Daily Market Report

04/05/2023
11:49

The US Federal Reserve raised interest rates by 25 bps from 5.00% to 5.25% on Wednesday as expected. In addition, the central bank hinted at a potential pause in its rate-hiking campaign, however, rate cuts remain unlikely as FED chair Powell, said that future monetary policy decisions will be data-dependent. Therefore, investors remain confused and will have to wait for more guidance in the coming weeks.

Looking at market reaction, all major US stock indexes closed lower following FED’s meeting. The Dow retreated by 0.8%, the S&P500 shed 0.7% while the Nasdaq lost 0.5%. In the meantime, the US Dollar fell against major currencies. Moreover, Gold spiked higher as investors turned to safe havens. On the opposite, oil prices faced heavy selling pressure.

As of today, all eyes will be on the European central bank monetary policy meeting as it is expected to raise interest rates from 3.50% to 3.75%. In the US, initial jobless claims are due to rise from 230K to 240K.

Below, we will be analyzing the latest price action developments in the major currency pairs alongside gold.

EURUSD

The Euro extended its advance to reach the key resistance of 1.1090 as the bullish momentum returned.

Earlier this week, we have seen a false breakdown below the 1.0965 support as shown in the chart below, then buyers took control of the single currency again ahead of today’s ECB rate decision. Technically, we will likely see a test of the 1.1100 barrier later today, meanwhile, a successful breakout above it should confirm a continuation to the upside where buyers are expected to target the next resistance located at the 1.1180 level in the next days.

On the opposite, a failure below this level could send the pair into a short-term correction to the downside. However, the pair is likely to remain well-supported while prices continue to hold above the 1.0940 low.

GBPUSD

The British pound traded strongly higher on Wednesday as we witnessed an advance of 100 pips which confirms the positive outlook discussed in our previous reports.

From a technical standpoint, the pair remains in an uptrend in the higher time frames, and the bullish momentum is expected to stay unchanged if the Sterling continues to trade above the 1.2435 low. Therefore, we will be watching the price action near the 1.2590 resistance today as a break above it should lead to another advance in the direction of the 1.2670 level.

On the opposite, any decline is likely to be short-lived as we may see new buyers from the 1.2535 support if tested.

USDJPY

The pair faced heavy selling pressure near a key resistance zone as highlighted in the chart below. This zone was located between the 137.90 and the 138.20 levels which represents the highest levels seen in March.

Moreover, the recent break above the falling trendline turned out to be a false breakout, consequently, sellers took control of this pair, and any bounce is expected to face new offers between the 135.30 and 135.70 levels.

For the time being, prices are expected to continue trading lower toward the next support which stands at the 133.30 level. However, traders should wait for a bounce first to reach the resistance zone mentioned above before looking for a new wave lower in the coming hours as the pair is currently extended to the downside.

USDCAD

The recent advance has stalled at the 1.3670 resistance level; therefore, the pair can turn lower in the coming hours if this level holds.

In addition, the pair is testing an important falling trendline located in the same zone, which reinforces the probability of a downside retracement. Technically, the trend remains neutral in this pair when looking at the higher time frames.

Therefore, traders should wait for additional price action to confirm the next direction in this pair. The 1.3580 level is likely to act as a support in the near term, and a break below it is needed to confirm the bearish scenario. Otherwise, a daily close above the 1.3670 level will clear the path for another rally toward the 1.3750 level.

GOLD

Gold rallied after the formerly broken resistance zone located between 2005 and 2015 levels turned into support. In addition, the yellow metal spiked higher overnight after successfully breaking above the 2048 resistance which represents last month’s high.

For the time being, it is important to note that both the short and long-term trends are positive in gold. However, prices are extended to the upside after opening with an upside gap. The yellow metal is likely to try filling the gap before finding support and starting another wave higher. The important support zone for today is located between the 2040 and 2035 levels followed by 2030 in extension, on the other side, resistance is at $2057 followed by $2063 per ounce.

Finally, any drop should be considered as temporary as the bullish momentum remain strong.

Economic Analyst
Amine Hiani