US Equity Market Falls as Tech Stocks Decline and Investors Anticipate Inflation Data

March 29, 2023

On Tuesday, the US equity market took a slight hit as investors reassessed their bets on the Federal Reserve’s interest rate policies. The three-day advance of US stocks came to a halt as technology shares declined, while Treasuries saw a slight dip.

Investors have been favoring tech stocks in recent weeks, moving away from financials following the collapse of three US banks. However, this trend has begun to reverse as there is increasing speculation that turbulence in the banking sector will be contained.

As investors gear up for a slew of data on the American economy this week, including the central bank’s preferred measure of inflation, the data is expected to play a role in the Fed’s upcoming rate decision.

In the benchmark, the Nasdaq 100 slumped 0.5%, paring a March advance to 4.7%. Tech stalwarts such as Apple Inc. and Alphabet Inc. were among the biggest drags. The S&P500 fell 0.2%, with six out of eleven sectors staying in negative territory. The communication service dropped 1.02%, performing the worst among all groups. Meanwhile, the Dow Jones Industrial Average fell 0.1%, and the MSCI world index fell 0.1% on Tuesday.

Main Pairs Movement

The US Dollar saw daily losses of 0.42% on Tuesday as easing worries about a banking crisis led investors to favor riskier currencies. The DXY index was heavily sold throughout the day, closing at the 102.43 level by the end of the day.

Daily, the EURUSD saw a 0.44% gain, reaching a four-day high near 1.0850. The positive traction was triggered by the broadly weak greenback, and the pair closed at the 1.084 level. Investors have rising expectations for an unchanged Fed policy, which has helped to support the EURUSD.

The weakness of the US Dollar acted as a tailwind for the GBPUSD on Tuesday. The pair rose 0.45% daily for the day, benefiting from the broader weakness of the greenback.

Gold prices surged with a 0.86% daily gain on Tuesday, trading near a daily high of $1,970.03 per troy ounce. The weakness of the US Dollar supported the XAU/USD pair, which trimmed half of its losses from Monday. However, a better market mood subdued demand for the bright metal. The pair managed to rebound from a daily low of $1950 mark to the $1970 mark in the second half of Tuesday.

Technical Analysis

EURUSD (4-Hour Chart)

On Tuesday, the EUR/USD pair continued its upward trend, hitting a daily high of 1.0840 before the opening of Wall Street. The market’s optimism is fueled by receding concerns about the banking sector’s health, which is benefiting the Euro and high-yielding assets in general. Asian shares ended a two-day losing streak and closed in the green, helping European and American futures stay afloat. Although Treasury yields rose, the US Dollar weakened. The rise in yields can be attributed to falling bond prices in a risk-on scenario. While the Eurozone did not release any significant macroeconomic figures, the United States released the preliminary estimate of the February Goods Trade Balance, which showed a deficit of $91.6 billion, worse than expected, and Wholesale Inventories for the same period, up a modest 0.2% MoM.

The EUR/USD pair has seen two consecutive days of gains, with a steady recovery since it hit 1.0750 on Monday. Buyers are protecting the pair’s downside at around 1.0745, with the 61.8% Fibonacci retracement of the 2022 yearly decline. In the daily chart, the pair is above bullish moving averages, with the 20 Simple Moving Average extending its bullish slope above and also the bullish 100 SMA. Technical indicators are heading north within positive levels and flirting with two-month highs. According to the 4-hour chart, there is an increased chance of upward momentum as the pair has recovered above a mildly bearish 20 SMA, and the 100 SMA has crossed above the 200 SMA.

Resistance levels: 1.0903, 1.0990

Support levels: 1.0784, 1.0669

XAUUSD (4-Hour Chart)

The Russian central bank recently announced that it purchased 1 million ounces of Gold, which has provided support to the domestic Gold industry. However, Commerzbank strategists do not expect the bank to continue purchasing Gold due to the limited success of re-routing exports to Asia compared to Crude Oil. Additionally, the largest buyers of Gold in Russia, the banks, have been affected by sanctions imposed by the West. Despite the increase in Gold reserves, the Gold price remains volatile due to uncertainty over future interest rates. The 10-year US T-bond yield holding above 3.5% has limited the upside for Gold. On Tuesday, Gold settled around $1,950 in a quiet start to trading but gained traction and turned positive, reaching $1,960 amid selling pressure surrounding the US Dollar. The Gold price is expected to be supported in the long term due to the pressure on central banks to fight inflation and avoid a replay of the 1970s. However, short-term movements will be determined by developments in growth and inflation.

Technically, the Gold price appears to be exhibiting a measured move pattern resembling a zig-zag pattern consisting of three waves, starting from the $2,003 highs. In this pattern, waves 1 and 3 typically have the same length or a Fibonacci ratio. This suggests that XAU/USD may decline towards the support level at the $1,934 March 22 lows, which could also function as the neckline for a bearish double-top pattern.

Resistance: 1980, 2003

Support: 1934, 1914

Economic Data