by November from 2.25%.

On the technical side, GBPUSD has rebounded from our previously estimtated support level of 1.035. Short term resistance for GBPUSD stands at around 1.08 and 1.12. RSI for the pair sits at 40.37, as of writing. On the four hour chart, GBPUSD is trading below its 50, 100, and 200 day SMAs.

Resistance: 1.1561, 1.1854

Support: 1.035, 1

XAUUSD (4-Hour Chart)

XAUUSD (4-Hour Chart)

Gold found some breathing rom on the 27th as the Dollar slowed its growth. Furthermmore, as mentioned in yesterday’s report, the mobilization of Russia’s armed forces, riots in Iran, geopolitical and instability in the South China Sea have all contributed as a potential catalyst for astronomical upside potential for Gold. On the contrary, tightening by global central banks have eliminated any upward space for Gold save a catastrophic global geopolitical conflict.

On the technical side, XAUUSD has broken below our previously estimated support level of $1640 per ounce and is heading towards our estimated next level of support at $1600 per ounce. RSI for the non-yielding gold sits at 37.83, as of writing. On the four hour chart, XAUUSD is trading below its 50, 100, and 30 day SMAs.

Resistance: 1695, 1724

Support: 1620, 1600