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GDP expanded more than expected, signalling decreasing inflation

October 28, 2022

U.S. equities were mixed throughout yesterday’s trading. The Dow Jones Industrial Average gained 0.61% to close at 32033.28. The S&P 500 lost 0.61% to close at 3807.3. The tech-heavy Nasdaq Composite plunged 1.63% to close at 10792.68. The Dow Jones Industrial Average was able to close higher on Thursday after new data showed third quarter GDP grew faster than expected and hinted at waning inflation, encouraging some dip buying. Better-than-expected corporate earnings from McDonald’s and Honeywell led the Dow higher. The technology sector continues to take show signs of weakness as Amazon reported Q3 earnings, which came in below consensus estimates; furthermore, Amazon has lowered its Q4 forward guidance to a forecasted 2% growth instead of the 8%, projected during the earlier part of the year.

Apple delivered fiscal 2022 fourth-quarter earnings on Thursday as well. The tech giant delivered an earnings beat. Q4 EPS came in at $1.29, compared to the$1.27 analyst estimate. Revenue for Q4 was up 8.1%, year over year. Despite delivering a surprising earnings beat, Apple did not guide on its first fiscal quarter, which ends in December and contains Apple’s biggest sales season of the year. Apple’s CEO, Tim Cook, has also cited the volatile foreign exchange market, which saw the Dollar soaring against all currencies, as a headwind that significantly reduced Apple’s Q4 performance.

The benchmark 10-year treasury yield has continued to retreat below 4%. The index was last seen trading at 3.922%.

U.S. GDP(QoQ) of Q3, 2022 will be announced on Thursday, Oct 27, given the persistently challenging environment, with historically high energy costs and rapidly rising interest rates, as the very high inflation, especially in food and household costs, we have less optimistic about GDP forecast.

Main Pairs Movement

The Dollar index rose 0.06% throughout yesterday’s trading. The better-than-expected U.S. Q3 GDP provided a boost to the U.S. Greenback. However, the initial jobless claims figures, which came in below market consensus at 217K, countered some of the gains as market participants interpreted the figure as a sign of a slowdown in the economy.

EURUSD lost 1.15% throughout yesterday’s trading. The ECB announced a 75 basis point interest rate hike on all three of its leading rates, but the accompanying economic outlook, provided by the ECB, weighed on the Euro.

GBPUSD lost 0.48% throughout yesterday’s trading. Higher demand for the Dollar worked against the Pound. Cable was last seen trading just below the 1.16 level.

Gold dropped 0.11% throughout yesterday’s trading. The non-yielding metal fared worse against the rising Dollar as short-term interest rate expectations continue to rise.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD gathered extra downside traction below parity in the early US trading session after having reached its highest level since mid-September at around 1.0100 during the Asian trading hours.  The selling bias in the single currency grabbed extra impulse and forced EURUSD to break below the key parity level on Thursday. Apart from that, European Central Bank (ECB) walked the talk and hiked rates by 75 bps at its event on Thursday, as widely anticipated.  The ECB reiterated that it intends to keep raising rates to endure inflation returns to the bank’s 2% target, and added that it will reinvest principal payments from maturing securities at least until the end of 2024. In the meantime, price action around the European currency is expected to closely follow dollar dynamics and the Fed-ECB divergence. However, the resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter.

From the technical perspective, the four-hour scale RSI indicator fell back from above 70 levels and 55 as of writing, suggesting the pair confronted some selling pressure. As for the Bollinger Bands, EURUSD dropped from the upper band to near the 20-period moving average level, signalling the pair was dragged lower by a heavy downside traction

Resistance:  1.0098, 1.0191

Support: 0.9753, 0.9667, 0.9549

GBPUSD (4-Hour Chart)

The GBP/USD pair has reversed its direction and edged lower below 1.1600 in the US trading session as investors adopted a cautious stance, the greenback stays resilient against its rivals as a safe haven and causing the pair to stay on the back foot. The US dollar makes a solid comeback and rebounds swiftly from over a one-month low touched earlier this Thursday, which exerts some downward pressure on the pounds. The critical factors helping revive demand for the USD are a goodish pickup in the US Treasury bond yields and better-than-expected US GDP reports. The US Bureau of Economic Analysis reported that the world’s largest economy grew by 2.6% annualized pace during the third quarter, beating estimates pointing to a reading of 2.4%. In addition, the US weekly Jobless Claims rose from 214K to 217K during the week ended October 21, though was better than market expectations for 220K. In the domestic, the optimism over the appointment of the new UK Prime Minister Rishi Sunak acts as a tailwind for the British pound.

From the technical perspective, the four-hour scale RSI indicator fell from 70 to 63 on Thursday, suggesting the short-term correction might have begun or the cable price would get into the consolidation phase. As for the Bollinger Bands, the GBPUSD wandered in a small range from 1.1550 to 1.1655 after falling back from the upper band, signalling the pair now had no clear direction. Therefore, we think the pounds need to break through the 1.1655 resistance and persist in the rallied traction, or a strong follow-through selling could be expected.

Resistance: 1.1714, 1.1853

Support: 1.1439, 1.1276, 1.1131

XAUUSD (4-Hour Chart)

The XAUUSD fluctuate in a relatively tight range at around the $1660 mark in the second half of the day on Thursday, as the US dollar gains positive traction despite falling US Treasury yields. Gold was priced at$1,661 marks as of writing. The DXY index rebounded from its lowest level since September 20, which acts as a headwind for the dollar-denominated metal.  On the data side, the release of the US Advance Q3 GDP, which exceeds estimates, with the economy growing by 2.6%, above 2.4% estimates, entering into positive territory, following Q1 and Q2 contractions. The readings capped the upside room for the yellow metal and might comfort Fed officials, which forced investors to trim their bets for less aggressive rate hikes.  In the Eurozone, the European Central Bank (ECB) added another 75 bps rate hike to the deposit rate, which stands at 1.50%. The ECB president, Christine Lagarde, commented that the central bank would be data-dependent and take policy decisions “meeting by meeting”, which bolstered the US dollar.

From the technical perspective, the RSI indicator fell from nearly 70 to 53 as of writing, suggesting the gold was surrounded by negative traction. As for the Bollinger bands, the yellow metal was supported by a 20-period moving average and the gap between the upper and lower bands get closer, implying the XAUUSD’s bearish momentum would persist if drop below \$1640 support or would put into a sideway in the near-term.

Resistance: 1675, 1700, 1726

Support: 1642, 1616, 1600

Economic Data