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US Retail Sales jump the most in two years

February 16, 2023

US stocks closed higher and Treasuries slid as investors picked through another batch of solid economic data to find different takeaways, even as worries mounted that it would force a hawkish response from the Federal Reserve.

The S&P 500 rose 0.3% after earlier dropping more than 0.75%. The Nasdaq 100 climbed 0.8%. Two-year Treasury yields held near 4.60%. The dollar advanced versus major peers.

US retail sales in January jumped by the most in almost two years, suggesting that solid consumer spending will keep prices elevated and increase pressure on the Fed to step up its efforts to tamp down inflation. Homebuilder sentiment rose in February by the most since mid-2020, as easing mortgage rates have boosted the housing market.

The energy was a drag on the broader market, falling 2%, driven by a slump in Devon Energy pressured by a slump in oil prices following a much larger-than-expected build in U.S. weekly crude stockpiles.

U.S. crude stockpiles rose by 16.3 million barrels last week to 471.4M barrels, well above expectations of 1.2M barrels.

Main Pairs Movement

The US Dollar firmed mid-week to a six-week high against a basket of currencies measured by the DXY index. The index has penetrated a key 103.80 level on the charts amid risks of higher inflation for longer and the markets flipping the script of the Federal Reserve pivot narrative. The index maintains erratic activity around 103.00 so far. The monthly high near 104.00 continues to cap the upside. At the time of writing, the price is trading at 103.754.

AUD/USD stands on slippery grounds as sellers rush towards the weekly low of 0.6864, marked the previous day, following a nearly 40 pips slump on the downbeat Australia inflation and employment numbers. At the time of writing, the price is trading at 0.6888.

GBP/USD continued to move lower in the second half of the day, falling below 1.2000 for the first time in a week before recovering slightly. Weak U.K. inflation data and broad-based dollar strength weighed heavily on the pair on Wednesday. At the time of writing, the price traded at 1.20389.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD has extended its daily slide and further declined below the 1.067 level as of writing, as the US Retail Sales data rose at a stronger pace than expected in January, boosting the US Dollar and weighing on the pair. The US core retail sales surged to 2.3%, compared to the expected 0.8% and previous -0.9%, showing strong demand in the retail market. The euro price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the bank has already anticipated another 50 bps rate raise at the March event.

From the technical perspective, the four-hour scale RSI indicator further dropped to 38 figures as of writing, suggesting that the pair was surrounded by strong bearish momentum. As for the Bollinger Bands, the pair fell below the 20-period moving average and was trading in the lower area, showing an optimistic market mood. Currently, the pair were struggling to hold above a critical support level, 1.0667. The bears could target on 1.050 level once the pair lose its ground around the key support level.

Resistance: 1.0930, 1.1020

Support: 1.0667, 1.0508

GBPUSD (4-Hour Chart)

The GBPUSD continued to push lower in the American trading session and dropped below 1.2000 for the first time in a week before recovering modestly. Soft UK inflation data and the strong US dollar across the board heavily weighed on the pair. The UK’s Office for National Statistics reported on Wednesday that the Consumer Price Index declined 0.6% every month in January, causing the annual rate to retreat to 10.1% from 10.5%. The Core CPI also edged lower to 5.8% from 6.3% every year coming in lower than the market expectation of 6.2%. Although it’s too early to say how these figures could influence the Bank of England (BoE) policy outlook, the reaction suggests that markets have scaled back hawkish BoE bets.

From the technical perspective, the four-hour scale RSI indicator tumbled to 34 figures as of writing, showing the pair is amid negative traction. As for the Bollinger Bands, the pair was supported by the lower band and the size between the upper and lower bands got larger, indicating there might be a further decline once the pair fell below the lower band.

Resistance: 1.2209, 1.2265, 1.2391

Support: 1.1927, 1.1859

XAUUSD (4-Hour Chart)

Gold price dropped sharply towards $1,830 on Wednesday as the US dollar regather strength and the benchmark 10-year US Treasury bond yield keeps rallying, which exerted heavy pressure on Gold prices. At the time of writing, the pair is trading at $1,837.59, posting a 0.87% loss daily, while the US dollar index rose 0.57% to 103.86 and the benchmark 10-year US Treasury bond yield rose 1.49% to 3.803%, capping any rebound on Gold price.

For the technical aspect, RSI indicator 35 figures as of writing, keeps going South as the price continues on its downward movement in the near term. As for the Bollinger Bands, the price is falling between the downward moving average and the lower band, which is a typical pattern of a downtrend. A continued bearish trend could be expected. In conclusion, we think the market is in bearish mode as both indicators show bearish potential. Besides, the price is edging lower and keeps forming a lower-low technical pattern, which favors the bearish side. For the downtrend scenario, the price is testing the support level at $1,830. If the price is below the level, it may trigger some technical selling and drag the price deeper toward the next critical support at a round-figure mark of $1,800.

Resistance: 1900, 1920, 1957

Support: 1830, 1800

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDEmployment Change (Jan)08:3020.0K
USDBuilding Permits (Jan)21:301.350M
USDInitial Jobless Claims21:30200K
USDPhiladelphia Fed Manufacturing Index (Feb)21:30-7.4
USDPPI (MoM) (Jan)21:300.40%

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