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Markets see mild rally for the first trading day of May

Market Focus

Markets experienced a mild rally for the first trading day of May. The Dow Jones Industrial Average rose 0.26% to close at 33061.5, the S&P 500 climbed 0.57% to close at 4155.38, and the Nasdaq Composite rallied 1.63% to close at 12536.02. The technology  and telecommunications sectors led the way for Nasdaq’s rebound. However, with the Federal Reserve’s interest rate decision scheduled on Thursday, market participants should expect further downside in the near term as markets continue to price in the more-than-likely 50 basis point interest rate increase. 

Earnings season continues this week with companies such as Pfizer Inc, Advanced Micro Devices Inc, BP PLC, and Airbnb Inc, all scheduled to release earnings on the 3rd. So far, the FAANG stocks have failed to deliver on earnings estimates, with Netflix and Amazon both missing analyst estimates. Growth concerns globally, have caused hesitation with market participants from “buying the dip”, thus causing a prolonged period of drops in the major indices across the globe.

Main Pairs Movement:

The benchmark U.S. 10 year treasury yield touched 3% over the course of yesterday’s trading. Currently, the benchmark yield has settled around the 2.987% region. Market participants have gradually priced in the 50 basis point interest rate hike by the Fed, evident from the continued rise of the Dollar index.

EURUSD fell 0.36% over the course of yesterday’s trading to close at 1.05036. The shared currency continues to be surrounded by concerns over the ongoing war between Ukraine and Russia, and the concerns over the economic outlook of the European Union.

The Sterling dropped 0.62% against the Dollar over the course of yesterday’s trading. GBPUSD closed at 1.24901 and was still able to preserve some of the gains from last Friday. Higher demand for the Dollar in the near term will continue to put Cable under selling pressure.

USDCAD rose 0.14% over the course of yesterday’s trading. Commodity linked currencies, such as the Canadian Dollar, suffered as global commodities cooled off. Furthermore, strong Greenback demand helped buoy the USDCAD pair.

Technical Analysis:

EURUSD (4-Hour Chart)

The EUR/USD pair edged lower on Monday, remaining under bearish pressure below the 1.056 level despite disappointing US economic data. The pair witnessed a goodish rebound to touch a daily high in the early European session, but then failed to preserve its upside momentum and dropped towards the 1.050 area. The pair is now trading at 1.0521, posting a 0.19% loss on a daily basis. EUR/USD stayed in the negative territory amid slightly higher US dollar strength, as the rising US bond yields and expectations for a 50 bps rate hike by the Fed both lent some support to the greenback. However, the US ISM Manufacturing PMI in April has fallen to 55.4, which is weaker than the market’s expectations. For the euro, European Central Bank vice-president Luis de Guindos said that a rate hike in July is possible but unlikely, but the comment failed to push the pair higher.

On the technical side, the RSI indicator is at 40, suggesting that the downside is more favored as the RSI stays below the midline. As for the Bollinger Bands, the price failed to cross above the moving average, which shows that downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.048 support, which is the 5-year low for the EUR/USD pair. A break below that support might open the road for additional losses.

Resistance:  1.0730, 1.0925, 1.1174

Support: 1.0485

GBPUSD (4-Hour Chart)

GBP/USD declined on Monday, extending its slide towards the 1.250 area that started last Friday amid growing concerns about the UK economy. The pair was surrounded by bearish pressure for most of the day despite trying to rebound in the early European session. It then started to see heavy selling heading into the American session. At the time of writing, Cable continues in negative territory with a 0.50% loss for the day. Rising US bond yields continue to help the dollar find demand as the weaker-than-expected ISM Manufacturing PMI figures failed to act as a tailwind for Cable. Meanwhile the less hawkish BoE (compared to the Fed) has undermined Cable, as the markets expect the BoE to only hike interest rates by 25 bps. This is because growing concerns about the UK economy might have made the BoE further soften its tone on the need for further rate hikes.

On the technical side, the RSI is at 38 as of writing, suggesting that the downside is more favored as the RSI stays below the midline. For the Bollinger Bands, the price fell from the upper band and crossed below the moving average, indicating a continuation of the downside trend. In conclusion, we think the market will be bearish as long as the 1.2585 resistance line holds. The falling RSI also reflects bear signals as the market’s focus has now shifted to the key policy announcements from the Fed and BoE on Wednesday and Thursday respectively.

Resistance: 1.2585, 1.2761, 1.3071

Support: 1.2430

USDCAD (4-Hour Chart)

As the risk-off mood lent some support to the safe-haven US dollar today, USD/CAD gained upside traction and extended its rally to a 2022 top. The pair was flirting around the 1.284 to 1.288 area most of the day, then touched a daily high above the 1.2900 mark in the early American session. USD/CAD is trading at 1.2892 at the time of writing, rising 0.27% on a daily basis. The concerns about China’s Covid-19 spread has weighed on market sentiment and pushed the greenback higher, as Shanghai reported 58 new cases and restrictions threaten to be imposed once again. On top of that, retreating crude oil prices also undermined the commodity-linked Loonie and acted as a tailwind for the USD/CAD pair. WTI now hovers around the $104.00 per barrel area. Meanwhile the oil demand in China is expected to decrease after weak economic data.

On the technical side, the RSI is at 62 as of writing, suggesting that upside is more favored as the RSI stays above the midline. As for the Bollinger Bands, the price rose from the lower band and crossed above the MA line. Therefore, the upper band has become the profit target. In conclusion, we think the market will be bullish as the pair is testing the 1.2882 resistance, a sustained strength above that level should favor the bulls.

Resistance: 1.2882, 1.2940

Support: 1.2721, 1.2665, 1.2541

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