Daily Market Report
22 May 2023
Finally, some respite for the European currency came on the back of renewed selling pressure in the greenback at the end of the trading week. That said, EUR/USD reversed three consecutive daily pullbacks and rebounded from fresh 2-month lows near 1.0760 to the area just beyond 1.0800 the figure on Friday.
On the other side, the USD Index (DXY) gave away part of the strong weekly advance to levels last traded back in mid-March in the 103.60/65 band amidst the improved sentiment in the risk complex and the so far unabated march north in US yields across the curve.
The opposite happened in the German bond market, where the 10-year Bund yields ended the session with marginal losses not before hitting new monthly highs around 2.50%.
Meanwhile, the issue of the US debt ceiling remained in the spotlight this week, while negotiations appear to have paused for the time being, according to official sources. Another driver of price action this week was growing speculation that the Federal Reserve will not pause its rate hike cycle in June, given robust US fundamentals, still-high inflation and the relentlessly aggressive stance of Fed rate-setters.
At the ECB, President C. Lagarde acknowledged the central bank faces a key juncture, as it needs to maintain its restrictive monetary policy at a time when inflation in the region appears to be losing traction. She highlighted the efficiency of recent measures, although she favoured the “need to have high and sustainably high interest rates."
Still around the ECB, Board member I. Schnabel (hawk) noted that underlying inflation is still too elevated, while wage growth has picked up pace substantially. She also indicated that there is more ground to cover when it comes to interest rates, at the time when she suggested the central bank needs to keep its restrictive stance for some time.
And back to the Federal Reserve, Chair J. Powell said during a panel discussion that tightened bank credit conditions might not necessitate rates rising as much as they would otherwise.
Immediate support lies ahead for the EUR/USD if it continues to decline, starting with the May low at 1.0759 (May 19). Following that, there is a minor level at 1.0712 (March 24). If the pair breaks below this level, it could potentially test the March low at 1.0516 (March 15) before reaching its lowest point in 2023 at 1.0481 (January 6). On the other hand, there is a provisional hurdle at the 55-day SMA at 1.0866 prior to the psychological 1.1000 threshold. Beyond the latter, are no notable obstacles to overcome until it reaches the 2023 high at 1.1095 (April 26). This is closely followed by the round level of 1.1100 and preceding the weekly peak of 1.1184 (March 31, 2022). Additionally, there is another round level at 1.1200. The daily RSI bounced to the boundaries of 40.
Resistance levels: 1.0828 1.0904 1.0955 (4H chart)
Support levels: 1.0759 1.0712 1.0516 (4H chart)
After six consecutive daily advances, including fresh 2023 tops past 138.70 (May 18-19), USD/JPY retreated markedly and ended the week in the sub-138.00 region on Friday.
The solid performance in past sessions allowed spot to clinch the second week in a row with gains and reach levels last traded back in late November 2022, north of 138.00 the figure.
The downtick in the pair came on the back of the strong drop in the greenback and the intense move higher in US yields vs. the unchanged consolidative range in the JGB 10-year yields around the 0.40% region.
In the Japanese calendar, the Inflation Rate rose more than expected to an annualized 3.5% in April, while the Core Inflation Rate gained 3.4% over the last twelve months and the Inflation Rate Ex-Food and Energy advanced 4.1% from a year earlier. Finally, the Tertiary Industry Index contracted 1.7% MoM in March.
On May 18, the USD/JPY reached a new 2023 high of 138.74. The previous week's highs of 139.89 (November 30, 2022) and 142.25 (November 21, 2022) could be retested if additional gains are accepted. On the downside, the initial support comes at the key 200-day SMA at 137.10 prior to the provisional 55-day SMA at 134.06. Further south emerges another interim support at the 100-day SMA at 133.11 just before the weekly low of 133.01 (April 26). Below the latter appears a minor support at 132.01 ahead of the April low of 130.62 (April 5), the Mach 24 low of 129.63, and the February 8 low of 128.08, all ahead of the 2023 low of 127.21 (January 16). The daily RSI dropped to the sub-64 region.
Resistance levels: 138.74 139.89 141.61 (4H chart)
Support levels: 137.42 135.64 134.55 (4H chart)
In line with the rest of its risk-linked peers, the British pound managed to regain some composure and lift GBP/USD back to the proximity of the 1.2500 hurdle, although that initial strong rebound fizzled out somewhat towards the end of the NA session on Friday.
Against that, Cable closed the second consecutive week with losses, albeit modest ones this time. However, it appears that the pair has met a tough barrier around the so far 2023 highs near 1.2680 (May 10), an area coincident with the significant 2021-2023 resistance line.
In the UK calendar, the only release of note came from the improvement in the Consumer Confidence tracked by Gfk to -27 for the month of May.
GBP/USD may face a vulnerability that could result in immediate support at the May low of 1.2391 (May 18) ahead of the weekly low of 1.2344 (April 10). If the currency pair continues to drop, it could find additional contention at the April low of 1.2274 (April 3) before the temporary 100-day SMA at 1.2268. However, if the decline persists, the crucial 200-day SMA at 1.1966 could be reached, followed by the 2023 low of 1.1802 (March 8). Alternatively, on the upside, the initial obstacle lies at the 2023 high of 1.2679 (May 10). Buyers could also target the 200-week line SMA at 1.2864 and the significant psychological level of 1.3000. The everyday RSI bounced past the 47 mark.
Resistance levels: 1.2483 1.2510 1.2546 (4H chart)
Support levels: 1.2391 1.2386 1.2367 (4H chart)
AUD/USD kept the choppiness well in place on Friday, ending the session with decent gains in the mid-0.6600s and reversing at the same time Thursday’s marked pullback. Furthermore, this recent price action left the pair practically unchanged on the weekly chart.
Other than the corrective decline in the greenback, the Aussie dollar managed to derive further strength from the generalized positive bias in the commodity universe, which managed to shrug off part of the recent bearishness. On this, copper prices printed modest gains amidst the broader erratic activity vs. a marginal decline in the iron ore.
There were no data releases Down Under on Friday.
The quick battle area for AUD /USD is now around the May low of 0.6604 (May 18) ahead of the April low of 0.6573 (April 28), which seems to have been trailed by the 2023 low of 0.6563 (March 10). In addition, the weekly lows at 0.6386 (November 10 2022) and the November 2022 low at 0.6272 (November 3) represent further potential support levels. The next critical hurdle to overcome is the 200-day line SMA at 0.6714 ahead of the May high of 0.6818 (May 10). If this level is cleared, the critical mental level of 0.7000 becomes a conceivable target, alongside the weekly high of 0.7029 (February 14) and the 2023 high at 0.7157 (February 2). The daily RSI picked up pace and trespassed the 42 zone.
Resistance levels: 0.6675 0.6709 0.6818 (4H chart)
Support levels: 0.6604 0.6573 0.6563 (4H chart)
Gold prices managed to recoup part of the steep weekly retracement and advanced past the $1980 mark per ounce troy after three consecutive daily drops on Friday. A retest/surpass of the critical $2000 mark remained, however, elusive.
In addition, looking at the weekly chart, the precious metal navigated with losses for the second week in a row.
Fresh selling pressure around the greenback resurfaced at the end of the week and lent much-needed support to the precious metal, although the continuation of the strong upside momentum in US yields somehow limited its upside potential.
Moving forward, the discussions around the US debt ceiling issue in combination with speculation around the next decision by the Fed regarding interest rates are expected to rule the price action around bullion.
Gold keeps on expanding on the new breakdown of the huge $2000 level, supporting the thought that further misfortunes are coming up for the yellow metal sooner rather than later. In the case of selling pressure strengthens, bullion could fall back to the May low of $1952 (May 18), which appears supported by the April low of $1949 (April 3) and comes before the 100-day SMA at $1926. South from here emerges the key 200-day SMA at $1825, all in front of the 2021 low of $1804 (February 28). On the off chance that it ascends, there are no opposition levels of note until the 2023 top of $2067 (May 4), seconded by the March 2022 high of $2070 (March 8) and the unequaled pinnacle of $2075 (August 7, 2020).
Resistance levels: $1984 $2005 $2022 (4H chart)
Support levels: $1952 $1934 $1885 (4H chart)
Prices of the ounce of silver briefly surpassed the key barrier of $24.00, although the move deflated somewhat close to the end of Friday’s session.
The renewed selling feeling around the dollar and the broad-based marked recovery in the commodity complex were quite a powerful combination for the grey metal, helping it to reclaim, albeit modestly, part of the ground lost in the last couple of weeks.
So far, silver’s rejection from 2023 peaks past the $26.00 mark per ounce recorded in mid-April has met some contention just ahead of the 50% Fibo retracement of the March-April strong uptick.
At the same time, the Gold/Silver Ratio dropped uninterruptedly since Monday, ending Friday’s session below the $83.00 yardstick and close to the temporary 100-day SMA.
The breach of the May low, marked at $23.33 on May 18, could potentially lead to a situation where silver would need to confront the 200-day SMA positioned at $21.92. This would be followed by the 2023 low at $19.90 (March 10). On the other hand, it is important for bullish investors to be aware of a significant resistance level, which is the highest point reached in 2023, namely $26.12 (May 5). Subsequently, this level is succeeded by the April 2022 top of $26.21 (April 18), prior to the 2022 peak at $26.94 (March 8) and the significant round level of $27.00.
Resistance levels: $24.01 $24.20 $24.92 (4H chart)
Support levels: $23.30 $22.80 $22.12 (4H chart)
Reignited concerns around the still unresolved US debt ceiling coupled with now rising bets pointing at the likelihood that the Fed might not pause its tightening stance at the June meeting have all weighed on traders’ mood, depressed prices of the barrel of WTI on Friday, and woke up the spectre of a potential recession.
Despite the choppiness seen in the past week, crude oil prices printed the first weekly gain after four retracements in a row, including fresh YTD lows in the sub-$64 mark per barrel on May 4.
In the docket, the US oil rig count went down by 11 in the week to May 19, taking the total US active oil rigs to 575, according to the weekly report by driller Baker Hughes.
This week, the WTI price trend was very volatile. In case sellers regain control of the market, the next support of note emerges at the 2023 low of $63.73 (May 4) prior to the December 2021 low of $62.46 (December 2) and the critical $60 level. Just the opposite, the potential gains could be limited as there are several obstacles that could prevent a significant rise in the price. The first obstacle is likely to be found at the weekly high of $79.14 (April 24), followed by the key $80.00 level and the important 200-day SMA at $80.41. The next resistance levels are the 2023 high at $83.49 (April 12) and the November 2022 top at $93.73 (November 7).
Resistance levels: $73.53 $76.00 $76.89 (4H chart)
Support levels: $70.01 $69.38 $63.61 (4H chart)
Stocks tracked by the Dow Jones reversed two consecutive daily gains and retreated modestly at the end of the week following an earlier move to fresh multi-day highs near the 33700 region.
There was no other catalyst for the knee-jerk in US equities than the resumption of the uncertainty surrounding the debt ceiling issue, particularly after officials announced a pause in the discussions until next week.
Also souring investors’ mood emerged comments from Chief J. Powell at his participation with former Chair B. Bernanke in a panel discussion, who reiterated that inflation remains too elevated and kind of left the door open to extra tightening.
Overall, the Dow Jones dropped 0.33% to 33426, the S&P500 deflated 0.14% to 4191, and the tech-reference Nasdaq Composite retreated 0.24% to 12657.
A more significant bounce back in the Dow Jones might actually lead it towards different key pinnacles. First and foremost, the May top of 34257 (May 1), trailed by the 2023 high of 34342 (January 13), and the December 2022 top of 34712 (December 13). Assuming the index figures out how to outperform this level, it might build up additional speed towards the April 2022 peak of 35492 (April 21). On the contrary, immediate contention aligns at the May low of 32937 (May 4), which is somewhat over the significant 200-day SMA of 32771. Further descending, we experience the 2023 lower part of 31429 (March 15), trailed by the 2022 low of 28660 (October 13). The step-by-step RSI deflated below the 50 threshold.
Top Performers: Cisco, Merck&Co, IBM
Worst Performers: Nike, Walt Disney, Home Depot
Resistance levels: 33652 33772 34257 (4H chart)
Support levels: 33006 32937 31805 (4H chart)