Daily Market Report

27/07/2023
10:11

The Federal Reserve raised rates by a quarter point from 5.25% to 5.50% as widely anticipated and left the door open for more hikes as the central bank’s future monetary policy remains data dependent. The decision was unanimous, and now rates have reached their highest level in 22 years. Moreover, the economic outlook has shifted to moderate as policymakers no longer see a potential recession. On the other side, the probability of an interest rate cut later this year is off the table, meanwhile, Powell doesn’t see inflation back at the 2% target until about 2025. The next FOMC meeting will be in September, therefore, the FED will continue to monitor changes in inflation, the labor market, and other economic indicators before deciding its next move.

When looking at the recent stock market movements, we can see that major stock indexes retreated, however, the Dow posted its 13th straight day of gains. The current advance in the 30-stock index is considered as the best winning streak since 1987 with one positive close away from matching its best historical series of gains ever, registered in June 1897. In the meantime, the S&P500 lost 0.02% while the Nasdaq composite fell 0.12%.

In the FX market, the U.S. Dollar declined following the FED’s decision as investors remain cautious about a future rate hike. The EURUSD managed to rebound near the 1.1000 psychological support as mentioned in our previous report, and for the time being, buyers are likely to challenge the 1.1100 barrier in the coming hours. A successful break above it should lead to another extension higher in the direction of 1.1150. On the flip side, failure to overtake yesterday’s high can lead to a larger downside correction. As of today, the focus will be on the ECB rate decision which should provide increased volatility to this pair. The central bank is expected to raise interest rates by 25 bps from 4.00% to 4.25%.

In the commodity market, gold closed higher on the back of dollar weakness which reinforces the positive outlook in the near term. However, a successful breakout above the 1987 resistance is needed in the coming days to confirm another rally toward the 2000 psychological barrier followed by the 2018 level in extension. On the other side, the uptrend is likely to remain in place while prices continue to trade above the 1950-1945 support zone.

In addition, WTI crude rally stalled on Wednesday as we approached the $80.00 psychological barrier. From a technical standpoint, the WTI crude short-term trend remains 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 due to prices currently trading at overbought levels. Moreover, 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 at other important economic releases for today, the U.S. GDP quarterly figures are expected to fall from 2.00% to 1.8%, in the meantime, durable goods are due to decline from 1.8% to 1.3%. Conversely, forecasts are pointing to a potential rise in unemployment claims from 228K to 234K.

Finally, all eyes will be on the Bank of Japan monetary policy meeting which is expected to leave interest rates unchanged at -0.10% during the upcoming Asian trading session.

Economic Analyst
Amine Hiani