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The reversal of Treasury yield push the US dollar index above the level of 95, which is a new high since July 2020

Market Focus

After closing down 0.3% to 0.7% last week, the three major US stock indices opened higher this week. As optimistic Chinese economic data eased concerns about the slowdown in the world’s second-largest economy, world stock markets continue in the green after recent record highs.

Five minutes after the markets opened, the three indexes opened higher. The Dow Jones Industrial Average rose by 0.32%, the S&P500 Index rose by 0.23%, and the Nasdaq index rose by 0.26%. However, as US Treasury yields reversed and climbed, these three indices became weaker. In the end, the S&P 500 Index closed flat at 0.0%, the Dow Jones Industrial Average fell 0.04%, and the Nasdaq Index fell 0.07%.

Utilities, energy and consumer staples — the defensive sectors of the market — led the gains, indicating that investor sentiment remains unstable. In the utility index, Entergy Corp outperformed the market on a strong trading day, rising 3.39% to $105.04. Tyson Foods has become the largest increase in consumer staples after announcing that its fourth-quarter earnings and profits have exceeded expectations. Kinder Morgan, Phillips 66 and Chevron led gains in the energy sector, thanks to UBS’s upgrade to a neutral buy rating based on higher oil price expectations. On the other hand, the rise in U.S. Treasury yields is reflected in Tesla, dragging down consumer discretionary stocks. The company’s stock price fell 1.9% and have continued to fall since last week when CEO Elon Musk sold Tesla stock worth nearly $7 billion.

Main Pairs Movement

After the optimistic Chinese data, market sentiment was positive at the opening of the market, but subsided after the opening of Wall Street. U.S. Treasury yields rose without a clear catalyst. The reversal of Treasury yield gave the Greenback strong momentum, pushing the US dollar index above the level of 95, which is a new high since July 2020. As the US dollar climbed, the euro performed the worst, falling to a new low of 1.1381 against the dollar in 2021. On the other hand, as inflation hits a new high in the United States, the price of gold has climbed to its highest level in nearly three months. After breaking through the pivot resistance level of $1,834, gold has set a five-month high of $1,870. The next important resistance level is at $1,878, then $1,900.

On Tuesday, the Bank of Australia will release its latest meeting minutes, while the US will release October retail sales data. In addition, the UK will release employment data for October. 

Technical Analysis

GBPUSD (4- Hour Chart)

Following last Friday’s recovery move from yearly lows, GBP/USD continued to rebound on Monday. The pair dropped to a daily low in the early European session, but then started to see some fresh buying and climbed above the 1.342 level amid the US dollar’s weakness. Cable stayed in positive territory while rising 0.09% on a daily basis. The downbeat US consumer sentiment data and risk-on market sentiment have undermined the safe-haven Greenback and pushed the GBP/USD pair higher. However, concerns that the UK will trigger Article 16 of the Northern Ireland Protocol might cap the upside for the pair. The good news is, UK Prime Minister’s spokesman said their aim to reach a consensual solution on to the protocol remains.

On the technical side, the RSI indicator is at 46 as of writing, suggesting tepid bear movement ahead. However, the MACD is now sitting above the signal line, which also indicates a possible upward trend for the pair. Looking at the Bollinger Bands, the price rose from the lower band and crossed above the moving average, a bull market could be expected. In conclusion, we think the market will be bullish as long as the 1.3353 support line holds, which is a yearly low that touched last week.

Resistance: 1.3607, 1.3698, 1.3834

Support: 1.3353

USDJPY (4- Hour Chart)

USD/JPY stayed in positive territory on the first day of a new trading week, trading in a range below the 114.00 level. The pair took a roller coaster ride most of the day without a specific direction, currently rising 0.20% daily. The risk-on sentiment around the equity markets and resurging US dollar strength both extended some support to the USD/JPY pair. Furthermore, the downbeat Japan Q3 GDP report showed that the economy contracted more than expected by 0.8%, undermining the safe-haven Japanese Yen. The dovish comments by the Bank of Japan Governor also kept a lid on any meaningful gains for the Yen.

On the technical side, the RSI reads 58 as of writing, suggesting tepid bull movement ahead. On the other hand, the MACD is now sitting below the signal line, which indicates a possible downward trend for the pair. In conclusion, we think the market will be bullish as the pair is heading to re-test the 114.3 resistance. If the pair break above that resistance line, a test of the monthly high at 114.70 seems likely.

Resistance: 114.30, 114.70

Support: 113.26, 112.73

AUDUSD (4- Hour Chart)

AUD/USD advanced on Monday, gaining some bullish momentum for the second day amid the underlying bullish sentiment in the financial markets. The pair touched a three-day top near the 0.737 level in the mid-European session and has now retreated slightly and pared some of its intraday gains. The recent buying witnessed in AUD/USD pair is mainly due to stronger Chinese macro data today. The Chinese Industrial Production rose 3.5% in October, while Retail Sales rose 4.9%, both above economists’ forecasts. In addition to that, the risk-on market mood also acted as a tailwind for the riskier Aussie. Investors now await the RBA meeting minutes and RBA Governor’s speech tomorrow for trading impetus.

For the technical aspect, the RSI indicator is at 57, suggesting bull movement ahead. For the MACD indicator, the positive histogram shows a big distance between the MACD and its signal line, which means bullish momentum is high. As for the Bollinger Bands, the price has crossed above the moving average and is ready to touch the upper band, which could be a buying signal for the pair. In conclusion, we think the market will be bullish as the pair is eyeing a test of the 0.7432 resistance.

Resistance: 0.7432, 0.7471, 0.7556

Support: 0.7277, 0.7227, 0.7170

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