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Market Focus

US stock declined on Monday amid downbeat market sentiment, making its biggest three-day drop since September as concerns about the rapid spread of the Omicron variant in Europe dragged down stocks. After the Netherlands announced a full lockdown on Sunday, the UK is rumoured to be planning a lockdown from 27 December, with other countries expected to follow suit straight after Christmas. Investors now worry that the US would do the same. On top of that, US Democrat Senator Joe Manchin rejected the Biden administration’s $1.75T Build Back Better (BBB) social spending package, which has dented confidence in US growth prospects and weighed negatively on the market mood. Meanwhile, the hawkish signal that the Fed might end asset purchases sooner than planned also acted as a headwind for the stock markets.

The benchmarks, S&P 500, Nasdaq 100, and the Dow Jones Industrial Average, all dropped on Monday amid concerns about President Joe Biden’s economic agenda and the surging cases of the Omicron variant. S&P 500 was down 1.1%, and the Nasdaq 100 also declined with a 1.1% loss for the day. Nine out of eleven sectors stayed in negative territory as the financials and materials sectors were the worst performings among all groups, losing 1.90% and 1.82%, respectively. The Dow Jones Industrial Average dropped the most with a 1.2% loss on Monday while the MSCI World index fell 1.4%. Moreover, the S&P 500 CBOE Volatility Index climbed back and touched two-week highs above 25.00 for the day due to the surge in selling.

In Asia, China’s economy is being dragged down by the slowdown in the nation’s property sector, as well as the regulatory crackdown on private industries from Beijing. Therefore, the surprise rate cut by the People’s Bank of China (PBOC) failed to support Asia-Pacific shares.

Main Pairs Movement

The US dollar edged lower on Monday, staying in negative territory amid falling US 10-year Treasury yields. The DXY index dropped to a daily low under the 96.36 level during the American session, then rebounded back moderately to pare some of its intraday losses. Goldman Sachs Group Inc. economists reduced US economic growth forecasts after US Democrat Senator Joe Manchin rejected Biden’s roughly $2 trillion tax-and-spending package. But a hawkish Fed and prospects that the US central bank policymakers expect three rate hikes by the end of 2022 will both limit the downside for the greenback.

GBP/USD declined 0.21% on Monday amid global concerns on the Omicron variant, as the UK reported 82,886 new coronavirus cases. The resignation from Brexit UK’s top negotiator David Frost also weighed on the pair. Cable touched a daily top in the late European session, then retreated to surrender most of its intraday’s gain. Meanwhile, EUR/USD climbed to a daily top above the 1.13 level and gained 0.34% for the day, as the euro has been the best performing G10 currency on Monday.

Gold declined and touched a daily low under $1788 in the late American session. The recent weakness for the precious metal was mainly due to fears over the Omicron covid variant. Meanwhile, WTI oil tumbled 1.01% for the day, as the pressure on European countries to announce a lockdown will restrict near-term crude oil demand.

Technical Analysis

XAUUSD (4- Hour Chart)

Gold is trading below 1800, struggling to make use of risk-averse market conditions as major indices are tumbling amid Omicron fears. On the technical side, gold’s bulls are fighting against the critical level above the 20 SMA on the four-hour chart. On an intraday basis, gold has failed to defend its support at 1800 (38.2% Fib. Retracement). If the next level, the 20 SMA, goes, gold is likely to slip back to test mid-December highs and the support at 1782, leading to a bearish trend. The technical indicator, the RSI, seems to favour the downside momentum more as the RSI is still far away from the oversold territory, giving room for gold to extend further south. On the flip side, in order to reclaim the bullish trend, gold would need to hold steadily above 1800.

Resistance: 1800, 1815, 1829

Support: 1782, 1770, 1753

GBPUSD (4- Hour Chart)

GBPUSD failed to recover above the 50 SMA in the early American trading session, trading at 1.3222. GBPUSD’s upside seems to be capped amid the rapid surge of the new Omicron cases in December as more than 140,000 cases have been reported in London. From the technical perspective, GBPUSD continues to trade within the lower bounce of Bollinger Band, suggesting that the outlook remains downside in the near- term. In intraday trading, the 50 SMA has become a barrier, followed by the resistance at 1.3317. On the downside, it is suggesting that the bearish momentum might continue as the RSI is still away from oversold, meaning that there are rooms for the pair to extend further south before it becomes technically oversold on the 4- hour chart. And the next relevant support is located at 1.3163. On the flip side, GBPUSD needs to climb at least above the 20 and 50 SMAs in order to reclaim positive movement.

Resistance: 1.3321, 1.3419, 1.3499

Support: 1.3163

Nasdaq 100 (Daily Chart)

The major indices, including Nasdaq 100, tumbled on Monday as the market continues to react to the resurgence of the Covid due to the new variant Omicron. From the technical perspective, the Nasdaq has extended further south for three successive days. At the time of writing, today’s decline would bring the Nasdaq below its immediate support level at 15706, suggesting a bullish-to-bearish trend in the near term. Furthermore, today’s bearish move would officially make the Nasdaq break all four SMAs, including the 5 SMA, 10, SMA, 20 SMA, and 60 SMA, indicating a negative mode for the index. In the meantime, the downside momentum is also supported by the negative MACD. As of now, to overturn its current stance, the index needs to climb at least 15706 to reclaim the upside trend and climb above all four SMAs to re-confirm a bullish stance. Nonetheless, from a bigger perspective, the bullish trend of the Nasdaq seems to be not over yet until it hits the overall uptrend. In the past, historically, the upside acts as a strong support level for a rebound after a big tumble for the Nasdaq.

Resistance: 15706, 16487

Support: 14457

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