Markets await Wednesday’s update from the Fed as well as details about how China’s government will respond to the Evergrande crisis

22 September 2021, 03:51

Market Focus

US stocks declined near the end of trading on Tuesday, edging lower for the day. Investors are now evaluating the risks from this week’s Federal Reserve meeting, and China’s strict regulations on the real-estate sector. Markets await Wednesday’s update from the Fed as well as details about how China’s government will respond to the Evergrande crisis.

The benchmarks, S&P 500 and Dow Jones both dropped on Tuesday. The S&P 500 was down 0.1% on a daily basis, continuing its bearish traction for a fourth day. The index opened higher, but experienced high volatility throughout the day. The industrial, communication services, and utilities sectors are the worst performing among all groups, dropping 0.7%, 0.33% and 0.24%, respectively. The Nasdaq, on the contrary, posting a 0.1% gain for the day.

Investors are watching from the sidelines for the two-day Fed meeting that stared Tuesday as the potential timeline for bond tapering and any shifts in expectations for raising interest rates will both be pivotal for the global stock market.

In Asia, Evergrande tumbles further after S&P Global Ratings say default is likely. Despite concerns about broader contagion remaining, things are looking up as Wall Street believes that China has it under control. Investors expect that China will save its biggest real-estate firm, either directly or indirectly, from being like the Lehman saga. International Monetary Fund’s (IMF) Chief Economist Gita Gopinath also sounded optimistic in her latest speech, citing that China has “the tools and the policy space to prevent this turning into a systemic crisis.”

Main Pairs Movement

China’s Evergrande declined further on Tuesday’s trading, but the broad equity and currency markets bounced back on fresh dollar strength, and investors are now turning their attention to Wednesday’s FOMC press conference and the Fed’s interest rate decisions. Despite spending returning to pre-pandemic level, the U.S. still posted fewer job gains, less than expected inflation in August, as well as some economic fatigue brought on by the resurgence of the Delta variant. Thus, analysts are predicting that the September FOMC meeting would not result in a tapering commitment. Rather, analysts are expecting the Fed to remain dovish as the FOMC keeps quantitative easing measures intact for the near term.

Most USD-based currencies declined for a second straight trading session as the Greenback gained fresh strength. Cable rebounded slightly at the beginning of today’s trading but would decline once the North American trading session began. USD/CAD slipped during the European session but recovered swiftly as the American trading session began. AUD/USD was also able to repair some of the losses from the previous trading day but would lose ground as the American trading session began.

Technical Analysis

GBPUSD (4-hour Chart)

Cable found support at around 1.3641 at the start of the trading day, and the pair continued to repair lost ground from yesterday’s trading. However, as the American trading session began and U.S. equity markets rallied, Cable once again traded lower as the dollar gained strength throughtout the American trading session.

From a technical perspective, Cable met resistance at the 1.3687 price level, and was unsuccesful at breaking through before the pair began trading lower. As of writing, Cable is trading at the lower bound of the bollinger bands, while RSI for the pair sits at 32.21, indicating some overselling in the market. Cable is trading below the 50, 100, and 200 day SMA.

Resistance: 1.3687, 1.381, 1.3851

Support: 1.3641, 1.3603

USDCAD (4- Hour Chart)

USD/CAD was unable to keep yesterday’s gains. Instead, the pair slipped as much as 0.8% for the most part of Tuesday’s trading sessions before finding support at around the 1.275 price level. Prime Minister Justin Trudeau successfully defended his historical third term, despite not winning a majority in the parliament and the popular vote. During his campaign, Prime Minister Trudeau has pledged to raise taxes on financial institutions and to impose stricter emission rules for the oil and gas sector.

From a technical position, USD/CAD continues to be rejected from the 1.2834 resistance level, but the pair has found higher levles of support at the 1.2752 price level. As of writing, USD/CAD is trading at the upper half of the bollinger bands and RSI for the pair indicates 60.11, suggesting mild overbuying in the market. USD/CAD is trading above the 50, 100, and 200 day SMA.

Resistance: 1.2834, 1.2912

Support: 1.2752, 1.2635, 1.2586

AUDUSD (4- Hour Chart)

AUD/USD gained during the European session as the pair climbed to a session high of 0.7283 before the American trading session began. As the Greenback gained strength, AUD/USD entered negative territory and is trading lower towards our estimated support level of 0.7222. The RBA Minutes, released today, failed to boost demand for the Aussie dollar. The Minutes showed the RBA’s continued dovish stance and no reversal in the RBA’s bond purhcasing program in light of weaker job postings in August.

From a technical viewpoint, AUD/USD has met new resistance at the 0.728 price level. As of writing, AUD/USD is trading at 0.7233, above our estimated support of 0.7222. The pair is trading at the lower bound of the bollinger bands, while RSI for the pair indicates 39.77, indicating mild underbuying in the market. AUD/USD is trading below the 50, 100, and 200 day SMA.

Resistance: 0.728, 0.7332, 0.7375

Support: 0.7222, 0.7117