Optimistic outlook for U.S. equities continues to prevent Gold’s recovery to last week’s highs

2 February 2022, 01:55

Market Focus

The broad U.S. equity market rallied for the third consecutive trading session. The Dow Jones industrial average rose 0.78% to close at 35,405.24, the S&P 500 climbed 0.69% to close at 4,546.52, and the Nasdaq composite gained 0.75% to close at 14,346. The benchmark U.S. 10-year Treasury yield climbed above 1.8% and the 30-year yield sits at 2.117%.

Markets rallied amid strong earnings showings from large technology firms. AMD, which reported a 49% earnings growth, year over year, saw its share price soar more than 10% after the bell. Alphabet also announced better than projected earnings results. The tech giant saw revenue growth of 32% to $75.33 Billion versus the projected $72.17 Billion. During their earnings release, Alphabet also announced a 20 to 1 stock split that will go into effect in July. Shares of Alphabet popped more than 6% during after-hours trading.

T-Mobile (TMUS), Facebook (Meta), and Spotify (SPOT) are scheduled to release earnings today after market close.

Main Pairs Movement

The Dollar Index dropped for the third consecutive day. The benchmark has lost close to 1% since the start of the week. Despite Treasury yields edging higher, the Greenback remained weak compared to a basket of other major foreign currencies.

The Euro-Dollar pair gained 0.33% over the course of yesterday’s trading. The Eurozone’s CPI will be released later today and could provide ample price action for EURUSD.

The British pound gained 0.57% against the Greenback over the course of yesterday’s trading. Expectations of a second rate hike by the BoE has strengthened market participants’ demand for the Sterling.

Gold advanced 0.21% over the dollar during yesterday’s trading; however, the precious metal is finding a lack of momentum in its recovery from last week’s steep selloff as an increasingly optimistic outlook for U.S. equities continues to prevent Gold’s recovery to last week’s highs.

Technical Analysis

EURUSD (Daily Chart)

The EUR/USD pair continued to rise on Tuesday, extending its rebound from a yearly low pinned on Friday. The pair started its upside movements during the Asian session and hit a daily high near 1.128 level in the mid-European session. The pair was last seen trading at 1.1262, posting a 0.28% gain since the beginning of the day. The demand for the shared currency remains robust in the second trading day of the week amid broader dollar weakness, as optimism on big tech’s financial results helped boost stock market sentiments, which is in favour of the risk-sensitive EUR. However, the dovish ECB monetary policies are still weighing on the Euro pair. Investors should look carefully at both EU and US central banks’ announcements to see if the rate discrepancies between their currencies will stretch further.

For the technical aspect, the RSI for the pair reads 44.92 as of writing, and the price actions remain below all the major moving averages, suggesting bearish movement ahead. On the upside, if the pair could close above its 20 and 50 DMAs, then it is expected to knock on its next resistance 1.1400. On the contrary, if the pair fails to cling on to the 1.1200 threshold, then a sharp decline to its yearly low is anticipated.

Resistance: 1.1200, 1.1400, 1.1620

Support: 1.1000, 1.0780

GBPUSD (Daily Chart)

After ending January with losses of 0.66%, the British pound snapped its losing streak, climbing for 3 days and gaining over 1%. At the time of writing, GBP/USD is trading at 1.3514 and approaching the 20 DMA lying at 1.3558. As the January ISM Manufacturing figures turned out green, US equities opened low but soon jumped back to positive an hour after, which is in favour of the risk-sensitive GBP. Unlike the ECB, the Bank of England is more hawkish when it comes to monetary decisions, causing investors to be more faithful to the British pound than to the Euro.

On the technical front, the RSI for Cable reads 51.23 as of writing, as the bulls and bears are playing tug-of-war at the crucial 1.3500 psychological resistance/support. The pair is now trading above its 50 DMA, but still down around 40 pips to the 20-day one. To the north, Cable is going to face the heavy 1.3600 resistance, followed by a long-term downtrend, and then the 200 DMA currently at 1.3717. In cases to the south, the pair is underpinned by the year-to-date lows around 1.3400, followed by the December lows around 1.3200.

Resistance: 1.3600, 1.3717, 1.3830

Support: 1.3400, 1.3200

XAUUSD (Daily Chart)

Gold peaked on European hours at $1,809 and then lost strength. It pulled back to $1,797 following the release of US economic data and rose back above $1,800. XAU/USD moved sideways during American hours, capped by $1,810 while holding above $1,800. The Greenback recovered some strength amid rising US bond yields that rebounded from weekly lows. The dollar index (DXY) is falling for the second day in a row and it stands around 96.42, down 0.23% off lows. The combination of a rebound in yields and also in the DXY weakened XAU/USD, which is still positive ground for the day.

On the technical front, Gold’s price recovery found short-term resistance at $1,810 and pulled back. If XAU/USD fails to break the $1,810 area, the upside would remain limited and a break higher could clear the way for an initial rally to the 20 DMA at $1817. Above that, the next key resistance lies in the $1,830 area. On the flip side, a slide back under $1800 would increase the bearish pressure. A daily close under $1790 is needed to suggest more losses ahead. Key support levels are seen at $1765.

Resistance: 1817, 1830, 1860

Support: 1800, 1765, 1720