The US market ended strongly on Friday after mixed economic data, kicking off October with gains.

4 October 2021, 02:06

Market Focus

The US market ended strongly on Friday after mixed economic data, kicking off October with gains. The Dow Jones Industrial Average rose 1.4%, 482 points, and the S&P 500 climbed 1.2% whilst the tech-weighted Nasdaq Composite rose 0.82%. The economic report for US personal spending and income showed that the cost of goods and service were rising. Meanwhile, the rate of US inflation is at a 30-year high. Price pressures will be a challenge for next year. In response to the inflation, the US Federal Reserve has signaled that the plan for tapering bond purchases will begin soon.

Fuel shortages are getting worse in the UK. The fuel crisis has potentially threatened to stop the world’s fifth-largest economy. For almost a week, the shortage has resulted in several service stations being closed, provoking angry responses from some members of the public. The shortage in the UK has drawn comparisons to the global energy crisis in the 1970s due to OPEC’s embargo. However, that is not exactly true. The current UK shortage is mainly caused by the lack of delivery truck drivers, with Brexit being a contributing factor.

Main Pairs Movement

The broad U.S. equity index kicked off in the 4th quarter lower, but all indices were able to rebound to positive territory later in the session. The U.S. Dollar index fell an additional 0.3% on Friday as the August PCE and weaker jobless claim figure weighed on the Dollar. The U.S. government faces more turbulence as House Democrats push the voting for President Joe Biden’s infrastructure bill to a further date. On the other hand, on late Thursday, President Joe Biden signed a short-term appropriations bill that will keep the government funded until December 3rd.

Gold struggled to extend Thursday’s rebound on Friday. Gold’s main reason for lacking upside strength was due to investors remaining cautious about the Fed’s tapering schedule in light of the surging energy prices in Europe. At the end of the day, gold was trading at $3.8 per ounce higher, 0.22%.

EUR/USD trimmed some losses, trading at 1.1592, up 0.15% on Friday. The euro was a bit stronger than the US dollar as the Core Consumer Price Index rose by the forecasted 1.9%, matched by the inflation index.

Technical Analysis

GBPUSD (4-Hour Chart)

Cable advanced for the second day on the back of a weaker Dollar, despite an overall “risk-off” sentiment in equity markets today. Two important economic events helped boost the Sterling against the Greenback. First, the U.S. personal consumption expenditure, which the Federal Reserve uses for its inflation target, rose 0.4% month over month, and 4.3% year over year. The August PCE marks the largest annual increase since 1991. Second, the September U.K. manufacturing PMI came in at 57.1, beating analyst estimations of around 56. The combination of the two events helped boost Cable above our estimated resistance level of 1.355.

From a technical perspective, Cable has been hovering around the 1.355 price region but the pair have not formed solid support above that resistance level. On the four-hour chart, Cable has touched the upper bounds of the Bollinger Bands, while RSI for the pair has left the oversold territory and now sits at 56. Cable is currently trading below its 50, 100, and 200-day SMA.

Resistance: 1.355, 1.3687, 1.3717

Support: 1.3422, 1.3256

USDJPY (4-Hour Chart)

USD/JPY continued to decline as the Dollar loses strength. USD/JPY rose slightly in the early trading session, but the pair began to decline as the European and American trading sessions began. Rising PCE and the weaker unemployment data from yesterday, both contributed to the decline of the Greenback.

From a technical perspective, USD/JPY is trending towards our estimated support level of 110.87. The recent two-day decline of the pair could be a technical pullback, as RSI for the pair was in overbought territory for the past week. As of writing, USD/JPY is trading at the lower bounds of the Bollinger Bands, and the pair is trading below its 50, 100, and 200-day SMA.

Resistance: 112

Support: 110.87, 110.32, 109.66  

GOLD (4-Hour Chart)

Gold continued its rise for the second straight day as the Greenback loses steam. The pair is currently hovering slightly above our estimated resistance level of 1759. With the U.S. treasury yield declining and an overall “risk-off” sentiment of the market, Gold bulls are eyeing to end three straight weeks of losses.

From a technical perspective, XAU/USD has formed a strong support base around the 1759 price region. In fact, XAU/USD has successfully broken through that resistance level and will see the immediate resistance level around the 1779 price region. RSI for the pair now sits at 61, indicating modest overbuying. XAU/USD is trading above its 50, 100, and 200-day SMA.

Resistance: 1759.27, 1779.04, 1808.42

Support: 1725.51