Daily Market Report
25 May 2023
Quite a volatile session saw EUR/USD drop further and clinch new 8-week lows in the 1.0750/45 band, just following a bullish attempt to retake the 1.0800 zone on Wednesday.
The greenback, in the meantime, kept the bid bias well and sound always well north of 103.00 the figure when gauged by the USD Index (DXY).
Extra gains in the dollar appeared supported by rising speculation of another 25 bps rate hike by the Federal Reserve at the June 14 gathering, while the impasse in the negotiations to clinch a deal around the US debt ceiling also added to the buck’s appeal midweek.
In the docket, the always-relevant Business Climate tracked by the IFO survey in Germany eased to 91.7 in May. In the US, Mortgage Applications measured by the MBA contracted 4.6% in the week to May 19.
Also on the US calendar, the Federal Reserve published its minutes of the May 3–4 gathering. On this, members by and large concurred that the degree to which further interest rate climbs might be suitable had become less certain. A few members said that on the off chance that the economy developed along the lines of their projections, further policy firming probably wouldn't be required. In addition, members keep on estimating a gentle downturn beginning in the not so distant future, followed by a modestly paced recuperation.
Still around the Fed, FOMC Governor C. Waller underlined that any interest rate decision at the June 14 session will be based on future data. He also stated that a smart strategy may be to pause in June and favor a hike in July, taking into account inflation statistics and how tight financial conditions are. Waller also suggested that inflation might come down at a faster pace if average hourly wages are near 3%.
Fast help lies ahead for the EUR/USD tolerating that it keeps on declining, beginning with the May low at 1.0748 (May 24) before a minor level at 1.0712 (March 24). On the off chance that the pair breaks beneath this level, it might test the March low at 1.0516 (March 15) prior to the 2023 low of 1.0481 (January 6). On the other hand, a temporary obstacle is the 55-day SMA at 1.0876, which is just shy of the mental 1.1000 limit. Past the last option, there are no critical impediments to defeat until it arrives at the 2023 top of 1.1095 (April 26) backed by the round degree of 1.1100 and the weekly peak of 1.1184 (March 31, 2022), all ahead of another round level at 1.1200. The day-to-day RSI deflated to the 38 region.
Resistance levels: 1.0835 1.0904 1.0948 (4H chart)
Support levels: 1.0748 1.0712 1.0516 (4H chart)
USD/JPY kept the positive weekly bias well in place and rose to levels last seen in late November 2022 beyond 139.00 the figure on Wednesday.
The positive price action in the greenback and the mixed note in US yields across the curve were enough to spark another spell of strength in the pair, which has maintained the bullish view for the third week in a row so far.
In the Japanese money market, the JGB 10-year yields rose for the second session in a row, now leaving behind the 0.41% level, although the broader consolidative phase stayed unchanged.
In the Japanese data space, the Reuters Tankan Index improved to 6 in May (from -3) in what was the sole release in the calendar midweek.
The next resistance for USD/JPY is at the 2023 top of 139.04 (May 24), with the potential for further upside. If the pair continues to appreciate, it could retest the weekly highs of 139.89 (November 30 2022) and 142.25 (November 21 2022). On the downside, the first support is at the important 200-day SMA at 137.17, ahead of the provisional 55-day and 100-day SMAs at 134.17 and 133.33, respectively. On the way down, we encounter the weekly low of 133.01 (April 26), followed by minor support at 132.01 (April 13) and the April low of 130.62 (April 5). A deeper decline could lead to a repeat of the March low at 129.63 (March 24) and the February low at 128.08 (February 8) before approaching the 2023 low at 127.21 (January 16). The daily RSI rose to the boundaries of 68
Resistance levels: 139.38 139.89 141.61 (4H chart)
Support levels: 137.49 135.64 135.14 (4H chart)
Further upside momentum in the greenback triggered another weak session in the risk-linked galaxy and forced GBP/USD to print fresh monthly lows near 1.2360 on Wednesday.
The British pound remained unable to maintain the initial bull run to the 1.2470 region soon after UK inflation figures tracked by the CPI rose more than initially estimated during April. On this, consumer prices rose at an annualized 8.7% (from 10.1%) and 6.8% YoY when it came to the Core reading (from 6.2%). These inflation prints prompted investors to start pricing in further tightening by the BoE in the next few months.
From the BoE, Governor A. Bailey stated that about one-third of the rate hikes so far have had an impact on the economy, while reiterating that the labour market remains tight and inflation expectations appear to be losing traction. Moreover, Bailey acknowledged that the main problem is how persistent and stubborn the decline in inflation will be.
The breach of the May low at 1.2359 (May 24) may compel GBP/USD to revisit the weekly low of 1.2344 (April 10), followed by the April low of 1.2274 (April 3), which gains support from the temporary 100-day SMA (1.2279). Further downward movement could lead to a retest of the significant 200-day SMA at 1.1971 before reaching the 2023 low of 1.1802 (March 8). On the contrary, if the pair moves in an upward direction, the first challenge to overcome would be the 2023 high of 1.2679 (May 10). Buyers might also target the 200-week line SMA at 1.2864, followed by the psychological level of 1.3000. The daily RSI deflated further to the proximity of 41.
Resistance levels: 1.2469 1.2483 1.2510 (4H chart)
Support levels: 1.2359 1.2344 1.2274 (4H chart)
AUD/USD added to Tuesday’s pullback and retreated sharply to an area last visited back in mid-November 2022 near 0.6530 on Wednesday.
Further strength in the greenback in combination with the generalized poor performance in the commodity complex and the dovish hike from the RBNZ have all weighed on the Aussie dollar and sponsored the marked move lower.
Back to commodities, copper prices retreated to the $3.55 region for the first time since late November 2022, while iron ore remained somewhat range-bound above $105.00 per tonne.
In the calendar, the Westpac Leading Index came in flat on a monthly basis in April. In addition, RBA’s Jacobs said he expects the balance sheet unwinding process to run smoothly.
AUD/USD clocked a new 2023 low at 0.6531 on May 24. The loss of this level could open the door to the weekly lows at 0.6386 (November 10 2022) and the November 2022 low at 0.6272 (November 3). By contrast, if the pair manages to overcome the 200-day SMA at 0.6706, the next critical hurdle would be the May high of 0.6818 (May 10) ahead of the critical round level of 0.7000. Further north emerges the weekly top of 0.7029 (February 14) prior to the 2023 peak at 0.7157 (February 2). The RSI on the daily chart dropped below the 37 mark.
Resistance levels: 0.6675 0.6709 0.6818 (4H chart)
Support levels: 0.6531 0.6386 0.6272 (4H chart)
Prices of the ounce troy of gold remained choppy on Wednesday and faded Tuesday’s rebound, ending the day around the $1960 region following an earlier uptick to the $1985 zone.
Further buying pressure in the greenback and higher yields in the belly and the long end of the US curve put the yellow metal under pressure amidst the resurgence of some speculation pointing at the likelihood that the Fed might not pause its hiking cycle at the June 14 gathering.
Moving forward, bullion is expected to face some renewed volatility in light of the imminent release of US inflation figures gauged by the PCE on May 26.
By virtue of selling pressure strengthening, bullion could fall back to the May low of $1952 (May 18), which appears maintained by the April low of $1949 (April 3) and goes before the 100-day SMA at $1933. South from here emerges the key 200-day SMA at $1828, all before the 2021 low of $1804 (February 28). Assuming that it climbs, the immediate up-barrier arises at the key $2000 mark. Further up, there are no opposition levels of note until the 2023 top of $2067 (May 4), endorsed by the March 2022 high of $2070 (March 8) and the unrivaled peak of $2075 (August 7, 2020).
Resistance levels: $1985 $2003 $2022 (4H chart)
Support levels: $1952 $1934 $1885 (4H chart)
There was no respite for the decline in silver prices on Wednesday, as they maintained the bearish price action and revisited Tuesday’s multi-week lows near $23.10 per ounce.
In fact, the third consecutive decline in the grey metal came on the back of further dollar gains as well as higher yields, while the broad-based negative bias in the commodity universe also kept the price action subdued.
Meanwhile, the Gold/Silver Ratio rose for the third straight day and poked around the key 85.00 region for the first time since late March.
If the May low of $23.11 (May 23) is broken, silver might challenge the 200-day SMA at $21.99 ahead of the key round level at $20.00 and the 2023 low of $19.90 (March 10). On the flip side, bullish investors can keep an eye out for the transitory resistance level at the 55-day SMA at $24.07 before the 2023 peak at $26.12 (May 5). This is followed by the April 2022 top of $26.21 (April 18), which comes before the weekly high of $26.94 (March 8) just ahead of the major round level of $27.00).
Resistance levels: $24.01 $24.20 $24.82 (4H chart)
Support levels: $23.11 $22.80 $22.12 (4H chart)
The optimism around crude oil remained well and sound for the third consecutive session on Wednesday.
Indeed, the barrel of WTI rose to new 3-week tops north of the $74.00 mark, as investors continued to factor in the probability of further oil output cuts from the OPEC+ (as per Tuesday’s warnings from Saudi Arabia to short-sellers) and the unexpected weekly drop in crude oil inventories.
On the latter, the EIA reported that US crude oil inventories unexpectedly shrank by 12.456M barrels in the week to May 19, while supplies at Cushing rose by 1.762M barrels, Weekly Distillate Stocks declined by 0.562M barrels and gasoline stockpiles decreased more than estimated by 2.053M barrels.
Also adding to the bid bias in the commodity, gasoline futures extended the upside and flirted with the $2.730 region, up for the third week in a row.
The renewed upside in WTI appears well and sound so far this week. Against that, additional upward movement is anticipated to encounter the next challenge at the temporary 100-day SMA at $75.95 prior to the weekly high of $79.14 (April 24), followed by the important level of $80.00 and the crucial 200-day SMA at $80.04. Moreover, there are further resistance levels worth noting, such as the 2023 peak of $83.49 (April 12), as well as the November 2022 top of $93.73 (November 7). In the event that sellers regain control in the market, it is crucial to monitor significant support levels. These include the 2023 low of $63.61 (May 4), followed by the December 2021 low of $62.46 (December 2), and the critical level of $60.00 per barrel.
Resistance levels: $74.69 $75.34 $76.89 (4H chart)
Support levels: $71.85 $70.01 $69.38 (4H chart)
More of the same, namely, debt ceiling jitters, weighed on investors’ sentiment and sponsored the fourth consecutive daily pullback in the US stocks benchmark Dow Jones, this time breaking below the key 33000 support for the first time since late March, an area where the critical 200-day SMA also converges.
Tuesday's talks between Democrats and Republicans ended without a deal, despite the positive atmosphere of the meetings. White House officials declared that negotiations had reached an impasse, which caused concern among market participants due to the looming deadline for the government to default on its obligations (Treasury Secretary J. Yellen stated this would be in early June).
Overall, the Dow Jones deflated 0.74% to 32810, the S&P500 retreated 0.81% to 4111, and the tech-heavy Nasdaq Composite dropped 0.77% to 12463.
The Dow Jones faces the prospects of extra losses on a breakdown of the critical 200-day SMA at 32774. Further south emerges the 2023 low of 31429 (March 15) ahead of the 2022 low of 28660 (October 13). On the upside, the first conceivable goal is the weekly high at 33652 (May 19) before the May top at 34257 (May 1), followed by the 2023 peak at 34342 (January 13) and the December 2022 high at 34712 (December 13). If the index rises over this level, it may accelerate toward the April 2022 top of 35492 (April 21). The RSI grinded lower and broke below 39.
Top Performers: Salesforce Inc, UnitedHealth, Chevron
Worst Performers: 3M, Boeing, Walgreen Boots
Resistance levels: 33652 33772 34257 (4H chart)
Support levels: 32752 31805 31429 (4H chart)