Stocks on Wall Street declined on Wednesday, despite the release of cooler-than-expected inflation data, due to concerns about a potential recession. The Dow Jones Industrial Average fell by 0.11%, while the S&P 500 and Nasdaq Composite dropped 0.41% and 0.85%, respectively. This came after the Federal Reserve’s March policy meeting minutes showed officials feared a mild recession later this year after the U.S. banking crisis.
Meanwhile, the March consumer price index rose by only 0.1%, compared to the expected 0.2%, suggesting that inflation is beginning to slow. However, the core CPI, which excludes food and energy, rose as anticipated. As companies such as JPMorgan Chase, Wells Fargo, Citigroup, and UnitedHealth begin reporting first-quarter earnings later in the week, the health of the U.S. economy and consumers will be further tested.
On Wednesday, all sectors in the stock market declined by 0.41%, except for Industrials which increased by 0.33%, Energy which increased by 0.11%, and Materials which increased by 0.07%. Health Care increased by only 0.02%, while Utilities decreased by 0.12%, Financials by 0.20%, Real Estate by 0.30%, Consumer Staples by 0.45%, Information Technology by 0.61%, and Communication Services by 0.89%. Consumer Discretionary saw the largest decline, falling by 1.54%.
Major Pair Movement
On Wednesday, the dollar index fell by around 0.6% after the March U.S. CPI came in slightly lower than expected. However, the losses were somewhat contained after Fed speakers reminded the markets that they could still tighten further if core inflation does not proceed sustainably toward their target. The minutes from the Fed’s March meeting showed concern regarding the banking crisis, but inflation remained a top priority.
The EUR/USD rose by 0.74%, nearing February’s one-year highs at 1.1034, as the ECB is expected to hike rates by at least 75bp into year-end, compared to the Fed, which is not fully priced to hike 25bp in May before roughly 50bp of cuts by December. Sterling also rose by 0.5%, nearing April’s 10-month highs at 1.2525, and could continue to climb if upcoming U.S. data favor a more cautious Fed. The USD/JPY fell by 0.42%, but it now needs hawkish U.S. data to get a bullish close above the pivotal 133.77 level.
EUR/USD (4 Hours)
The EUR/USD pair reached a psychological resistance level of 1.1000, its highest in more than two months. The US Dollar Index (DXY) dropped to around 101.53 due to market expectations that the Federal Reserve (Fed) will pause its policy tightening. The rise in the major currency pair is due to the US inflation slowing as expected, with headline inflation only increasing by 0.1% and annual inflation easing from 6% to 5%. Core inflation, however, increased from 5.5% to 5.6% due to persistent rent prices.
The Fed believes that US inflation will continue to soften and reach the middle of 3% this year before reaching desired levels in 2024. The market is keenly watching Friday’s US Retail Sales data, which is expected to contract by 0.4%. More rate hikes from the European Central Bank are anticipated due to stubborn inflation caused by a labor shortage and higher oil prices.
From a technical perspective, the EUR/USD price is continuing to rise and create a strong push to the upper band in the Bollinger band. We have adjusted our support level to 1.0962 as the market is expected to break higher today with the release of PPI data which is also an indicator for the US inflation data. The RSI has risen above 50 (at 69), indicating a potential for further upward movement.
Resistance: 1.1026, 1.1052
Support: 1.0962, 1.0921
XAU/USD (4 Hours)
Gold prices initially surged to a high of $2,028.31 per troy ounce after the release of the US Consumer Price Index, which indicated that price pressures continued to recede in March, easing concerns about inflation. However, prices retraced gains and are now hovering around $2,007. The weaker US dollar across the FX market and positive stock market sentiment fueled by modest inflation figures are increasing expectations that the Federal Reserve will hike rates one more time before pausing.
The central bank has adopted a more dovish stance amid a banking crisis that ended up with the collapse of two local banks and dragged alongside Swiss giant Credit Suisse. The inflation figures have somehow let the Fed stay comfortable with a more conservative stance, diminishing the risk of a recession. Investors are not expecting any surprises from the upcoming release of the Federal Open Market Committee Meeting Minutes, which should repeat the dovish tone from Chair Jerome Powell and, if anything, trigger another round of dollar sell-off.
From a technical perspective, the price of XAU/USD continues to rise and reach the upper band of the Bollinger band. The market is currently waiting for the release of the PPI which is also an indicator of the US inflation data. We adjusted our key support level to $2,010. As long as this level is maintained, the XAU/USD uptrend will remain intact. The RSI keeps moving above the 50 levels, indicating that there is potential for gold to continue to rise.
Resistance: $2,026, $2,039
Support: $2,010, $1,997
|Currency||Data||Time (GMT + 8)||Forecast|
|GBP||Gross Domestic Product (Mar)||14:00||0.10%|
|USD||Core Producer Price Index (Mar)||20:30||0.20%|
|USD||Producer Price Index (Mar)||20:30||0.00%|
|CAD||BOC Gov Macklem Speaks||21:00|
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