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Multiple Baltic Sea gas pipeline leaks raise concerns

September 28, 2022

In the Eurozone, multiple leaks in Russia’s gas pipeline in the Baltic Sea raise concerns about the escalating energy conflict between Europe and Russia, which pushed European natural gas prices higher and exerted bearish pressure on investors’ moods.

US stocks declined on Tuesday, dropping for the sixth session and ending a volatile session lower as the fears of a worldwide recession keep leading the market sentiment.

The safe-haven US dollar continued to find demand after the Fed delivered a third jumbo hike and warned of more pain to come, meanwhile Federal Reserve’s James Bullard also added to a chorus of officials saying more rate hikes are needed and the risks to the economy remain elevated. Some US Federal Reserve officials tried to pour cold water into the dollar’s recent strength but failed despite Fed’s Charles Evans saying he was getting concerned about going too far, too fast with rate hikes.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Tuesday as the harsh central bank tightening programs sparked the S&P 500’s longest losing streak since February 2020. The S&P 500 was down 0.2% on a daily basis and the Dow Jones Industrial Average also dropped lower with a 0.4% loss for the day. Seven out of eleven sectors in the S&P 500 stayed in negative territory as the Consumer Staples sector and the Utility sector are the worst performing among all groups, losing 1.76% and 1.70%, respectively. The Nasdaq 100 meanwhile advanced slightly with a 0.2% gain on Tuesday and the MSCI World index was down 1.3% for the day.

Main Pairs Movement

The US dollar climbed higher on Tuesday, extending its previous rally and touched a daily high above the 114.40 mark during the US session amid the risk-off market sentiment. On top of that, the firmer US Durable Goods Orders and CB Consumer Confidence data also acted as a tailwind for the safe-haven greenback, as the US Durable Goods Orders declined by only 0.2% in August and US CB Consumer Confidence also improved to 108.00 for September.

GBP/USD rebounded slightly on Tuesday with a 0.43% gain after the cable recovered towards the 1.080 level amid the overnight special statement from the Bank of England. On the UK front, the BoE added that it is monitoring developments in financial markets very closely. Meanwhile, EUR/USD remained under pressure and finished the day right below the 0.9600 mark amid a risk-off market mood. The pair was down almost 0.15% for the day.

Gold rebounded with a 0.40% gain for the day after climbing to a daily top above the $1,640 mark during the European session, as some profit-taking witnessed in the US dollar earlier in the day has provided support to the safe-haven metal. Meanwhile, WTI Oil advanced higher with a 1.94% gain for the day after recovering towards the $79 area despite hawkish rhetoric from Fed officials.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD continued to fall for the second straight day despite efforts to recover above 0.96. The energy crisis continues to trouble the European economy; furthermore, with Russia expanding its aggression by the day, the spillover effect of the Russian-Ukrainian war will quickly take a toll on the whole European economy. On Wednesday, ECB President Christine Lagarde will participate in the Frankfurt Forum, and so will Fed Chair Jerome Powell. Both heads of central banks are expected to deliver a speech.

On the technical side, EURUSD has traded slightly below our previous estimated support level of 0.96. The pair is attempting to defend this support level, but with the U.S. Greenback gaining more demand by the day, we expect a lower support level for the pair at around 0.95. RSI for the pair sits at 32.08, as of writing. On the four-hour chart, EURUSD currently trades well below its 50, 100, and 200-day SMA.

Resistance:  1.0011, 1.0055

Support: 0.96, 0.94

GBPUSD (4-Hour Chart)

Cable, after sinking to historical lows on Tuesday, has recovered 0.43% by yesterday’s close. The broadly weaker Dollar across markets has allowed the British Pound to gain traction against the U.S. Greenback. The British Pound was also stimulated by the BoE’s, seemingly emergency, statement after the Pound’s plunge. The statement by the BoE stated that the central bank will intervene in the decline shall the British Pound continue to fall uncontrollably. Markets are still pricing in an  80% chance that the BoE will raise rates to 3.5% by November from 2.25%.

On the technical side, GBPUSD has rebounded from our previously estimated support level of 1.035. Short-term resistance for GBPUSD stands at around 1.08 and 1.12. RSI for the pair sits at 40.37, as of writing. On the four-hour chart, GBPUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.1561, 1.1854

Support: 1.035, 1.000

XAUUSD (4-Hour Chart)

Gold found some breathing room on the 27th as the Dollar slowed its growth. Furthermore, as mentioned in yesterday’s report, the mobilization of Russia’s armed forces, riots in Iran, geopolitical and instability in the South China Sea have all contributed as a potential catalyst for astronomical upside potential for Gold. On the contrary, tightening by global central banks has eliminated any upward space for Gold save a catastrophic global geopolitical conflict.

On the technical side, XAUUSD has broken below our previously estimated support level of $1640 per ounce and is heading towards our estimated next level of support at $1600 per ounce. RSI for the non-yielding gold sits at 37.83, as of writing. On the four-hour chart, XAUUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1695, 1724

Support: 1620, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRetail Sales (Aug)09:300.4%
EURECB President Lagarde Speaks15:15
USDPending Home Sales (Aug)22:00-1.4%
USDFed Chair Powell Speaks22:15
USDCrude Oil Inventories22:300.333M