US stock market futures for the S&P 500, Nasdaq-100, and Dow Jones Industrial Average have all seen gains, with attention turning to a week of quarterly earnings reports, particularly in the financial sector, where there is increased focus on the health of the sector after the collapse of Silicon Valley Bank. Notable names reporting this week include Charles Schwab, Bank of America, Morgan Stanley, Tesla, and Procter & Gamble. Corporate earnings got off to a positive start, with Wells Fargo and JPMorgan Chase beating expectations, but retail sales data showing a slowdown in consumer spending pulled markets lower on Friday.
US Treasury Secretary, Janet Yellen, believes that banks may become more restrictive with lending, which could allow the Federal Reserve to stop hiking interest rates. Yellen also stated that this tightening of lending could act as a substitute for further interest rate hikes. This follows the collapse of Silicon Valley Bank and the potential fallout from the episode. Despite Friday’s losses, the major averages posted solid weekly gains, in yet another sign of resiliency for this market.
On Friday, the overall stock market fell by 0.21%. The financial sector saw an increase of 1.05%, while the communication services and energy sectors saw small gains of 0.31% and 0.19%, respectively. The utilities and real estate sectors saw the largest drops of 1.11% and 1.68%, while the healthcare and materials sectors saw declines of 0.79% and 0.67%, respectively. The consumer staples and information technology sectors also saw losses of 0.58% and 0.51%, respectively, while the consumer discretionary and industrial sectors saw slight gains of 0.13% and -0.12%, respectively.
Major Pair Movement
On Friday, the dollar index increased by 0.6% due to above-forecast April Michigan consumer sentiment and 1-year inflation expectations, despite a 1% U.S. retail sales fall being dismissed by the Fed. This was accompanied by a rise in Treasury yields and increased rate-hike potential, indicating the market’s preparedness for a lower-than-expected retail sales result.
EUR/USD fell by 0.46% after reaching a new 1-year high at 1.10755 on EBS, as a result of the diminished Fed rate cut bets and the rise in 2-year Treasury yields, while USD/JPY surged by 0.88% breaching the mid-point of the March banking crisis slide at 133.77.
GBP/USD also experienced a decline in value by 0.84%. This was due to falling gilt-Treasury yield spreads and a delayed risk-off response to higher Treasury yields. As a result, prices fell from a minor new 10-month high to an uptrend line from late March, which caught last week’s lows.
Technical Analysis
EUR/USD (4 Hours)
The EUR/USD pair is facing difficulties in extending its recovery above the psychological resistance level of 1.1000, as investors remain cautious about the possibility of one more rate hike by the Federal Reserve (Fed). The monthly Retail Sales data released on Friday showed a contraction of 1.0%, higher than the expectations of a 0.4% decline. This, along with the hawkish commentary from Fed Governor Christopher Waller, has increased the odds of further policy tightening by the Fed, which led to a recovery in the US Dollar Index (DXY). Mixed views from ECB policymakers have also shifted investors to the sidelines, with Pierre Wunsch suggesting a rate hike of between 25 and 50 basis points in May, while Mario Centeno advocated a pause or a slowing in the interest rate hike spell.
Looking at the technical analysis, the EUR/USD price fell lower on Friday due to the positive impact of good retail sales data in the US. The price is currently pushing below the middle Bollinger band, targeting the lower band with a narrower band. Our support level now stands at 1.0962, and we anticipate the market to be in consolidation with the potential for a move higher. The RSI has moved back lower to the middle around the 50 levels, indicating that the market is taking a breather for the day.
Resistance: 1.1026, 1.1052
Support: 1.0962, 1.0921
XAU/USD (4 Hours)
The price of gold has reached a one-year high and is currently around $2,040. This is due in part to the weakening of the US dollar, as investors anticipate that the Federal Reserve will pause its rate-hiking cycle. Recent data, including the US Producer Price Index and Jobless Claims, suggest that inflation is easing and labor market conditions are loosening up, which further supports the view that the Fed will pause after hiking interest rates one last time in May. The IMF has also trimmed its global growth outlook for 2023, citing the impact of higher interest rates, which fuels recession fears and leads investors to favor safe-haven assets such as gold. However, traders are waiting for the release of US macro data, including monthly Retail Sales figures and the Preliminary Michigan Consumer Sentiment Index, before making any major moves.
Looking at the technical analysis, the XAU/USD price fell below the $2,000 level but has since rebounded. The price is now approaching the lower Bollinger band, and the bands are moving sideways. We have revised our key support level to $1,990 and our resistance level to $2,005. The RSI is hovering around the 42 levels, indicating the possibility of further downward pressure.
Resistance: $2,005, $2,017
Support: $1,990, $1,982
Economic Data
| Currency | Data | Time (GMT + 8) | Forecast |
| USD | NY Empire State Manufacturing Index | 20:30 | -17.7 |
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