Daily Market Report

31/07/2023
09:13

The U.S. stocks managed to post another positive week after the FED decided to raise interest rates by a quarter of a point from 5.25% to 5.50% as widely expected reaching the highest level in 22 years. The decision was unanimous and during the FOMC press conference, FED chair Powell said that future monetary policy will be data-dependent. The stock market also benefited from stronger-than-expected corporate earnings and a slowdown in inflation as the yearly figures of the core PCE index rose 4.1% compared to estimates of 4.2%.

All three major averages extended weekly gains with the DOW rising 0.66% after snapping a series of a 13-day winning streak not seen since 1987. The 30-stock index was only one close away from matching its best series of consecutive advances ever, registered in 1897. In the meantime, the S&P500 added 1.01% and the Nasdaq composite index climbed 2.02%.

On the other side, the ECB raised rates by 25bps to fight higher inflation in the Eurozone while the Bank of Japan decided to leave interest rates unchanged at -0.1%, however, the Japanese central bank will now allow 10-year yields to rise by up to 1.0% compared to 0.5% previously.

In the FX market, the U.S. Dollar registered its second positive weekly close as investors remain cautious about the future rates path in the U.S., the EURUSD fell sharply after finding strong sellers from the 1.1150 barrier and prices extended lower testing a major support located at the 1.0950 level. For this week, we will be watching this key support carefully and if prices manage to continue trading above it, the Euro is likely to stabilize before edging higher in the coming days looking for a re-test of the 1.1100 resistance. On the flip side, a breakdown of the 1.0950 can lead to a larger decline in the direction of the 1.0830 weekly support. From a wider angle, the Euro remains positive, and the current decline is likely to be temporary.

In addition, USDJPY saw increased volatility following the Bank of Japan’s latest monetary policy meeting. The pair is following a neutral trend and is expected to trade sideways in the near term, and we will be waiting for either a break above the 142.00 resistance or below the 137.50 support before confirming the next direction. A successful breakout above the resistance mentioned above should expose the 143.00 followed by the 143.65 levels, while a close below the support is likely to trigger another wave of decline in the direction of the 135.65 level.

In the commodity market, gold failed again to overtake the 1985 barrier which led to a larger correction. Last week’s drop is expected to be temporary as the yellow metal bigger trend is still bullish while the short-term trend has turned flat. For the week ahead, we will be looking for support between the 1945 and 1935 levels and if gold manages to hold above this demand zone, the positive technical picture should remain unchanged, meanwhile, prices can recover gradually over the coming days. On the flip side, a close below the support zone mentioned above can clear the path for a bearish reversal scenario that can reach the 1910-1900 area.

Finally, WTI crude extended its advance last week, and we will be looking for a potential upside continuation after breaking above 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. On the other hand, any decline is likely to be short-lived as we might see new buyers from the 79.10-78.50 zone if we do see a downside corrective move in the coming days.

Economic Analyst
Amine Hiani