U.S. equities continued to edge lower on Friday, as market participants continue to pull back from the technology sector. The Dow Jones Industrial Average retreated 0.1% to close at 36231.66, the S&P 500 lost 0.41% to close at 4677.03, and the Nasdaq composite slid 0.96% to close at 14935.9. All three major U.S. equity indices closed lower on the first week of 2022, in part, due to the recent release of the FOMC minutes and a continued hawkish Fed, which is expected to raise interest rates no later than the end of Q1 of 2022. The 10-year Treasury yield has risen to 1.767%, while the 30-year Treasury yield edged above 2.11%.
The energy index gained the most over Friday’s trading, while the consumer discretionary index suffered losses. The service and entertainment industry enjoyed gains over Friday, as stocks such as Norwegian Cruise Lines and Carnival Corporation both enjoyed more than a 3% boost in share price. Over the course of last year’s trading, growth and technology stocks have been in favour. However, with monetary tightening just over the horizon, market participants are beginning to shift into cyclical stocks over growth stocks as they anticipate stronger and more stable growth under the tightening environment.
Disappointing Nonfarm Payroll data from the U.S. dragged the Greenback lower against other currencies on Friday, but the dollar remains relatively strong as the DXY was able to maintain some of its weekly gains. This week’s important events on the economic docket include Fed chair Jerome Powell’s statement on Tuesday, U.S. CPI data on Wednesday, and U.S. initial jobless claims on Thursday.
Natural gas remains depressed around the $4 per MMbtu level and is trading sideways between the $3 price level and $4 price level.
The Euro gained an impressive 0.58% over the Greenback on Friday, as the dollar weakened across the board. The Euro finally snapped a four-day losing streak, but bearish sentiment remains strong around the Euro.
Gold rebounded slightly against the Dollar on Friday, however, rising bond yields and the Fed’s imminent rate hike will continue to pressure the precious metal.
Natural Gas (Daily Chart)
In light of preliminary readings from CME Group for natural gas futures markets, traders scaled back their open interest positions by around 1.3K contracts on Thursday, reversing three consecutive daily pullbacks. Meanwhile, volume shrank for the second day in a row, now by 2.7K contracts. The shrinkage on liquidity may be due to the fact that prices of natural gas again approaching the $4.00 per MMBtu mark, where the symbol was capped several times in the past weeks, and investors have no confidence that it will get through that resistance level without new catalysts.
On the technical front, natural gas prices have consolidated between the two key points of $3.55 and $4.0 since its last dip in Nov. 2021. The price action is now below its 50 and 200 DMA, and slightly above the 20 one. The RSI reads 477.43, still slightly below the average line but is improving, showing a potential upside advance. The recovery of the spot gas price will be more convincing if it closes above the $4.0 threshold for a decent number of days.
Resistance: 4.0, 4.2, 4.8
Support: 3.66, 3.55, 3.35
EURUSD (Daily Chart)
The EURUSD pair traded 0.5% higher during the US session on Friday as investors sold the dollar after the recent labour market updates. The Bureau of Labor Statistics reported that in December, 199,000 jobs were added, a huge miss to expectations of 400,000 and the lowest number since December 2020. The November payrolls data was revised higher, rising 39,000 from 210,000 to 249,000. Still, the unemployment rate improved markedly, falling to 3.9% from 4.2% and below the estimate of 4.1%, which should still be enough for the Fed to hike rates in March.
On the technical front, the Euro pair has regained its 20 DMA in today’s trades, and is just one step behind the 50 DMA. The RSI indicator jumped above the average line, showing neutral-to-bullish market sentiment. As previously mentioned, the pair must breach the key 1.1400 resistance to prove a convincing comeback. On the flip side, a slide below the 1.1200 support may indicate a continuation of the bearish trendline.
Resistance: 1.1400, 1.1620, 1.1700
Support: 1.1200, 1.1000, 1.0780
XAUUSD (Daily Chart)
Spot gold fell sharply on surging US Treasury bond yields on Thursday and struggled to stage a convincing rebound amid the disappointing Nonfarm Payrolls data on Friday. The pair is now trading at $1,796 per troy ounce, slightly higher than its open price. However, the selling pressure for the yellow metal is still strong, as the overall job data were not too bad, meaning the potential for a rate hike in March remains high, thus the US yields are expected to keep going up.
As to technical, the pair is hovering around moving averages, taking efforts to regain $1,800 before the end of the day. The short-term risk-off boost for the pair seems to lack energy, as the upside pressures are getting stronger and stronger as the pair approaches the resistance level. A bounce back above $1,800 before the end of the day would suggest more gains ahead for the XAU/USD pair. Conversely, if the pair fails to climb above $1,800, then a short-term support will appear at $1,785 and the next support level will be at $1,765 once it plummets further.
Resistance: 1800, 1830, 1860
Support: 1785, 1765, 1720