Gold demand declines as Fed hints at possible 75 basis point rate hike

20 April 2022, 02:32

Market Focus

U.S. stocks advanced Tuesday, clawing back from a rough start to the week as investors assessed a deluge of earnings reports for clues on how corporate America has fared against a backdrop of war in Eastern Europe and rising inflationary pressures. The S&P 500 advanced 1.6% to mark its best day in a month, and the Dow Jones Industrial Average closed the session out 500 points higher. The tech-heavy Nasdaq Composite extended gains to 2.2% after settling at a one-month low on Monday along with the S&P 500.

After a decade of rapid growth that shook Hollywood to its core, Netflix Inc. has run into a wall. The streaming service lost 200,000 customers in the first quarter, according to a statement Tuesday, the first time it has shed subscribers since 2011. Netflix also projects it will lose another 2 million customers in the current second quarter, setting up its worst year ever as a public company.

Investors, analysts and Hollywood executives had been bracing for the company to report a sluggish start to the year, but Wall Street still expected Netflix to add 2.5 million customers. The shares, already down more than 40% this year, tumbled as much as 24% to $265.11 in after-hours trading.

Netflix management pointed to four causes, including the prevalence of password sharing and growing competition. The company said there are 100 million households that use its service and don’t pay for it, on top of its 221.6 million subscribers. The company is experimenting with ways to sign up those viewers.

“Our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds,” management wrote in a letter to shareholders.

Main Pairs Movement:

The Japanese yen was battered on Tuesday as further upside in global bond yields exerted further upward pressure on G10/Japan interest rate differentials, dampening the low-yielding safe-haven currency’s investment appeal. Needless to say, the yen was the worst-performing major G10 currency, with USD/JPY surging nearly 1.4% to the upper 128.00s, its highest level since early 2002.

EUR/USD and GBP/USD both traded broadly flat just under the 1.0800 level and near 1.3000 respectively, despite the return of normal European flows on the reopening of markets after Monday’s closures for the Easter holidays. Relevant fundamental updates, as well as updates relating to the Russo-Ukraine war were few and far between on Tuesday, making for slow trading conditions.

Finally, the antipodes didn’t see too much excitement. The Aussie was a modest G10 outperformer in wake of Tuesday’s slightly hawkish RBA minutes release — the bank noted high expected inflationary pressures and said recent developments suggest an earlier rate lift-off. AUD/USD rebounded about 0.4% to the 0.7375 area, having bounced at its 50-Day Moving Average in the 0.7340s. NZD/USD, meanwhile, traded flat in the 0.6730 area and remained close to the more than one-month lows it struck on Monday just above 0.6700.

Technical Analysis:

USDJPY (4- Hour Chart)

USDJPY surged toward 128.80 on Fed- BoJ divergence, following the Fed’s more aggressive and hawkish stance and the BoJ’s positivity on a weak yen. From the technical perspective, the outlook of USDJPY is certainly positive and bullish as it continues to trade aggressively above the ascending trendline. Despite the RSI indicator being way overbought, the fundamental point of view outweighs the technical indicator. On the flip side, USDJPY needs to decline below 125.74 in order calm the current bullish momentum. Any meaningful declines might attract some sellers for a technical correction.

Resistance:  128.91

Support:  126.95, 125.74, 124.750

XAUUSD (4- Hour Chart)

Gold is down on Tuesday, trading at around $1,955 after hitting near $2,000 per ounce on Monday. The demand for gold has declined as the greenback rises on the back of hawkish comments from the US Fed, which is suggesting the possibility of a 75 bps interest rate hike. From the technical perspective, in the four-hour chart, chances are on the downside as the price has dropped below the bullish trendline and the midline of Bollinger Bands. In the meantime, the RSI indicator is at 36 and has not yet reached the oversold territory, meaning that the detioration of bulls is possible. A bearish continuation could be expected on a break below the support at $1,950.

Resistance: 1975. 2001

Support: 1950, 1916

EURUSD (4- Hour Chart)

EURUSD clung to a small recovery near 1.0800 on Tuesday after reaching near multi-month lows. On the technical side, the outlook of EURUSD remains on a bearish path; in the four-hour chart, despite turning positive intraday, EURUSD is still far below the bearish moving averages. At the same time, the RSI indicator remains within negative levels while the MACD continues to hover around the negative territory, suggesting that EURUSD remains pressured. In order to regain traction in the near term, EURUSD at least needs to climb above the 20 SMA, then aim for the next hurdle at 1.0932. Otherwise, today’s positive move could be viewed as a technical correction.

Resistance: 1.0932, 1.1039, 1.1126

Support: 1.0758