Fed members say the U.S. economy could see a second consecutive quarter of negative growth

8 June 2022, 01:34

Market Focus

US equities edged higher despite retail giant Target issuing a warning about its current quarter’s profits, putting pressure on the broader retail sector. The Dow Jones Industrial Average was up 0.8%, the S&P 500 rose 0.95% while the Nasdaq Composite climbed 0.94%. The three major indices opened solidly lower, but turned positive as the day progressed following the decline of bond yields. Major retailers have delivered their mixed earning reports, adding some volatility to the equities market. The mixed reports signaled the potential recession or a rapid change in consumer spending.

Widely followed Federal Reserve members have started indicating that the US economy could be headed for a second successive quarter of negative growth, meeting a rule- of- thumb definition for a so-called recession. According to Fed’s GDPNow tracker, there was an annualized gain of 0.9% for the second quarter, down from an estimated 1.3%.

Following Apple’s WWDC22, Apple is turning into a fintech company, not just focusing on devices and software, but is now shifting to a new payment system. Apple announced several new features for its wallet at its developers conference on Monday, directly competing with other fintech companies, including PayPal and Affirm.

Main Pairs Movement

USD/JPY continued to edge higher toward 133.00, climbing a third consecutive day. The Japanese yen stayed on offer despite Japan’s GDP being better-than-expected. The divergence of the monetary policies between the Fed and the BOJ continues weighing on the currency pair.

WTI extended its consolidation toward the 118.00 level amid the concerns of oil supply. At the same time, oil prices witnessed a strong upside movement on the expectation of a demand recovery in China. On the supply side, the American Petroleum Institute has agreed to increase the supply by 1.845 million barrels, but it seemed to have minimal  impact on  oil prices as the boost in the oil supply was still far from enough to offset the supply gap from Russia.

AUD/USD climbed 0.54% on Tuesday following the RBA  lifting interest rates by 0.50%, higher than expected. The RBA pointed out that inflation in Australia has surged significantly, and that they needed to tackle the inflationary pressure by being more aggressive on the rates.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD fell from the start of the trading day, but the pair was able to pair losses once the American trading session began. A weaker dollar and an overall risk-averse sentiment aided the Euro to end its third consecutive losing day against the US Greenback. The ECB is set to convene on Thursday and announce its monetary policy decision.

On the technical side, EURUSD has been trading around a tight range between 1.06384 and 1.07864 for the past couple of weeks. Near term support levels for the pair remains at 1.0695 and 1.06816, while resistance levels at 1.07864 stands firm. RSI for the pair sits at 53.46, as of writing. On the four hour chart, EURUSD is trading below its 50 day SMA, but above its 100 and 200-day SMAs.

Resistance:  1.07614, 1.07864

Support: 1.0695, 1.06816

GBPUSD (4-Hour Chart)

The British Pound surged as the Greenback lost demand. Britain’s Prime Minister Borris Johnson survived the vote of no confidence, although by a small margin. UK ‘s services PMI printed 53.4 for the month of May, marking the largest one month decline for the year. Furthermore, as the US 10-year Treasury yield retreated below 3%, the pound gained further traction.

On the technical side, GBPUSD has broken through our previously estimated resistance level at 1.25691, but the 1.26539 resistance level remains unchallenged. Support level at 1.24539 remains firm. RSI for Cable sits at 58.46, as of writing. On the four hour chart, Cable currently trades above its 50, 100, and 200-day SMAs.

Resistance: 1.25691, 1.26539

Support: 1.24539

USDJPY (4-Hour Chart)

USDJPY stalled out as the pair neared the 133 price region. Broad based Dollar weakness allowed the Japanese Yen some breathing room on Tuesday’s trading; however, downside for the Japanese Yen still seems abundant, due to the BoJ’s easy policy stance. On the economic docket, Japan is set to release its quarterly GDP early in the Asia trading session on the 8th.

On the technical side, USDJPY has met its near term resistance at the 133 price region, while the near term support level at 130 sits firm. RSI for the pair is indicating 77.16 as of writing. On the four hour chart, USDJPY is currently trading above its 50, 100, and 200-day SMAs.

Resistance: 133

Support: 130