Market Focus

U.S. equities closed sharply higher on Thursday, led by technology shares as the markets continued a recovery from steep losses earlier this week. The S&P 500 climbed 2.5%, and Dow Jones surged by more than 600 points, or 1.8%. The tech-heavy Nasdaq Composite jumped 3.1% to cap trading, marking its best rise since March on the heels of stronger-than-expected earnings from Facebook parent company Meta (FB) that boosted shares up nearly 18%.

Apple Inc. predicted that supply constraints would cost $4 billion to $8 billion in revenue during the current quarter, a warning that sent the shares tumbling and cast a pall on record-setting results that the company just reported.

Covid restrictions, which have swept China in recent weeks, will take a toll on the June quarter, Apple said during a conference call Thursday. The fiscal second quarter’s sales and profit had topped analysts’ estimates, fueled by strong demand for the iPhone and digital services even as the company announced $90 billion in new stock buybacks.

The outlook renewed fears that supply-chain woes will continue to roil the tech industry following a short-lived recovery from pandemic struggles. Companies ranging from Microsoft Corp. to Texas Instruments Inc. have already said that China’s Covid-19 lockdowns will crimp sales and make it harder to produce products like the Xbox. The Xi Jinping administration has embraced a strict Zero Covid policy to stop the pandemic’s spread, reverberating through the world’s supply lines.

Chip shortages and the Ukraine war also are causing disruptions, Apple Chief Executive Officer Tim Cook said during a call. “We are not immune to these challenges, but we have great confidence in our teams, our products and services and in our strategy.”

Main Pairs Movement:

Despite a shocking decline in the latest GDP release, the greenback advanced across the board on Thursday. The Dollar Index surpassed its 2017 highs to almost hit 104.00, its highest level since December 2002. This was primarily a result of a steep sell-off in the yen that launched USD/JPY to fresh multi-decade highs of, at one point, above 131.00.

The catalyst for the latest leg lower in the yen, which saw all major G10/JPY pairs surge (and not just USD/JPY) was Thursday’s dovish BoJ policy announcement. As expected, the bank doubled down on its intent to stick with its ultra-dovish policies of negative interest rates and yield curve control for the foreseeable future given continued pessimism about its ability to meet its long-term inflation remit.

Elsewhere, most other major G10 currencies also continued to depreciate versus the rampant US dollar. The Euro pair dropped a further 0.5% and briefly dipped under 1.0500 for the first time since March 2017, GBP/USD dropped a further 0.6% to the mid-1.2400s and AUD/USD fell another 0.4% to probe 0.7100. NZD/USD dropped another 0.8% to fresh lows in July 2020 under 0.6500. Expectations that the BoE and RBA will both lift interest rates by 25 and 15 bps respectively each next week have done little to stem the recent slide as both of these hikes pale in comparison to the 50 bps move expected from the Fed at not only next week’s meeting, but also the next few.

Technical Analysis:

USDJPY (4- Hour Chart)

USDJPY hit 131.00 for the first time in two decades as the Fed-BOJ monetary policy divergence widens. On Thursday, the Bank of Japan decided it would continue to keep the key rates unchanged while doubling down on bond buying. From the technical perspective, USDJPY remains in a strongly bid tone on the four-hour chart following the breakout of the resistance level of 128.98. Failure to defend the cap level will result in attracting more buying interests. At the time of writing, USDJPY is attempting to break the next obstacle, 131.24, in two decades. However, as the RSI indicator has reached near the 80 mark, the upside momentum might need to cool down a bit before continuing to head upward. On the other hand, USDJPY needs to slide below 127.58 in order to turn to the downside.

Resistance:  131.24

Support:  128.98, 127.58, 126.45

XAUUSD (4- Hour Chart)

Gold has failed to recover, consolidating around $1,885 even though US GDP figures revealed a surprise contraction. However, weak US economic data seems unlikely to change that fact the Fed is going to hike interest rates by 50 bps in May, and will remain in an aggressive stance until later this year. On the technical side, gold faces a barricade near $1,990. In order to gain some follow-through buying, gold needs to climb above $1,990, where the midline of the Bollinger Band sits, suggesting a reversal from bearish to bullish in the near-term. At the time of writing, bulls seem to lack interest as the RSI still hovers within the negative level, implying that sellers are still in control.

Resistance: 1,890, 1,916, 1,940, 1,950

Support: 1,878, 1,877, 1828

USDCAD (4- Hour Chart)

USDCAD eased from multi-week highs amid dismal US economic data that showed a contraction on the US GDP print. Technically speaking, although USDCAD has lost traction after hitting near the 1.2900 level, the downside seems limited. At the time of writing, USDCAD is headed south toward the support of 1.27. If the level can defend the bearish momentum, then according to the Elliott Wave, it is expected to see one more upside wave. As the RSI indicator eases from the overbought territory, USDCAD looks to rebound once it hits the support of 1.27. Nonetheless, if the support of 1.27 fails to hold, then it will favor the sellers, attracting some follow-through selling interest.

Resistance: 1.29

Support: 1.2793, 1.2694, 1.2542