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Powell’s dovish message boosted stocks

February 3, 2023

The Nasdaq and S&P 500 indexes closed higher and hit roughly five-month highs on Thursday (Feb. 2), as a more dovish-than-expected message from Fed Chairman Jerome Powell boosted stocks and Meta Platforms shares surged on tight cost controls.

The S&P 500 rose 1.47% to 4,179.76, its highest level since August. Meanwhile, the technology-focused Nasdaq Composite Index rose 3.25% to 12,200.82, its highest level since September. The Dow Jones Industrial Average underperformed, falling 39.02 points, or 0.11%, to 34,053.94.

On Wednesday, investors are still digesting the Fed’s policy decision and comments from Powell, who acknowledged progress in fighting inflation and seemed reluctant to stop the rally in stocks and bonds.

Data showed that initial jobless claims fell to a nine-month low last week, underscoring the resilience of the labor market, with monthly employment data due out Friday.

The 50-day moving average of the S&P 500 broke above its 200-day moving average, a pattern known as a “golden cross” that many see as a bullish technical signal for near-term momentum. The energy sector was one of the top performers last year, down 2.5%, while the healthcare sector was down 0.7%.

Main Pairs Movement

The greenback, in terms of the USD Index, adds to the weekly leg lower and breaks below the 101.00 support to print new 10-month lows on Thursday. However, the price started to return to the north during the Asia trading session. At the time of writing, trading at 101.73.

EUR/USD pair is displaying a back-and-forth action around 1.0900 after a pullback move from 1.0885 in the early Asian session. The major currency pair has turned sideways ahead of the United States Nonfarm Payrolls data, which will release on Friday. At the time of writing, trading at 1.8993.

GBP/USD sees a further downside near 1.2200 as anxiety soars ahead of US NFP. At the time of writing, trading at 1.22160.

Gold price nosedived to near 1,912.00 after a blockbuster recovery move from the DXY on Thursday. The precious metal is staring at the round-level resistance of 1,900.00 as further downside looks possible ahead of the NFP data. At the time of writing, trading at 1916.40

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Thursday, coming under renewed bearish pressure, and declined below the 1.0900 mark after the European Central Bank’s interest rate decision. The pair is now trading at 1.0914, posting a 0.67% loss daily. EUR/USD stays in the negative territory amid recovering the US Dollar across the board, as the greenback was bolstered by the market’s reaction to the BoE’s and ECB’s decisions and trimming some of its losses towards the 101.8 area. The US Federal Reserve lifted rates yesterday but sounded dovish, as Fed chair Powell said the disinflation process has started. In the Eurozone, the European Central Bank has decided to raise interest rates by 50 basis points as broadly expected. Still, ECB President Christine Lagarde refrained from committing to additional rate hikes after March, which caused the Euro to lose strength. The decision on future rate raises will remain data-dependent and in a meeting-by-meeting approach.

For the technical aspect, RSI indicator 51 figures as of writing, suggesting that the risk skews to the downside as the RSI is falling sharply towards 50. As for the Bollinger Bands, the price witness heavy selling and retreated from the upper band, therefore a downside trend continuation can be expected. In conclusion, we think the market will be bearish as the pair is now testing the 1.0918 support level. Technical indicators also retreated from overbought conditions and headed to negative territory, which reflects bear signals.

Resistance:  1.1020, 1.1092, 1.1131

Support: 1.0918, 1.0830, 1.0780

GBPUSD (4-Hour Chart)

GBP/USD tumbled to multi-week lows near 1.2250 on Thursday. GBP/USD failed to benefit from the Bank of England’s decision to raise the Bank Rate by 50 bps to the 4% threshold. The pair dropped after the Bank of England lifted rates and gave no signals for further increases. Governor Bailey’s optimistic comments on the inflation outlook seem to be weighing on the pair. At the time of writing, GBP/USD is trading at 1.2244, posting a 1.04% loss daily, while the US dollar index recover part of its loss from yesterday, posting a 0.46% daily gain.

For the technical aspect, RSI indicator 34  figures as of writing, sharply falling through mid-line and currently placed in the bearish region. A downtrend movement could persist. As for the Bollinger Bands, the price dropped through the downward moving average and holds around the lower band now, signaling the downtrend and strong bearish momentum in the near term. In conclusion, we think the market is in bearish mode as both indicators show bearish potential—the price dropped below the previous support at 1.2292. A break out of the previous consolidation range suggests that the bulls have surrendered and the pair could see fresh follow-through selling, dragging GBP/USD down further. For the downtrend scenario, if the price drop below 1.2188, it may head to test the next support at the round-figure mark at 1.2000.

Resistance: 1.2426, 1.2493, 1.2593

Support: 1.2188, 1.2000, 1.186

XAUUSD (4-Hour Chart)

The gold price hit $1,959, the highest level since mid-April, on Thursday and then dropped sharply in the second half of the day, losing all post-FOMC gains. The dollar index recovers part of its loss after having suffered heavy losses late Wednesday, weighting on Gold price. At the time of writing, Gold price is trading at $1,913.33, posting a 1.89% loss daily, while the US dollar index rises to 101.71, posting a 0.53% daily gain. For more price action, keep an eye on the Nonfarm Payrolls report and the ISM Non-Manufacturing PMI report on Friday, which will update the status of the US economy.

For the technical aspect, RSI indicator 40 figures as of writing, slightly below from mid-line. The big move up and down across the mid-line shows high volatility of the price but no clear direction in the near term. As for the Bollinger Bands, the price is moving up and down across the horizontal moving average, showing high volatility as well. In conclusion, we think the market is in consolidation mode. The sharp decline in the Gold price of more than $30 looks like a reversal but is still too soon to tell. For the uptrend scenario, the current resistance is $1,947. A firm break above the level could trigger some follow-through buying and push gold higher toward the next resistance at $1,957. For the downtrend scenario, as long as the Gold price remains under the $1,920 area, a slide toward critical support at $1,900 is possible. On the other hand, a drop below $1,900 could trigger a deeper correction.

Resistance: 1947, 1957, 1963

Support: 1900, 1873, 1830

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPComposite PMI (Jan)17:3047.8
GBPServices PMI (Jan)17:3048
USDNonfarm Payrolls (Jan)21:30223K
USDUnemployment Rate (Jan)21:303.50%
USDISM Non-Manufacturing PMI (Jan)23:0049.2

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