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MARKETS TODAY: Cable tests resistance, stock market rebound

May 10, 2024

Key points

  • EUR/USD tests resistance at 1.0790 with potential to reach 1.0810 or 1.0865.
  • Stock market rebound led by Utilities and Consumer Staples, showing strong gains post-April.

After a rebound from the support level of 1.0725, the EUR/USD pair is now challenging resistance around 1.0790, where the 50-day and 200-day Simple Moving Averages (SMAs) meet.

Candle chart of Cable, or EURUSD, testing resistance at 1.07780 on the VT Markets trading app

SEE: The Cable tests resistance on the VT Markets trading app.

This could extend to trendline resistance at 1.0810 and approach a significant Fibonacci level at 1.0865 if the upward momentum is sustained. Conversely, a reversal in price could see support retested at 1.0725, and failing that, a drop towards 1.0695 and potentially April’s lows around 1.0600.

Moving on to the Ninja, USDJPY has stabilised above 155.00 following a robust rally. Looking forward, resistance lies at 158.00 and 160.00. If the price pulls back, support might be found at 154.65 with further possible declines to 153.15 and a critical zone between 152.30 and 152.00.

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Next, following the Bank of England meeting, the Cable experienced volatility, with the GBP/USD pair dropping then climbing to beyond the 1.2500 level. It now faces resistance near 1.2540, adjacent to the 200-day SMA, with potential to push into the 1.2600-1.2620 area.

Downside risks persist, with initial support at 1.2500 and further at 1.2430. A failure to maintain these levels could see a descent towards the April low of approximately 1.2300.

Stock market insights for May

After entering March at a significant valuation discount not seen since 2009, the Utilities Sector (XLU) saw a 26.7% increase in earnings this quarter, which has led to increased interest. The decrease in Treasury yields has likely amplified this interest, contributing to the sector’s impressive performance.

Despite underperforming the S&P 500 by almost 30% over the past year, the Consumer Staples Sector (XLP) sector has emerged as a viable buying opportunity due to its defensive nature.

This has been particularly relevant in the recent economic climate, characterised by a weaker jobs report and manufacturing contraction in April.

Keith Lerner, Truist co-chief investment officer, notes that the strong performance of both the Utilities and Consumer Staples sectors can be attributed to a strategic rotation by investors into areas that had previously lagged amid recent market rallies.

He also highlighted the cautious market sentiment, which favors more defensive investment positions in light of broader market fluctuations.

Economic drivers

As a whole, the economic landscape has shown signs of slowing down, as evidenced by a subdued jobs report and a contraction in the manufacturing sector this April.

Despite these challenges, there is growing optimism about potential increases in demand within the Utilities sector, spurred by expanding interest in artificial intelligence and electric vehicles.

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