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Market Focus

U.S. shares rose on the back of gains in cyclicals, while the technology sector extended losses as rising Treasury yields damped the outlook for growth stocks. The S&P 500 ended the day higher, after swinging between gains and losses in the last of trading. The tech-heavy Nasdaq 100 slid, building on Monday’s last-hour selloff. Video meeting corporation Zoom tumbled on signs of slowing growth.

After weeks of apparent hesitation, and amid months of market speculation, President Joe Biden has decided to stick with Jerome Powell for the position of the Fed’s chair. He does this despite clear indications that this will anger the left in his party. Some liberals in the closely-divided Senate have already promised to oppose Powell — who was first selected by Donald Trump — when his nomination comes to a vote in the chamber. However, Biden has opted for stability in the Federal Reserve at a time when rising interest rates and continued Covid-related challenges put the US economy in a precarious position.

The president may consider Powell the safe choice, with some Republicans already offering their support, but if Senate Democrats fracture over the nomination, it may create obstacles to a cohesive vote on Biden’s Build Back Better social spending legislation — a development that could have grave political consequences for their party.

Traders pruned bets for a dovish-for-longer Federal Reserve after Jerome Powell was selected for a second term. The chair himself sought to strike a balance in his policy approach, saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched.

Main Pairs Movement

The Greenback extended its previous gains, with the dollar index reaching fresh 2021 highs around 96.55. The dismal mood of the equity markets and the higher government bond yields fueled demand for the safe-haven dollar.

EUR/USD bottomed for the day at 1.1226, while GBP/USD fell to 1.3342 amid worrying labour shortage and inflation issues. Bank of England head Andrew Bailey said that the bank may not return to offering a hard form of guidance, according to Reuters. However, it was not “off the table” that they give no guidance at all on rates, with decisions to be made meeting by meeting, the governor added, before stating that the UK labour market is very tight.

Commodity-linked currencies performed well on Tuesday with the help of the rebound in commodity prices. AUD/USD successfully defended its rates against the soaring US dollar, while USD/CAD dropped 0.25% amid a strong pullback of the oil prices.

Gold declined for a fourth consecutive day, failing to find support at the key level of $1800, and now trading at $1792 a troy ounce. The US 10-year benchmark yield soar to its monthly high at 1.685. Crude oil prices surged significantly, with WTI up 2.65% to $78.50 a barrel, and Brent up 3.5% to $82.20.

Technical Analysis

EURUSD (4- Hour Chart)

After the previous day’s slide to a sixteen-month low, EUR/USD rebounded moderately and stayed in positive territory on Tuesday. The pair climbed higher and touched a fresh daily high in the early European session, but then pulled back towards the 1.124 area. EUR/USD surrendered its modest intraday gains and is currently rising 0.27% on a daily basis at the time of writing. In Europe, the flash German Manufacturing PMI released today came in at 57.6, which was better than market expectations. The upbeat data showed that the manufacturing sector activity in the Eurozone continues to expand, underpinning the EUR/USD pair. On top of that, concerns about rising Covid-19 cases and the reimposition of lockdown measures continues acting as a headwind for the Euro.

On the technical side, the RSI indicator is at 38 as of writing, suggesting bearish movement ahead. As for the MACD indicator, a golden cross has just formed on the histogram, which means a short-term upward trend for the pair. Looking at the Bollinger Bands, the price rose from the lower band, therefore the upward trend is likely to persist. In conclusion, we think the market will be bullish as the pair is eyeing a test of the 1.1374 resistance, but the prospects for an early policy tightening by the Fed might keep a lid on any meaningful recovery for the EUR/USD pair.

Resistance: 1.1374, 1.1464, 1.1609

Support: 1.1226, 1.1168

GBPUSD (4- Hour Chart)

The pair GBP/USD declined on Tuesday, continuing to stay under pressure for the third day. The pair touched a daily top near 1.341 in the early European session, but then failed to preserve its bullish traction and dropped below the 1.335 level. At the time of writing, Cable has rebounded slightly amid weaker US dollar across the board, currently losing 0.09% on a daily basis. Despite an upside surprise from the UK flash Manufacturing PMI report, which rose to 58.2 in November, Cable remains underminned by the deadlock over the post-Brexit arrangement in Northern Ireland and fishing rights. As the UK threatens to trigger Article 16, which may worsen relations with the European Union and potentially lead to a trade war.

On the technical side, the RSI indicator is at 39 as of writing, suggesting bearish movement ahead. Meanwhile, the MACD is now sitting below the signal line, which means a downward trend for the pair. As for the Bollinger Bands, the price is moving alongside the lower band, therefore the downward trend could persist. In conclusion, we think the market will be bearish as the pair is now testing the 1.3353 support, a drop below that level could extend the recent downfall to under 1.3300 area.

Resistance: 1.3514, 1.3607, 1.3698

Support: 1.3353, 1.3188

USDCAD (4- Hour Chart)

Following its previous rebound from two-week lows near 1.25 area, USD/CAD preserved its bullish momentum and advanced on Tuesday. The pair was trading higher to a daily top above 1.274 during the European session but now has pulled back amid renewed US dollar weakness. USD/CAD was last seen trading at 1.2708, currently posting a 0.05% gain on a daily basis. Oil prices climbed higher to the $78.00 level despite the official announcement by the White House that it will release crude oil reserves. The resurging oil prices have lent support to the commodity-linked Loonie and dragged the USD/CAD pair lower, offsetting most of its intraday gains.

For technical analysis: the RSI indicator is at 69 as of writing, suggesting that the pair is in the overbought zone, a trend reversal could be expected. Looking at the MACD indicator, the diminishing positive histogram indicates that the pair could experience a bearish trend. As for the Bollinger Bands, the price moved out of the upper band first, and dropped right back inside the band, therefore the trend is negated. In conclusion, we think the market will be bearish as long as the 1.2775 resistance line holds.

Resistance: 1.2775, 1.2849

Support: 1.2585, 1.2493, 1.2387

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