Market Insight for the Week Ending 10 February

It was an exciting week for the financial markets.

Marching into the month of February witnessed three major central banks increase their benchmark rates, in line with expectations: the Federal Open Market Committee (FOMC) increased the Fed Funds rate by 25 basis points, and the Bank of England (BoE) and the European Central Bank (ECB) raised their respective rates by 50 basis points.

Although the Fed is evidently slowing the pace of policy tightening (the recent rate hike marks the smallest increase since March 2022) and inflation has forged a peak after easing for a sixth consecutive month in December to 6.5%, the job is not complete according to the Fed Chairman Jerome Powell.

Powell’s Press Conference on Wednesday attempted to echo caution, though his remarks appeared to be largely dismissed by the markets. Powell noted that a ‘couple’ more rate hikes are on the table and that inflation remains too high (note that it is still three times the size of the central bank’s 2% target); he also commented on the tight labour market and the slowing economy. Despite officials warning of further rate hikes, stocks and bonds responded positively. The S&P 500 added 1.1%, while the benchmark 10-year US Treasury yield fell 9 basis points (-2.6%).

While the market reaction exhibits speculation that the central bank is shifting to more of a dovish stance, Friday’s jobs data throws a spanner in the works. Non-farm payrolls increased by 517,000 in January, which represents a huge gain for the jobs market that comfortably beat the median forecast of 185,000. The unemployment rate ticked 0.1 percentage point lower to 3.4%, going against expectations of a slight increase; wage growth, nevertheless, is showing signs of slowing at 0.3% month over month.

Calendar for Next Week

Tuesday 7 February

Reserve Bank of Australia (RBA) Interest Rate Decision at 3:30 am GMT

According to short-term interest rate markets, another 25 basis-point hike is on the table, bringing the Official Cash Rate to 3.35%.

Fed Chair Jerome Powell Speaks at 5:00 pm GMT

The US Federal Reserve Chair Jerome Powell is scheduled to speak in a moderated discussion at the Economic Club of Washington. It will be interesting to see if Powell mentions the market’s response to the Fed’s warnings of further rate hikes.

Thursday 9 February

US Initial Jobless Claims for the Week Ending 4 February at 1:30 pm GMT

Following the previous week’s 183,000 reading, expectations forecast a minor increase of 189,000 unemployment claims.

Friday 10 February

Quarterly (Preliminary) UK Growth (GDP) Data for Q4 at 7:00 am GMT

Q4 growth data is anticipated to record a higher-than-previous value of 0.1%, following the previous -0.3% reading.

Canada Employment Change for January at 1:30 pm GMT

Employment data out of Canada for January, according to economists’ forecasts, is expected to drop to 15,000, following December’s 104,000 print.

US Preliminary (University of Michigan) Consumer Sentiment Survey for February at 3:00 pm GMT

Confidence in the economy is a leading indicator of consumer spending; the median consensus heading into the event is for a marginal increase from January’s 64.9 to 65.0 in February.

Technical View for the Week Ahead

US Dollar Index

The US dollar, according to the performance of the US Dollar Index, pared losses last week and settled in firm territory, up 1.05%.

As evident from the monthly chart, February penetrated the lower periphery of a decision point at 101.30-103.91—likely clipping several longer-term stops—and reclaimed positive ground. The whipsaw beneath the zone was aided by the daily timeframe’s channel support, extended from the low 103.45. Leaving the nearby daily demand at 100.27-100.77 unchallenged by only a handful of points, daily price action fashioned a piercing line (two-candle pattern) on Thursday and recoiled from the noted channel support.

Technical elements on the daily chart point to resistance at 103.42, situated close by a 50-day simple moving average at 103.70 (moving averages can deliver dynamic resistance if tested). There is also a channel resistance to be aware of, taken from the high 107.99, yet it is unlikely that this line will enter the fray this week. Aiding the aforementioned resistances is the daily Relative Strength Index (RSI) pencilling in a temporary overbought area between 60.00 and 50.00 (resistance). Thus, divergence or even a bearish failure swing printing from this zone could be noteworthy.

In terms of the daily timeframe’s trend structure, I noted the following in last week’s Weekly Market Briefing (italics):

Trend direction continues to favour shorts on the daily scale. This is shown through the recent Death Cross. Fashioned through the 50-day simple moving average crossing under the 200-day simple moving average (106.46), this signals the potential for a major trend reversal (though this is a lagging indicator and reflects past price movement). In addition to this, since establishing a peak at 114.78 in late September, a series of lower lows and highs materialised (traditional bearish trend structure).

While the daily timeframe demonstrates a clear downtrend, the monthly scale (despite a one-sided USD decline in Q4 of 2022 from a channel resistance, extended from the high 103.82) shows the trend has remained to the upside since early 2008. As a result, the recent down move could just be another correction and eventually observe a reversal higher, like between January 2017 and January 2021.

Through the lens of a technical analyst, daily resistance at 103.42 and the neighbouring 50-day simple moving average call for attention. If tested this week, alongside the RSI clipping indicator resistance between 60.00 and 50.00 and knowing monthly price possibly stripped a portion of buyers from the decision point at 101.30-103.91, this might be an area we see bears show from, in line with the daily timeframe’s downtrend.

EUR/USD

Upside decreased in recent trading for the EUR/USD despite refreshing highs not seen since April 2022, finishing the week down by 0.7%. The key technical development on the weekly timeframe last week was the formation of a shooting star. The individual bearish candle configuration, as you can see, also shares chart space with weekly Quasimodo support-turned resistance at $1.0888.

This, coupled with the possibility of a long-term sell-on-rally scenario developing, adds weight to a bearish scene unfolding here. In other words, the pullback off the late September lows at $0.9536, in a market trending south since 2021, might be viewed as a sell-on-rally opportunity. $1.0888, consequently, will be a key watch this week as rupturing this base undermines hopes of a bearish showing and unearths fresh weekly resistance as far north as $1.1174.

Meanwhile, a closer assessment of price action on the daily timeframe reveals two back-to-back bearish sessions developed in the second half of the week. Consequently, sellers went head-to-head with trendline support on Friday, extended from the low $0.9730. This is a key line to be mindful of this week. A break ultimately adds substance to the bearish showing visible from weekly resistance and highlights daily support at $1.0602 as a possible target, while a rebound from trendline support calls the weekly area into question.

In support of a bearish episode, the daily chart’s Relative Strength Index (RSI) reveals negative divergence; however, trend structure remains facing northbound, supporting a bullish scene. I noted the following in recent analysis regarding the trend on the daily chart (italics):

Through the series of higher highs and higher lows, the uptrend has been active since rebounding from daily support at $0.9573 (and weekly support at $0.9606). Additional trend confirmation is visible through price crossing above its 200-day simple moving average, currently fluctuating around $1.0317. We can also see that the moving average is starting to level off from its down move: another sign of a potential trend reversal to the upside.

The H1 charged through the $1.08 figure on Friday, following a dramatic one-way decline through $1.09. Looking ahead, structure south of $1.08 paints a technically confluent landscape. Between $1.0774 and $1.0796—made up of a number of Fibonacci ratios (and non-Fibonacci ratios) together with a Quasimodo support—this is an area of support that could provide buyers a zone to work with in early trading this week. This is due to its location under $1.08: a stop run of the psychological number could attract large traders to bid into the selling momentum derived from the stops taken.

How much of a reaction is seen from the H1 support at $1.0774-1.0796, of course, depends on the outcome between daily trendline support and the weekly resistance. Needless to say, these areas should be monitored closely this week.

S&P 500

It was another positive week for global equities. The S&P 500 extended recovery gains and added 1.6%, with scope for further buying visible, according to chart studies.

I wrote the following in the previous Weekly Market Briefing (italics):

Through the simple lens of a technical trader, this is where things become interesting. The weekly chart reveals buyers absorbed offers at the underside of trendline resistance, taken from the high at 4,818. The close higher indicates buyers are looking to change gears and perhaps pursue higher terrain, in line with the monthly timeframe’s longer-term uptrend.

Adding to the bullish case on the weekly chart is the Relative Strength Index (RSI) venturing above the upper boundary of an ascending triangle between 53.72 and 30.47, emphasising positive momentum until reaching the 70.00 overbought threshold. While these triangles are generally found in uptrends, they can also forge reversal signals.

We have indeed viewed buyers shift gears in recent trading, elevating price on the weekly scale to as far north as Quasimodo resistance coming in from 4,177, closely shadowed by the 4,325 15 August high (2022).

To help provide some context, here is where I left the monthly chart’s analysis (italics):

The monthly chart has remained in a dominant uptrend since early 2009. We had two notable corrections in that time, one in early 2020 (COVID), dropping 35%, and one in play since early 2022 (27% from 4,818, as of writing) which was accompanied by negative divergence out of the Relative Strength Index (RSI).

Across the page on the daily timeframe, the technical structure is largely unchanged since Friday’s Technical Briefing (italics):

Following price crossing above resistance at 4,087 (now a potential support), limited resistance is visible until the 4,325 15 August high mentioned on the weekly scale. On the daily timeframe, this peak is closely followed by a 100% projection at 4,378: an AB=CD pattern, as well as a 78.6% Fibonacci retracement at 4,391 and a 200% extension at 4,431. If price retests and holds 4,087 as support this week (or even just maintains position north of the level), this implies weakness at the weekly Quasimodo resistance from 4,177 and a break to the upside could emerge.

As a note, the index continues to extend its position north of the 200-day simple moving average at 3,949, which has remained pointing to the downside since levelling off in April of 2022. We also recently witnessed a Golden Cross form: the 50-day simple moving average (3,957) crossing above the 200-day simple moving average, which is considered a bullish trend signal.

On the H1 timeframe, Quasimodo resistance at 4,183 continues to command a presence, though buyers appear to have the upper hand having seen the unit fail to drop beneath the decision point at 4,113-4,130 to 4,100 support or nearby trendline support, taken from the low 3,885. A push above the current resistance unmasks a possible breakout buying opportunity in the direction of at least H1 Quasimodo support-turned possible resistance at 4,219.

Consequent to the above analysis, the monthly timeframe’s uptrend, the daily timeframe exhibiting scope to explore higher levels north of support at 4,087 and the H1 timeframe gearing up to perhaps overthrow Quasimodo resistance at 4,183 signals that weekly sellers may be vulnerable at Quasimodo resistance from 4,177 this week. This could also underpin a bullish showing to at least the H1 Quasimodo support-turned possible resistance at 4,219, and beyond.

XAU/USD (Gold)

It was a dismal week for the yellow metal, shedding more than 3.0% against the US dollar, its largest one-week fall since July 2022.

Technically, the recent depreciation was expected, albeit not as fierce. Evidence of slowing momentum were clear through both technical indicators and a widely followed daily chart pattern. Both the weekly and daily timeframes touched gloves with overbought conditions on the Relative Strength Index (RSI) in recent weeks, with the daily establishing negative divergence (now exploring space below the 50.00 centreline [negative momentum]).

The daily timeframe also carved out a rising wedge pattern (between $1,929 and $1,896) which was breached/retested before powering south in the second half of last week (leaving neighbouring resistance at $1,966 unchallenged [Quasimodo formation]).

Friday erased an eye-watering 2.5% (the largest one-day drop since March 2022), firmly throwing light on support at $1,828 on the daily chart this week, complemented by a 38.2% Fibonacci retracement at $1,827 and arranged a handful of pips beneath the 50-day simple moving average at $1,843.

As a reminder of trend direction on the daily chart, here is where I left things in recent analysis (italics):

The trend is now technically higher. The trend reversal presented itself in early December last year following the break of the $1,786 previous high in November 2022. Since then, the precious metal also recently welcomed what is known as a Golden Cross, which is the 50-day simple moving average ($1,843) crossing above the 200-day simple moving average ($1,776).

This is a pattern trend followers tend to watch and can signal the possibility of a long-term uptrend. However, should the daily chart develop a low, a lower high and a subsequent lower low, this will inform the market that the precious metal is now trending south. The test for buyers, therefore, is likely to be at the daily support at $1,828, therefore it will be a key level to watch if it makes its way into the fight.

From the H1 timeframe, Friday’s decline directed gold through a number of support levels, settling just south of a Quasimodo support-turned potential resistance from $1,868 (navigating above here opens the door to Quasimodo support-turned potential resistance at $1,879). Below, attention shifts to Quasimodo resistance-turned potential support at $1,857.

Technical expectations going forward, therefore, favour sellers. The steep decline of late and scope for further downside on the weekly and daily charts to supports at $1,807 and $1,828, respectively, places encouraging vibes at the H1 timeframe’s Quasimodo support-turned potential resistance at $1,868 in early trading. Successfully defending the aforesaid level shifts the technical pendulum towards a drop to at least H1 Quasimodo resistance-turned potential support at $1,857.

BTC/USD

Following January’s upbeat performance (+40.0%), it is becoming increasingly obvious that upside momentum is decreasing for the major cryptocurrency. Last week reaffirmed the lacklustre tone, down nearly 2.0% and snapping a 4-week winning streak. Technical specifics, nonetheless, support additional buying.

I noted the following in recent writing (italics):

In the company of the weekly timeframe’s Relative Strength Index (RSI) voyaging north of its 50.00 centreline (followed by positive divergence), BTC/USD appears poised to target a falling wedge (between $25,214 and $17,567) pattern’s profit objective at $25,698, closely trailed by resistance at $28,844.

In spite of price recently battling to fresh highs not seen since August 2022 ($24,262), the slowdown in momentum is evident through the daily chart’s price action. This is also displayed through the timeframe’s RSI shaking hands with indicator resistance at 89.35 and carving out negative divergence (you may also acknowledge that the indicator recently exited overbought space). In terms of resistance, the Quasimodo formation at $24,666 warrants attention, a touch shy of the weekly pattern profit objective mentioned above at $25,698.

A closer reading of price movement on the H1 timeframe reveals Quasimodo resistance-turned support entered the fight at $23,227, a level sharing chart space with an ascending support, taken from the low $20,370. The recent higher high and subsequent correction to the noted support could have dip buyers put in an appearance and attempt to retackle $24,000 psychological resistance and maybe nearby Quasimodo resistance from $24,319. However, while there is arguably room to navigate higher on the bigger picture, the slowdown in upside momentum is a concern which opens the door for short-term breakout selling in the event of a $22,227 breach to return to Quasimodo support from $22,813.

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