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The Fed is expected to raise rates by 50 basis points on Wednesday

Market Focus

US stock advanced on Tuesday amid a better market mood, but are facing another volatile session as investors await the key Fed policy announcements later this week. The Fed is expected to raise rates by 50 basis points on Wednesday and traders will be closely watching for any clues on whether a 75 bps hike is possible in June. Meanwhile, concerns about rising inflation pressures and China’s Covid-19 spread still remain. Beijing will likely go into a strict city-wide lockdown like Shanghai if Chinese authorities fail to contain the Covid-19 outbreak. On the economic data side, the US Factory Orders and JOLTS Job Openings numbers were better than expected, providing some support to the US dollar yesterday.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average all rose on Tuesday amid uncertainty over the Fed’s policy announcement and slightly upbeat sentiment. The S&P 500 was up 0.5% and the Dow Jones Industrial Average also advanced with a 0.2% gain for the day. Nine out of eleven sectors stayed in positive territory with the energy and financial sectors the best performing among all groups, rising 2.87% and 1.26%, respectively. The Nasdaq 100 stayed in positive territory with a 0.2% gain on Tuesday and the MSCI World index climbed 0.4%.

Main Pairs Movement

The Reserve Bank of Australia raised its cash rate by 25 basis points. The Fed and the Bank of England will announce their decisions in the upcoming days, and both are expected to pull the trigger at 50 basis points. The 10-year US Treasury yield peaked at 3% on Monday, while the German bund yield exceeded 1% for the first time since 2015.

EUR/USD hovered around 1.0510 in early Asian trading hours, while GBP/USD failed to hold above the 1.2500 level. Commodity-linked currencies have edged higher against their US counterparts, with AUD/USD currently trading around 0.7090 and USD/CAD around 1.2840.

Gold is slightly higher, and is currently trading at around $1,866 per troy ounce. Crude oil prices are down, with WTI changing hands at $102.75 per barrel.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Tuesday, recovering from new 2022 lows below the 1.050 mark that it touched last week. The pair was flirting with the 1.050-1.052 area during the Asian session, then started to see heavy buying and rebounded towards the 1.058 level heading into the US session. The pair is now trading at 1.0536, posting a 0.33% gain on a daily basis. EUR/USD stays in the positive territory amid weaker US dollar across the board, as profit-taking in the US dollar and better market mood both weighed on the Greenback. However, the better-than-expected Factory Orders data should limit the losses for the dollar. For the Euro, the dovish expectations that the ECB will not tighten its monetary policy as much as the Fed in 2022 might continue capping the upside for the EUR/USD pair.

On the technical side, the RSI is at 46 as of writing, suggesting that downside is more favoured as the RSI stays below the midline. As for the Bollinger Bands, the price has fallen from the upper band after touching it, which shows that the downside momentum should persist. In conclusion, we think the market will be slightly bearish as the pair is heading to re-test the 1.048 support, which is the 5-year low for EUR/USD pair. The falling RSI also signals a bear trend for the pair, so the rebound today seems corrective.

Resistance:  1.0649, 1.0810, 1.0921

Support: 1.0485

GBPUSD (4-Hour Chart)

GBP/USD edged higher on Tuesday, regaining some positive momentum and ending its slide that started last Friday amid the return of UK market participants from a bank holiday. The pair was trading higher after the market opening and touched a daily high around the 1.256 level, then retreated back to surrender some of its daily gains. At the time of writing, Cable is in positive territory with a 0.23% gain for the day. While renewed dollar strength is mainly due to the upbeat Factory Orders and JOLTS Job Openings data from the US, the market’s focus has now shifted to the key Fed and BoE policy announcements this week. For the British pound, the Fed/BoE policy divergence might act as a headwind for Cable, as the nation’s central bank is worried about UK economic weakness. Investors now expect a 25 bps rate hike by the BoE.

On the technical side, the RSI is at 43, suggesting that the downside is more favored as the RSI has stayed below the midline. Looking at the Bollinger Bands, the price has failed to climb higher and crossed below the moving average, indicating a continuation of the downside trend. In conclusion, we think the market will be slightly bearish as the falling RSI suggests near-term losses for the pair. A break below the 1.2492 support should lead the cable to test its 2022 lows at 1.2430.

Resistance: 1.2585, 1.2761, 1.2865

Support: 1.2492, 1.2430

USDCAD (4-Hour Chart)

As the DXY index retreated to a daily low near 130.05 mark amid the profit-taking in the US dollar today, USD/CAD continued under bearish momentum and extended its intraday losses. The pair saw fresh selling in early trading today but witnessed a goodish rebound to daily tops in the European session before sliding back and refreshing its daily low below the 1.283 level. USD/CAD is trading at 1.2840 at the time of writing, losing 0.30% for the day. The weaker US dollar across the board is dragging the pair lower, as US dollar bulls are taking profit ahead of the Federal Reserve meeting. On top of that, falling crude oil prices failed to push USD/CAD higher, despite WTI now hovering around the $103.50 per barrel area due to concerns about China’s Covid-19 spread. Latest news shows that Chinese authorities are struggling to get the Covid-19 outbreak in Beijing under control.

On the technical side, the RSI is at 52 as of writing, suggesting that the downside is preserving strength as the RSI continues south, sending bearish signals. As for the Bollinger Bands, the price failed to touch the upper band and fell towards the moving average, indicating that the downside traction should persist. In conclusion, we think the market will be bearish as long as the 1.2902 resistance line holds.

Resistance: 1.2882, 1.2940

Support: 1.2721, 1.2665, 1.2541

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