Q3 financial earnings have boosted market sentiment

October 18, 2022

U.S. equities rallied on the first trading day of the week. The Dow Jones Industrial Average gained 1.86% to close at 30185.82. The S&P 500 jumped 2.65% to close at 3677.95. The tech-heavy Nasdaq Composite soared 3.43% to close at 10675.8. Equities rallied as Q3 earnings from the financial sector have boosted investing sentiment. Bank of America reported better-than-expected results, sending the stock up 6%. As previously mentioned, Q3 earnings are not expected to reflect the full effect of the two consecutive 75 basis point hikes by the Fed; instead, earnings will begin to slow as Q4 heads around the corner.

Netflix, Tesla, and IBM are scheduled to release earnings later this week.

Monday’s equity rally was also aided by political developments in Britain. Prime Minister Truss has replaced Finance Minister Kwasi Kwarteng with Jeremy Hunt, who has announced that almost all planned tax cuts would be scrapped. The reversal in fiscal spending has also backed the British Pound as Gilts rallied.

Main Pairs Movement

The Dollar Index dropped 1.09% over the previous trading day. The U.S. Greenback lost bidding as market participants rotated into a red-hot equities market. The benchmark U.S. 10-year treasury yield continues to hover around 4% and was last seen trading at 3.998%.

EURUSD rose 1.22% over the previous trading day. The Euro took full advantage of the weaker Dollar and reached its highest level in over a week. On the economic docket, Germany’s economic sentiment is set to release during today’s European trading session.

GBPUSD gained 1.53% throughout yesterday’s trading. The British Pound found support as the reversal of the “mini-budget” fiscal plan has eased some concerns; however, the economic outlook for Britain remains bleak as the nation combats soaring inflation and soaring energy costs.

Gold rebounded 0.38% throughout yesterday’s trading. The non-yielding metal found some breathing room amid a weaker Dollar.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair surged higher on Monday, reversing Friday’s pullback from a one-week high and refreshing its daily high above 0.9820 level amid an improved market sentiment. The pair is now trading at 0.9844, posting a 1.29% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as the haven greenback is losing ground and retreated to the 112.0 area amid an absence of major data/events. Moreover, the newly appointed British Finance Minister also announced the U-turn on the mini-Budget Tax cuts, which provided a strong boost to investors’ mood. For the Euro, the European Central Bank (ECB) Vice President Luis de Guindos said on Monday that he expects the US dollar to stabilize in the coming months and Eurozone inflation to start easing in 2023. But the tussle with Russia, over Ukraine, might limit the recovery of the shared currency.

For the technical aspect, RSI indicator 64 as of writing, suggests that the pair is preserving its bullish momentum as the RSI climbs towards 70. As for the Bollinger Bands, the price gains upward strength and moves out of the upper band, so a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair is testing the 0.9836 resistance. The rising RSI also reflects bull signals.

Resistance:  0.9836, 0.9921, 0.9986

Support: 0.9666, 0.9551

GBPUSD (4-Hour Chart)

The GBP/USD pair advanced sharply on Monday, gaining positive traction and recovered strongly towards the 1.1420 mark as investors assess UK Chancellor Hunt’s fiscal statement. At the time of writing, the cable stays in positive territory with a 1.97% gain for the day. The modest pullback in the US Treasury bond yields and the risk-on mood both exerted some downward pressure on the safe-haven greenback, meanwhile lifting the GBP/USD pair higher. For the British pound, the new Chancellor of the Exchequer Jeremy Hunt is making an emergency statement this Monday on the mini-budget, which aimed to stabilize financial markets and restore investors’ confidence. He said that almost all tax measures announced in Sept 23 growth plan will be reversed, which eased fears of the UK market’s collapse. However, the bleak outlook for the UK economy should keep weighing on the cable amid the BoE’s prediction of a recession this year.

For the technical aspect, RSI indicator 67 as of writing, suggests that the upside is more favoured as the RSI rises towards the overbought zone. As for the Bollinger Bands, the price witnessed consistent buying and climbed towards the upper band, therefore a continuation of the bullish trend can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.1476 resistance. Sustained strength beyond that level could pave the way for a further near-term appreciating move.

Resistance: 1.1476, 1.1566, 1.1714

Support: 1.1162, 1.0797, 1.0968, 1.0392

XAUUSD (4-Hour Chart)

XAUUSD attracts some buying on the first day of a new week and reverses a major part of Friday’s downfall to over a two-week-low. The gold has stuck to its intraday gains since the first half of the European session and was currently priced at $1,663 as of writing. The US dollar struggles to capitalize on Friday’s strong intraday positive move and meets with a fresh supply on Monday amid a modest pullback in the US Treasury bond yields. A weaker greenback offers some support to the dollar-denominated gold, though a combination of factors could act as a headwind and warrants caution for bullish traders. The markets have priced in a nearly 100% chance for another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November. The aforementioned fundamental backdrop suggests that the path of least resistance for gold is to the downside.

From the technical perspective, in the four-hour scale, the RSI 50 as of writing, supplying that the price turned out to be relatively stable. As for Bollinger Bands, the gap between upper and lower bands remains unchanged, and the yellow metal price was hovering around the 20-period moving average, indicating a mild move in the near term could be expected.

Resistance: 1680, 1712, 1725

Support: 1640, 1620, 1600

Economic Data