Daily Market Report

26/07/2023
11:51

U.S. stocks extended their advance on Tuesday ahead of the FED interest rates decision.

The central bank is expected to raise interest rates later today by another 25bps from 5.25% to 5.50% despite the recent slowdown in inflation levels. The rate hike is widely anticipated; however, the focus will be on FED’s Powell speech as investors will be looking for more evidence about the future of monetary policy.

In the meantime, corporate earnings continue to weigh on short-term price action, therefore, an increase in volatility is likely in the coming hours. Looking at the latest movements in the U.S. stock market, we can see that Dow eked out a 12th day of gains as the index rose 0.08%, the S&P500 advanced 0.28% and the Nasdaq composite added 0.61%. It is important to note that the current rally in the Dow Jones index is the strongest since February 2017. As of now, nearly 130 company names listed on the S&P500 have reported their quarterly earnings, and according to FactSet, 79% of those companies have exceeded market expectations which might continue to support the existing rising bullish momentum.

On the other side, the U.S. Dollar closed higher as the Dollar index registered its fifth consecutive positive day. However, the current advance is likely to stall in the coming days especially if the FED signals a possible pause or end of its tight monetary policy. Year to date, the index is down a little over 2% while compared to the same period one year ago, the Dollar has lost nearly 5% which keeps the trend to the downside.

Consequently, gold is expected to remain well supported as long as prices continue to trade above the 1935-1945 support zone. The gold trend has turned sideways in the near term, and we will be waiting for a clear break either below the 1935 support or above the 1987 resistance level in the coming days before confirming the next directional move in the yellow metal. In addition, when looking at the higher time frames we can see that the main trend is still bullish, therefore, a successful breakout above the resistance mentioned above is likely to clear the path for an extension higher in the direction of the $2000 psychological barrier. On the flip side, a daily close below the 1935 level should be considered a warning about the start of a potential downside corrective move that can reach the 1925-1910 support zone in the coming days.

Meanwhile, WTI crude resumed its rally closing higher well above the $79.00 mark. From a technical standpoint, the WTI crude short-term trend has turned positive, and prices are likely to extend higher toward the 81.15 resistance level in the coming days, however, we might see some profit-taking as we approach the $80 psychological barrier, especially since the recent advance is currently trading at overbought levels. Technically, the recent break above the consolidation triangle as per the chart below is supporting the positive momentum and can lead to a continuation higher, therefore, any decline is expected to be temporary as long as prices continue to trade above the 74.60 low. On the flip side, a corrective move lower can lead to a retest of the 77.25 followed by the 76.40 levels before another rally begins.

Looking now at other important economic releases for today, oil traders will be waiting for recent changes in crude oil inventories. Moreover, U.S. new home sales are expected to have declined from 763K to 726K.

Economic Analyst
Amine Hiani