USD Surges on Upbeat Economic Data

6 October 2022, 03:20

Market Focus

U.S. equities retreated over the course of yesterday’s trading. The Dow Jones Industrial Average lost 0.14% to close at 30273.87. The S&P 500 lost 0.2% to close at 3783.28. The Nasdaq composite slipped 0.25% to close at 11148.64.  U.S. ADP nonfarm employment change printed 208K, beating estimates of 185K. The ISM non-manufacturing PMI came in at 56.7, lower than market’s estimate of 56.9. OPEC+ has also announced that it plans to cut oil production by 2 million barrels per day to shore up prices. The weaker-than expected economic data sparked a sharp drop among equities, but it also limited stock losses as market participants are banking on the Fed to slow the pace of tightening. However, reduced oil production by OPEC+ could make reining in inflation a further challenge.

U.S. 10 year Treasury yield climbed back above 3.7% – yields were last seen trading at 3.751%.

Federal Reserve bank of Atlanta president Raphael Bostic said on Wednesday he favoured raising interest rates to 4.5% by the end of the year, implying a further 125 basis points of tightening. Market participants betting on a dovish pivot from the Fed could be disappointed as current interest rates are rather not considered restrictive, yet, by the Fed.

On the economic docket, the ECB is set to announce its monetary policy meeting minutes during today’s European trading session. The U.S. will release initial jobless claims figures during today’s American trading session.

Daily Return vs US Dollar(%)

Main Pairs Movement

The Dollar index surged 1.39% over the course of yesterday’s trading. The greenback gained traction as economic data came in better than expected. ADP nonfarm employment change showed an upside shock to 208K—indicating a robust private sector; meanwhile, the non-manufacturing PMI printed 56.7, lower than market consensus of 56.9. Both economic data supported the Dollar.

EURUSD lost 1.05% over the course of yesterday’s trading as the Dollar surged. The shared currency fared worse against the Dollar as economic data from the U.S. shows a healthier economy than that of the E.U..

Cable lost 1.28% over the course of yesterday’s trading. British PMI came in at 49.1, lower than the market consensus of 49.6.

The Dollar denominated Gold lost 0.58% over the course of yesterday’s trading. The precious metal snapped a 6 day winning streak as the market mood soured. 

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD (4-Hour Chart)

The EUR/USD pair tumbled on Wednesday, coming under renewed selling pressure and dropping to a daily low below the 0.9850 mark as speculations of a Fed pivot towards a dovish stance faded. The pair is now trading at 0.9873, posting a 1.13% loss on a daily basis. EUR/USD stays in the negative territory amid renewed US dollar strength, as the upbeat US economic data revealed during the day has provided support to the greenback and dragged the EUR/USD pair down. The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 208K in September, which came in better than the market expectation of 200K and showed that the US economy stayed resilient amidst an aggressive tightening cycle by the Fed. For the Euro, the shared currency remained under pressure amid discouraging EU data, as the Services PMIs for the EU and the German both dipped into contraction territory.

On the technical side, the RSI indicator is at 52, suggesting that the pair’s outlook is bearish in the near-term as the RSI has retreated sharply from overbought levels. As for the Bollinger Bands, the price witnessed selling pressure and dropped to the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 0.9816 support. The falling RSI also reflects bear signals.

Resistance:  0.9986, 1.0035, 1.0155

Support: 0.9816, 0.9765, 0.9664

GBPUSD (4-Hour Chart)

GBPUSD (4-Hour Chart)

GBPUSD has lost its traction and declined to the level below 1.1300 as of writing after a dramatic rebound since last Tuesday. The souring market mood helps the dollar regather its strength and weighs on the pair ahead of key macroeconomic data releases from the US. The selling pressure surrounding the dollar and the UK government’s decision to step back on massive tax cuts fueled cable’s rally earlier this week. However, the escalating geopolitical tensions drived investors to seek refuge early Wednesday and the US dollar index managed to erase a portion of Tuesday’s losses. Russia’s ambassador to the US said that the danger of a direct clash between Russia and the west had escalated after the White House’s decision to provide additional military aid to Ukraine. Looking to the future, investors need to keep an eye on the ADP Employment Change data, which is a forecast to rebound to 200K in September from 132K in August. Fed policymakers are willing to stay on an aggressive tightening path until they see convincing signs of labour conditions loosening.

For the technical perspective,  RSI is at  50, indicating a sign that the pairs would wander in a range from 1.1200  to 1.1400.  As for the Bollinger Bands, the price suffered heavy selling pressure around the 200-period SMA on the four-hour chart and dropped to the middle area. We think the bearish momentum will extend if it breaks through the 100-period SMA at 1.1200.

Resistance: 1.1400, 1.1720

Support: 1.1090, 1.1200

XAUUSD (4-Hour Chart)

XAUUSD (4-Hour Chart)

XAUUSD plunged on Wednesday, falling to $1707 following six consecutive days of growth. At the moment of writing, gold has tumbled with 1.08% losses for the day, as the US dollar is seeing a sweeping demand amid a risk-off market profile. Hopes for aggressive Fed rate are back on the table after the hawkish RBNZ 50 bps rate increase, fuelling a fresh upswing in the US Treasury yields across the curve, which weighed on the non-yielding gold. Apart from that, escalating geopolitical tensions between Russia and the West are doing little to offer any respite to XAU bulls, as risk-off flows and the dollar demand dominate across the financial market. Investors now await the top-tier US economic releases and Fedspeak for fresh hints on the next Fed rate policy decision.

From the technical perspective,  the RSI is below, implying bullish momentum turned weak to a consolidation phase. As for the bearish 50-Daily Moving Average (DMA) at $1724 has tempered the gold price rally. A sustained break above the 50 DMA is needed to challenge the September hihg at $1735, above which the $1750 psychological level will come into play. On the other side, the previous critical resistance now at $1700 could offer temporary reprieve to buyers, below which the previous day’s low of $1695 could be revisited.

Resistance: 1725, 1735, 1750

Support: 1661, 1694, 1700