US stocks rebound as Fed hints at possible rate pause

March 3, 2023

US stocks rebounded on Thursday, ending a two-day losing streak, following Federal Reserve Bank of Atlanta President Raphael Bostic’s announcement that the central bank may pause rate hikes this summer. US Treasury bond yields had earlier risen to multi-month highs amid inflation fears, supporting the US dollar. However, other central bank officials have reiterated hawkish rhetoric, with Boston Fed President Susan Collins stating that more rate hikes are needed to control inflation, and economic data indicates a more restrictive monetary policy. Initial Jobless Claims declined to 190K, and Unit Labor Cost for Q4 was revised higher from 1.6% to 3.2%.

Both the S&P 500 and Dow Jones Industrial Average rebounded higher on Thursday, with the S&P 500 jumping the most in over two weeks and rising by 0.8%, while the Dow Jones Industrial Average rose by 1.1%. Nine out of eleven sectors in the S&P 500 stayed in positive territory, with the Utilities and Information Technology sectors being the best performers, rising 1.82% and 1.26%, respectively. Meanwhile, the Nasdaq 100 climbed higher with a 0.9% gain, and the MSCI World index remained little changed for the day.

Main Pairs Movement

The US dollar advanced higher on Thursday, erasing its recent losses and extending the intraday rally to a daily high above the 105.10 mark on the back of US economic data and higher US yields. The escalating fears of inflation and higher rates from major central banks allowed the US Dollar to post the biggest daily jump since early February. However, late Thursday’s comments from Bostic joined the cautious mood and let the greenback hold onto its gains.

GBP/USD dropped lower on Thursday with a 0.69% loss after the cable extended its intraday slide and touched a daily low near the 1.1930 mark in the late US session after US economic data warranted further tightening by the US Federal Reserve. On the UK front, investors are anticipating a pause or a deceleration in the pace of interest rate hiking by the Bank of England, which is expected to dump the Cable. Meanwhile, EUR/USD also witnessed selling momentum and touched a daily low below the 1.0580 mark, down almost 0.67% for the day.

Gold retreated slightly with a 0.05% loss for the day after halting its recent surge and falling from the weekly high above the $1842 level during the US trading session, as US Treasury bond yields gathered strength and exerted bearish pressure on the yellow metal. Meanwhile, WTI Oil climbed higher with a 0.60% daily gain.

Technical Analysis

EURUSD (4-Hour Chart)

On Thursday, the EURUSD faced bearish pressure and dropped below the 1.0600 level in the early American trading session. This was due to the Unit Labor Costs in the US increasing at a more robust pace than expected in Q4, causing the US Dollar to gain more strength. While the US Federal Reserve and European Central Bank officials maintained their hawkish rhetoric, ECB President Christine Lagarde noted in a TV interview that bringing inflation down will take time. She repeated that the possibility of a 50 basis points rate hike this month is still on the table since inflation remains high. However, the Eurozone Harmonised Index of Consumer Prices (HICP) rose 8.5% YoY in February compared to January’s 8.6%, missing the market’s expectation of 8.2%. Additionally, the core annual reading printed at 5.6%, higher than the previous 5.3%, and above the market expectations.

In technical terms, the four-hour scale RSI indicator retreated to a neutral area of 46 figures, suggesting that the pair is currently moving sideways. As for the Bollinger Bands, the pair was falling below the 20-period moving average, and the size between the upper and lower bands has changed little, indicating that the pair has not made a directive move.

Resistance: 1.0788, 1.0929

Support: 1.0508, 1.0400

XAUUSD (4-Hour Chart)

On Thursday, XAUUSD declined as the US Dollar gained momentum due to concerning news. Financial markets are preoccupied with worries about inflation and how central banks will react to persistent price pressures. In February, the Eurozone Harmonised Index of Consumer Prices (HICP) rose 8.5% YoY, a slight improvement from January’s 8.6%. However, it missed market expectations of 8.2%. Furthermore, the core annual reading came in at 5.6%, higher than both the previous and expected 5.3%. These troubling figures align with ECB President Lagarde’s statement that inflation’s decline is still unstable and remains too high. Meanwhile, the US Fed is also delivering hawkish messages, suggesting that the central bank may raise rates by more than 25 bps in upcoming meetings.

From a technical perspective, the RSI indicator on the four-hour scale was stable above the midline and measured 60 at the time of writing. This suggests that the pair had strong positive momentum. The Bollinger Bands showed that the pair was trading firmly in the upper area, indicating that gold retained its bullish momentum and was more likely to continue on an upward trajectory shortly.

Resistance: 1850, 1870, 1900

Support: 1820, 1800

Economic Data