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US equities recover ground as 10-Year T Note falls

Market Focus

US stocks advanced on Thursday and recovered some ground after registering minimal losses on Wednesday, as the falling US 10-year Treasury yield made stocks relatively attractive. During the testimony before the House Financial Services Committee on Monetary Policy and the State of the Economy, FOMC Chairman Jerome Powell said that a big part of inflation wouldn’t be affected by the Fed’s tools. Moreover, Fed Governor Michelle Bowman also said that she supports another 75 basis point interest rate hike in July. On the economic data side, the US manufacturing index dropped to 52.4 in June, which is an almost two-year low. Meanwhile the S&P Global Services PMI fell to 51.6 from 53.4 in May, missing market’s expectations and showing that contractions in output and new orders weighed heavily on the headline figure.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average both rose on Thursday as the slide witnessed in US 10-year Treasury yield provided some support to the US equities market despite the disappointing PMI data. The S&P 500 was up 1.0%, while the Dow Jones Industrial Average also advanced with 0.6% for the day. Seven out of eleven sectors stayed in positive territory as the utilities and health care sectors are the best performing among all groups, rising 2.35% and 2.22%, respectively. The Nasdaq 100 climbed the most with a 1.5% gain on Thursday and the MSCI World index declined 0.5%. Market focus now remains on overheating inflation and potential recessions among major economies.

Main Pairs Movement

The US dollar advanced on Thursday, rebounding from a weekly low that touched on Wednesday and extended its rally toward 104.7 area amid risk-off market sentiment. The DXY index started to see fresh buying and reached a daily high above 104.7 level in early European session, but then lost its bullish traction to surrender some of its daily gains. The safe-haven greenback continued to find demand amid escalating fears about a global recession, as the US PMI data came in weaker than expected and fueled recession-related concerns.

GBP/USD edged lower with a 0.08% loss on Thursday amid bullish momentum witnessed in the US dollar across the board. The better-than-expected UK PMI prints for June have helped Cable to find some demand and recovered most of its intraday losses. Cable touched a daily low below 1.218 level in early European session, now trading at 1.226 at the time of writing. Meanwhile, EUR/USD slumped to a daily low below 1.049 mark but then rebounded modestly to offset some of its intraday’s losses. The pair was down almost 0.44% for the day.

Gold declined and touched a daily low near $1823 during the American session, as the broad US dollar strength continued to exert bearish pressure on the precious metal. Meanwhile, WTI oil dropped to a near six-week low amid the recession fears.

Technical Analysis

EURUSD (4-Hour Chart)

After three days of gains, EURUSD entered a sharp correction on Thursday as risk-off sentiment returned across global markets. Fed Chair Jerome Powell’s testament on Wednesday added concerns of a recession in the US. Chairman Powell points out the possibility of an interest rate-induced recession as the central bank aims to aggressively pull back inflation. On the other hand, recession in the European zone could be well underway as PMI from Germany drops to a multi-year low of 52, indicating stalling demand and a drastic slowdown of the economy. The EU leaders summit will reconvene on Friday.

On the technical side, EURUSD continues to face strong resistance at our previously estimated level of around 1.05483. New level of support could form around the 1.049 price region, but there are no technical indications of it yet. RSI for the pair sits at 44.42, as of writing. On the four hour chart, EURUSD currently trades below its 50, 100, and 200-day SMAs.

Resistance:  1.05483, 1.06315

Support: 1.0382

GBPUSD (4-Hour Chart)

GBPUSD continued to trade lower after a slight pull back from the previous trading day. The British PMI contracted to 53.4, below estimates of 52.7. Risk off sentiment has further helped the US Dollar rise against the British Pound. On the economic docket, the British retail sales and the American existing home sales data are slated to release during the European trading session and American trading session, respectively.3

On the technical side, GBPUSD  remains depressed under our previously estimated resistance level of 1.239. Near term support for Cable remains at 1.2173. RSI for the pair sits at 48.18, as of writing. On the four hour chart, GBPUSD currently trades above its 50 day SMA, but below its 100 and 200-day SMAs.

Resistance: 1.25944, 1.239

Support: 1.2173, 1.20824

USDJPY (4-Hour Chart)

USDJPY continued to drop for the second straight day. The risk-off sentiment has driven flows from the US Dollar to the more supportive monetary environment of the Japanese yen. With the US benchmark 10-year Treasury yield falling back towards 3%, the Dollar is losing steam amidst recent rallies. Some analysts are predicting that a further depreciation of the Japanese yen could push the BoJ to intervene monetary supply, however no indication of such actions have been found yet.

On the technical side, USDJPY faced strong selling pressure at around the 136.6 price region. Near term support for USDJPY sits at 133.84 and 131.81. RSI for the pair has resumed to normal territory and is sitting at 60.99, as of writing. On the four hour chart, USDJPY is currently trading above its 50, 100, and 200-day SMAs.

Resistance: 136.57

Support: 133.84, 131.81

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