Daily market analysis

August 30, 2021

Daily Market Analysis

Market Focus

U.S. equities gained to record highs as investors took assurance from comments by Jerome Powell that the withdrawal of stimulus would be gradual.

The S&P 500 and Nasdaq 100 rose during the Federal Reserve chairman’s much-anticipated address from Jackson Hole, where he reinforced the message that it would be appropriate to begin tapering bond purchases by the end of the year. Treasury yields and the dollar fell. Gold gained.

Powell said the economy has now met the test of “substantial further progress” toward the Fed’s inflation objective while the labor market has also made “clear progress.” The remarks come as the latest reading of a closely watched measure of inflation remained elevated, highlighting the case for starting policy normalization despite the threat of the delta virus variant on the economic recovery.

During the speech, Powell also drew a line between asset purchases and interest rates, saying the Fed wouldn’t be in a hurry to begin increasing rates after it begins tapering its $120-billion-a-month bond-buying program.

The Stoxx Europe 600 index gained on track for the seventh straight month of gains, the longest streak in eight years. Stocks climbed in China, where the central bank signaled targeted steps to cushion the economy. West Texas Intermediate crude headed toward its best week since June 2020. Bitcoin rose to $48,000.

Main Pairs Movement:

The US dollar tumbled on Friday, as bear took over after Fed Chair Jerome Powell’s dovish speech at the Jackson Hole Symposium. The DXY index is at 92.652 as of writing, losing 0.42% on a daily basis. Powell mentioned that employment in US has been improving since July, but he also worried about the spread of the Delta variant which might influence labor conditions. Furthermore, he said that current inflation is a concern but likely to be temporary. More significantly, timing and pace of taper should not be taken as a direct signal regarding the timing of interest rate liftoff. Conclusively, the Fed could start bond tapering later this year, offering no specific timeline.

GBP/USD and EUR/USD both advanced on Friday amid weaker US dollar across the board, trading at 1.3766 and 1.1792, respectively. GBP/USD recorded a weekly high after Powell’s speech, climbing above the 1.3780 level for a time. But then retreated modestly back, posting a 0.48% gain on the day. EUR/USD also reached the highest level since August 16 with a 0.37% gain on a daily basis.

USD/JPY slipped on Friday amid US dollar’s weakness, dropping to a two-day low during American session. The pair is losing 0.22% on the day as of writing. AUD/USD rebounded strongly, surging 1.02% on a daily basis.

Gold prices rose more than $20 from the daily low, as the precious metal find demand after Powell’s dovish tone in his speech. Gold is trading at 1817.65 with a 1.40% gain on the day at the time of writing. WTI Crude Oil, in a similar way, climbed more than 1.43% on Friday.

Technical Analysis:

EURUSD (4-hour Chart)

The EUR/USD pair slipped under 1.1740 level at first, then took a strong rebound during American session. The pair is now trading at 1.1791 at the time of writing and posted a 0.34% gain on a daily basis. The bullish momentum witnessed in EUR/USD is result from US dollar’s weakness across the board, as the greenback dived right after Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. For technical aspect, RSI indicator 64 figures as of writing, suggesting bull-movement ahead. If we take a look at MACD indicator, a golden cross indicates that the trend is reversing and market will be bullish.

In conclusion, we think market will be bullish as the pair is now testing the 1.1805 resistance line. A break above that level will open the door for additional near-term profits. And the next resistance is at 1.1857. On top of that, the Bollinger Bands shows that the price moves out of the upper band, which means a strong upward trend continuation can be expected.

Resistance: 1.1805, 1.1857

Support: 1.1726, 1.1692, 1.1664

USDCAD (4- Hour Chart)

The USD/CAD pair plunged on US dollar’s weakness after Powell’s speech, although the pair was trading higher in early trade on Friday. The pair is losing 0.59% on the day, trading around 1.2614 at the time of writing. The Canadian dollar is supported by the outstanding performance of Crude oil, plus the heavy selling pressure on the US dollar. For technical aspect, RSI indicator 42 figures as of writing, suggesting tepid bear-movement ahead. For Bollinger Bands, the price is falling from the upper band and crossing below the moving average, which also indicates a selling signal and the lower band becomes the loss target.

In conclusion, we think market will be bearish as the pair failed to break the 1.2708 resistance, now heading to test the 1.2579 support. Further losses can be expected if price dig under that level. In addition to that, WTI crude oil perserves its bullish momentum that started from August 23, as the approval of a Covid-19 vaccine in the US and a production outage in Mexico both taken as positive for oil prices. Therefore, the forecast of the commodity-linked loonie is possibly bullish.

Resistance: 1.2708, 1.2834

Support: 1.2579, 1.2528, 1.2453

XAUUSD (4- Hour Chart)

The XAU/USD pair was trading higher in early trade on Friday and reinforced its bullish momentum to gain further profits during American session. The pair is now trading at 1815.55 as of writing with a remarkable 1.30% gain on the day. Gold was lifted up by the fact that the greenback tumbled for 0.40% after Powell’s dovish speech. For technical aspect, RSI indicator 70 figures as of writing, suggesting that the market is in overbought zone now, and the buying pressure is relatively high. Investors should pay attention to selling signals.

In conclusion, we think market will be moderately bearish as long as the 1819.56 resistance line holds. Meanwhile, the Bollinger Bands shows that the price moves out of the bands first, and now seems to move back inside the band, which is considered as a selling signal. Gold prices reached a fresh three-week high, so a short-term correction could be possible in next trading week..

Resistance: 1819.56, 1831.78

Support: 1780.09, 1744.03, 1717.81, 1690.61

Economic Data