Economic data eased inflation concerns

November 28, 2022

US stocks were little changed on Friday, having a shortened trading session following the US Thanksgiving holiday amid the prospect of the Federal Reserve moderating the pace of its policy tightening. Investors’ sentiment was boosted this week after the Federal Reserve’s Nov. 1-2 meeting minutes showed most officials backing slowing the pace of interest-rate hikes. Meanwhile, economic data somewhat eased inflation concerns, further strengthening the case for smaller rate hikes.

However, coronavirus fears in China joined the protest against the government’s Zero-Covid policy to add to the market’s woes. China has been using a stringent policy to limit the virus spread but the outcome hasn’t been a positive one so far, as the country reported an all-time high of COVID-19 daily cases with nearly 40,000 new infections on Saturday.

On the Eurozone front, investors are waiting for the structure of the price cap on Eurozone gas, as the EU authorities are planning to levy a ceiling on energy prices to safeguard households from a sheer decline in their real income.

The benchmarks, S&P 500 and Dow Jones Industrial Average both were little changed on Friday as the S&P 500 wavered for most of Friday’s shortened trading session. The S&P 500 was down 0.03% on a daily basis and the Dow Jones Industrial Average climbed higher with a 0.4% gain for the day. Seven out of eleven sectors in the S&P 500 stayed in positive territory as the Real Estate sector and the Utility sector are the best performing among all groups, rising 0.64% and 0.63%, respectively. The Nasdaq 100 meanwhile dropped the most with a 1.09% loss on Friday and the MSCI World index was up 0.4% for the day.

Main Pairs Movement

The US dollar advanced higher on Friday, failing to preserve its upside traction and surrendered some of its daily gains amid thin volumes on the Thanksgiving Day holiday. The US Dollar attracts some buyers on the last day of the week as investors digest Wednesday’s dovish FOMC meeting minutes. Investors seem convinced that the Fed will slow the pace of its policy tightening and have now fully priced in a 50 bps rate hike at the December meeting.

GBP/USD retreated lower on Friday with a 0.17% loss as the cable moved away from its highest level since August 12 around the 1.2150-1.2155 region amid a modest pickup in the USD demand. On the UK front, the market expects that the Bank of England will continue to raise borrowing costs to combat stubbornly high inflation. Meanwhile, EUR/USD dropped to a daily low below 1.0360 level but then rebounded slightly as the market mood is extremely quiet amid the holiday in the United States. The pair was down almost 0.14% for the day.

Gold was nearly unchanged with a 0.02% loss for the day after recovering from a daily low near the $1,748 area during the US trading session, as the modest US Dollar strength and a positive risk tone exerted bearish pressure on the precious metal. Meanwhile, WTI Oil declined sharply with a 2.13% loss for the day amid ongoing China’s Covid-19 outbreak.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD was struggling to hold the ground above the 1.0400 level during the US trading session and trading at 1.0401 as of writing. Trading conditions remain thin on Black Friday and the pair has a big chance to end the week in positive territory. Investors are punishing the US Dollar as Fed policymakers have stated a slowdown in the interest rate hike. Fed policymakers believe that headline the United States Consumer Price Index (CPI) has displayed signs of severe exhaustion, therefore, it would be optimal to go on a light note on policy rate. However, the core CPI that excludes oil and food prices has not shown a significant drop. The Federal Reserve’s dovish stance boosted the market risk sentiment and undermined the safe-haven greenback. The better tone in the risk complex also underpinned the pair’s price actions, while auspicious results from the German calendar also add to the optimism around the currency. In fact, final GDP figures saw the German economy expand 1.3% YoY in the July-September period and 0.4% vs. the previous quarter. In addition, December’s Consumer Confidence tracked by GfK improved to -40.2.

From the technical perspective, the four-hour scale RSI indicator figured 60 following a touching daily low around 50, suggesting that the pair now had not made a decisive movement. As for the Bollinger Bands, the pair was pricing in the upper area and supported by a 20-period moving average, meaning that the pair was more favoured to the upside path in the near term.

Resistance: 1.0479, 1.0604

Support: 1.0228, 1.0163, 0.9961

GBPUSD (4-Hour Chart)

The GBPUSD slid below the 1.2100 level on Black Friday and remained on the back foot during the US trading session. As market participants digest Wednesday’s FOMC meeting minutes, the US Dollar attracts some buyers on the last day of the week and acts as a headwind for the pair. A modest uptick in the US Treasury bond yields turns out to be a key factor prompting some short-covering around the buck amid relatively thin trading conditions. However, the attempted greenback recovery lacks any obvious fundamental catalyst and runs the risk of fizzling out rather quickly. Apart from this, firming expectations that the Bank of England will continue to raise borrowing costs to combat stubbornly high inflation. This might provide support for the British Pound and boosts prospects for the emergence of some dip-buying around the GBPUSD pair. In the absence of any relevant economic data, the fundamental backdrop warrants caution before positioning for any further slide.

From the technical perspective, the four-hour scale RSI indicator fell below the overbought zone and 69 figured as of writing, suggesting that the pair was confronting a corrective pullback. As for the Bollinger Bands, the pair was stably pricing above the 20-period moving average, meaning the pair was surrounded by strong positive traction. As a result, we think they would move sideways in the near term unless breaking any critical level.

Resistance: 1.2159, 1.2253

Support: 1.1765, 1.1647, 1.1363

XAUUSD (4-Hour Chart)

The XAUUSD continues to move sideways at around the $1750 mark and ended the day with 0.13% losses, snapping a three-day winning streak. The US Dollar attracts some buying amid a modest uptick in the US Treasury bond yields, which, in turn, is seen as a critical factor acting as a headwind for the Dollar-denominated Gold price. Apart from this, a generally positive tone around the equity markets seems to dent demand for safe-haven Gold. However, firming expectations for a less aggressive policy tightening by the Federal Reserve keeps a lid on any meaningful gains for the USD. Apart from this, the worsening COVID-19 situation in China and the imposition of fresh lockdowns might also support the safe-haven XAUUSD. In the absence of any major market-moving economic releases, traders might also refrain from placing aggressive bets around gold prices amid relatively lighter trading volumes on the last day of the week.

From the technical perspective, the four-hour scale RSI indicator remained around 55 figures as of writing, suggesting that the pair are getting into the consolidation phase. As for the Bollinger Bands, the pair was supported by the 20-period moving average and pricing firmly in the upper area. Therefore, we think the yellow metal would hover in a range from 1747 to 1765, if successfully breaking through the $1785 mark, the bull has the chance to challenge the $1800 mark.

Resistance: 1784, 1800

Support: 1748, 1704, 1671

Economic Data