Daily Market Report
18 May 2023
Further strength in the greenback reinforced selling tendencies in the European currency, keeping EUR/USD’s price action depressed in the area of 6-week lows around 1.0810 on Wednesday.
The additional retracement in the pair was accompanied by a persistent risk aversion mood, which was in turn propped up by increasing uncertainty surrounding the debt ceiling issue. Against that scenario, the USD Index (DXY) printed marked gains and trespassed the key 103.00 barrier, an area last seen back in early April. The sharp uptick in the dollar fizzled out towards the end of the NA session in response to sudden optimism on a potential deal around the US debt roof.
The downtrend in spot came in contrast to the bullish tone in US and German yields, always amidst steady speculation that the Fed's rate hike cycle will reach an impasse as early as at the June gathering vs. the continuation of the tightening cycle by the ECB in the next couple of months and potentially in September.
From the ECB, Hernandez de Cos, a member of the ECB Board, suggested that the bank's hiking cycle is about to come to an end, somehow collaborating with the negative mood in the single currency. However, his perspective appears to be quite different from that of many of his coworkers, who continued to favour maintaining the tightening bias in the meetings in June and July (and September?).
In the domestic calendar, final inflation figures in the euro area saw headline consumer prices rise 7.0% in the year to April and 5.6% when it came to the core CPI. Earlier, new car registrations in the European Union (EU) expanded at an annualized rate of 17.2% during the last month.
In the NA session, MBA’s mortgage applications contracted 5.7% in the week to May 12, while April’s housing sector data saw housing starts expanding 2.2% MoM (1.401M units) and Building Permits shrinking 1.5% MoM (1.416M units).
Immediately to the downside in EUR/USD now emerges the provisional 100-day SMA at 1.0804. Subsequently, close attention would be paid to the April low of 1.0788 (April 3). A breach of this level has the potential to trigger an examination of the minor level at 1.0712 (March 24), which might lead to a scrutiny of the March low at 1.0516 (March 15) prior to the lowest point reached in 2023 at 1.0481 (January 6). On the contrary, the current goal for bulls is to reach the pair’s highest level achieved in 2023 at 1.1095 (April 26) ahead of the round level of 1.1100 and before the weekly peak of 1.1184 (March 31, 2022), and another round level of 1.1200. The daily RSI lost the grip further and poked with 41.
Resistance levels: 1.0904 1.0935 1.0959 (4H chart)
Support levels: 1.0810 1.0788 1.0712 (4H chart)
Further rebound in the greenback was enough to maintain the solid performance of USD/JPY for yet another session this week, now surpassing the key 137.00 the figure as well as the critical 200-day SMA on Wednesday.
The continuation of the uptrend in US yields also helped spot extending the upside bias, while the Japanese bond market showed extra demand for the JGB 10-year benchmark bonds, depressing their yields to the 0.37% area.
Data wise in Japan, auspicious flash GDP Growth Rate figures expect the economy to have expanded 0.4% QoQ in Q1 and 1.6% on an annualized view. On the not-so-bright side, final Industrial Production contracted 0.6% in the year to March and expanded 1.1% vs. the previous month.
The USD/JPY recovery now faces a hidden check level at the May high of 137.77 (May 2) ahead of the 2023 zenith of 137.91 (Walk 8). Accepting further gains are made, it is possible that the many weeks highs of 139.89 (November 30, 2022) and 142.25 (November 21, 2022) could be retested. The specific opposite, spot is supposed to test the step-by-step low of 133.01 (April 26) if bears recuperate the benefit. This dispute zone appears underpinned by the interim 100-day SMA at 132.98. Before the April low of 130.62 (April 5), the Mach 24 low of 129.63, and the February 8 low of 128.08, a minor struggle level of 132.01 appears. The following drawback target would be the absolute bottom of 2023 at 127.21 (January 16). The ordinary RSI rose further and flirted with the 65 area.
Resistance levels: 137.57 137.77 137.91 (4H chart)
Support levels: 135.64 134.19 133.74 (4H chart)
The so far unabated recovery in the greenback pushed the USD Index (DXY) to fresh multi-week highs north of 103.00 the figure on Wednesday, while GBP/USD bounced off fresh monthly lows near 1.2420 and regained the 1.2500 hurdle around the closing bell in Wall St.
Indeed, the persevering risk aversion mood put the risk-associated complex under extra stress midweek against the backdrop of rising unease surrounding the US debt ceiling issue, forcing the pound and its risky peers to shed further ground.
From the BoE, Governor A. Bailey’s comment fell on the hawkish side after reiterating that in case of more persistent (price) pressures, the bank could further tighten its monetary policy, at the time when he acknowledged that inflation remains too elevated and showed some optimism regarding the current outlook. He also stressed that the labour market remains very tight and is cooling at a slower pace than anticipated. Furthermore, Baily hinted at the view that inflation is now expected to drop at a slower pace, while the outlook for UK consumer prices remains uncertain and largely hinges "on the extent of persistence in wage and price setting".
Extra weakness could prompt GBP/USD to find immediate support at the May low of 1.2421 (May 17), followed by the weekly low of 1.2344 (April 10), which appears reinforced by the proximity of the temporary 55-day SMA and comes ahead of the April low at 1.2274 (April 3). In the event that the pair continues to decline, it could potentially reach the critical 200-day SMA at 1.1963 before falling to the 2023 low of 1.1802 (March 8). On the flip side, initial up-barrier aligns at 2023 high of 1.2668 (May 8), with buyers also setting their sights on the 200-week line SMA at 1.2864, as well as the significant psychological level of 1.3000. The RSI on the daily chart climbed modestly above the 51 barrier.
Resistance levels: 1.2510 1.2546 1.2568 1.2679 (4H chart)
Support levels: 1.2421 1.2386 1.2367 (4H chart)
AUD/USD partially reversed Tuesday’s marked retracement and printed decent gains after rebounding from weekly lows near 0.6630 on Wednesday.
Once again, the solid pace of the US dollar put the risk space and the high-beta currencies under extra pressure and sponsored the early drop to multi-session lows in the pair.
However, bullish moves in the commodity complex saw some recovery in copper prices and the iron ore and underpinned the daily recovery in the Aussie dollar along with alleviated unease around the US debt ceiling.
Data wise Down Under, Wage Price Index rose 0.8% QoQ in the January-March period and 3.7% over the last twelve months.
The immediate conflict area for AUD /USD is around the weekly low of 0.6636 (12 May). If weakness continues, this could lead to a decline towards the April low of 0.6573 (28 April), followed by the 2023 low of 0.6563 (10 March). In addition, the weekly lows at 0.6386 (10 November 2022) and the November 2022 low at 0.6272 (3 November) also represent potential support levels. On the other hand, the next significant resistance level to overcome is the May high of 0.6818 (10 May). Once this level is overcome, the key psychological level of 0.7000 becomes a plausible target, along with the weekly high of 0.7029 (14 February) and the 2023 high at 0.7157 (2 February). As for the technical indicators, the daily RSI improved past the 47 yardstick.
Resistance levels: 0.6694 0.6709 0.6818 (4H chart)
Support levels: 0.6628 0.6620 0.6573 (4H chart)
The price of an ounce troy of gold accentuated the weekly correction and dropped to new 2-week lows below $1980 on Wednesday.
In fact, the so far unabated buying pressure in the greenback weighed on the precious metal after the USD Index (DXY) advanced to multi-week peaks north of the key 103.00 hurdle despite the mixed tone in US yields.
In the meantime, the generalized nervousness around the US debt ceiling issue should keep propping up the upside momentum in the buck to the detriment of the risk complex and the USD-denominated space for the time being.
Gold recently dropped below the significant $2000 mark, potentially leading to further declines in the near future. If the selling pressure intensifies, the metal could dip to its 2021 low of $1804 (February 28). To achieve this, it must break through the weekly low of $1969 (April 19), the April low of $1949 (April 3), and the 100-day SMA at $1925. Should the price increase, the primary obstacle will be the 2023 high of $2067 (May 4), followed by the March 2022 peak of $2070 (March 8) and the all-time top of $2075 (August 7, 2020).
Resistance levels: $2005 $2022 $2048 (4H chart)
Support levels: $1975 $1969 $1949 (4H chart)
Finally, there was some respite for silver’s ongoing weekly retracement, as prices managed to advance modestly after bottoming out at new multi-week lows in the $23.60/55 band printed earlier on Wednesday.
The grey metal, however, kept the erratic activity well in place in the area near 2-month lows amidst further improvement in the sentiment surrounding the greenback, while mixed US yields and the broad-based upside bias in the commodity space seem to have bolstered daily gains.
Meanwhile, the Gold/Silver Ratio dropped for the third session in a row and returned to the low 83.00s, just below the key 200-day SMA (83.55).
Silver faces immediate support at the provisional 100-day SMA of $23.39. Accepting that prices continue to fall, the 200-day SMA at $21.90 will offer assistance, followed by the 2023 low at $19.90 (March 10). However, bulls should be aware of the primary resistance level, which is the 2023 top of $26.12 (May 5). This is followed by the April 2022 high of $26.21 (April 18) prior to the 2022 peak of $26.94 (March 8) and the round level of $27.00.
Resistance levels: $24.20 $24.93 $25.91 (4H chart)
Support levels: $23.55 $22.80 $22.12 (4H chart)
Prices of the barrel of WTI managed to pick up strong pace and revisited the area just above the $73.00 mark on Wednesday, or 4-day highs.
In the meantime, traders’ sentiment continued to wobble around the expected uneven recovery in the Chinese post-pandemic economy vs. the IEA’s predicted tightness in the crude oil market in the second half of the year, while some optimism around the debt ceiling also provided some support to the commodity.
These factors helped WTI offset the intense move higher in the buck and another unexpected weekly build in crude oil supplies, as reported by the EIA on Wednesday.
On the latter, US crude oil inventories unexpectedly went up by 5.040M barrels in the week to May 12, while supplies at Cushing rose by 1.461M barrels, Weekly Distillate Stocks dropped by 0.080M barrels and gasoline stockpiles went down more than estimated by 1.381M barrels.
The performance of WTI prices has been volatile this week. On May 4th, WTI reached a new low for 2023 at $63.73 per barrel. If the December 2021 low of $62.46 (December 2) is broken, oil prices may fall further to the critical $60 level. Any potential gains may be limited, with the first obstacle likely to be encountered at the weekly high of $79.14 (April 24), followed by the key $80.00 level and the important 200-day SMA at $80.49. The 2023 peak of $83.49 (April 12) comes next, followed by the November 2022 high of $93.73 (November 7).
Resistance levels: $73.21 $73.83 $76.89 (4H chart)
Support levels: $70.01 $69.38 $63.61 (4H chart)
US equities gauged by the three significant US stock lists recovered the grin and exchanged with checked gains on Wednesday.
Rising hopefulness over the likelihood that US policy makers could open the debt ceiling dealings in the near future got truly necessary help to financial backers, starting simultaneously an expansive recuperation in the risk complex and episodes of selling tension around bonds.
On the whole, the Dow Jones advanced 1.38% to 33467, the S&P500 rose 1.32% to 4163 and the tech-benchmark Nasdaq Composite gained 1.34% to 12508.
A more serious rebound should put the Dow Jones en route to the May peak of 34257 (May 1), followed by the 2023 high of 34342 (January 13) and the December 2022 peak of 34712 (December 13). If it surpasses this level, it may gain momentum towards the April 2022 high of 35492 (April 21). In the event of further decline, the index should meet initial support at the May low of 32937 (May 4), which is slightly above the important 200-day SMA of 32762. Further down emerges the 2023 bottom of 31429 (March 15) seconded by the 2022 low of 28660 (October 13). The daily RSI leapt to the boundaries of the 50 threshold.
Top Performers: Home Depot, Boeing, Caterpillar
Worst Performers: Merck&Co, Intel, Amgen
Resistance levels: 33441 33772 34257 (4H chart)
Support levels: 33006 32937 31805 (4H chart)