Daily Market Report

24/07/2023
13:05

Following another strong week for both U.S. stocks and the Dollar, investors await the upcoming FED rate decision amid a busy week. Stocks have benefited from stronger-than-expected financial results from big names during the beginning of last week which pushed major averages to extend their advance, however, the Nasdaq retreated as some tech-giants companies dragged the index lower. On Friday, we have seen a mixed close as volatility increased due to large stock options expiries.

Looking at last week’s performance, the Dow posted strong gains rising by 2.08%, the S&P500 climbed 0.69%, on the opposite, the Nasdaq fell 0.57%. During the week ahead, the FED is expected to raise interest rates by 25bps from 5.25% to 5.50% a month only after the U.S. central bank decided to stop its rate hike program for the first time in fifteen months. A new rate hike is widely expected as its probability sits at 97%, meanwhile, investors will be focusing on Jerome Powell’s press conference which is likely to offer more guidance about the future of monetary policy for the rest of this year.

In the FX market, the U.S. Dollar managed to rebound after suffering heavy selling pressure due to the recent slowdown in inflation levels. Technically, the Dollar index slid below the psychological support of 100,00 which led to profit-taking as traders eye the upcoming FOMC meeting. In addition, the Japanese Yen fell sharply on Friday after sources stated that the BoJ is not likely to introduce any changes to the yield curve as many policymakers see no urgent need to take new steps regarding the existing money policy. The USDJPY currency pair rallied in response to those headlines closing near the 142.00 handle.

On the other side, the gold rally stalled by the end of last week after reaching a high of $1987 per ounce, representing a key technical resistance. As of now, the yellow metal remains supported as long as prices continue to hold above the 1945 low. When looking at the bigger technical picture we can see that the trend is still up while the short-term trend is neutral, consequently, any decline is expected to stay limited in the near term. The bearish scenario will start with a break below last week’s lows which can trigger fresh selling toward the 1935-1927 support zone. On the flip side, if the 1945 support holds, we will likely see a retest of the 1987 resistance in the coming days, while a daily close above it should expose the psychological barrier of $2000. To summarize, we will be waiting for an exit outside the current range between the 1987 resistance and the 1945 support before confirming the next directional move in gold.

In the meantime, WTI crude managed to recover from early losses closing higher near the $77.00 mark. From a technical standpoint, the WTI crude short-term trend has turned positive, and prices are likely to trade higher in the coming days, however, a move back lower towards the key support zone located at the 74.70-73.80 area which represents the formerly broken resistance zone cannot be ruled out before seeing another advance. This zone is likely to continue acting as a main support if tested again. Therefore, oil prices are expected to stabilize, and we will be waiting for a break above the 77.00 handle to confirm the start of another rally in the direction of the 78.00 level followed by the 79.00 barrier in extension. In addition, the recent break above the consolidation triangle as per the chart below is supporting the positive momentum and can lead to a continuation higher.

Looking at other major economic releases for this week, the focus will be on the ECB rate decision followed by the Bank of Japan monetary policy meeting. The ECB is expected to raise rates from 4.00% to 4.25% while the BoJ is likely to keep interest rates unchanged at -0.10%. In the U.S., the quarterly GDP figures are due to decline from 2.0% to 1.8%.

Economic Analyst
Amine Hiani