US futures are trading modestly lower on the final trading day of the week as traders are digesting all of the economic data and monetary policy decisions that we have received this week. There is no doubt that market players have received several surprises in terms of economic data, such as the dramatic drop in the US CPI number, which helped the market to rally. However, the price action hit the wall momentum wise. The Fed confirmed its hawkish monetary policy stance and showed no interest in lowering the pace of interest rate hikes until inflation reaches its new target of 5%.
Today we are going to get more data on Flash Manufacturing and Service PMI numbers out of Europe, the United Kingdom and the United States. If the numbers show decent readings and emerge better than expectations, we could potentially see some recovery for the US and European markets, which are on track to record weekly losses.
In terms of the forex market, we saw the Bank of England announce its interest rate hike once again by 50 basis points yesterday. The Sterling took a nose dive on the back of the bank’s decision which is quite literally an opposite reaction to your normal textbook trade. This is because a currency usually moves higher when a central bank hikes rates, and a currency moves lower when a central bank lowers the interest rate. The reason that we saw weakness in the Sterling was due to the concerns over the cost-of-living crisis and the potential of prolonged economic stress for the UK economy. It is pretty much a given that 2023 isn’t going to be a good year for the UK’s economy, as a recession is going to make its way into different parts of the economy, and consumers will have less disposable income. The BOE had very little hope in its tone yesterday, and now the focus will be on the economic numbers, and they will be closely measured against the market expectations.
As for the EUR/USD, the European Central Bank also announced an interest rate hike yesterday, but the Euro actually rallied on the back of the bank’s decision as traders are less concerned about a prolonged period of the recession taking place in Europe.
The precious metal is on track to record its first weekly loss in over two weeks. The main reason for this is the strength in the dollar index, which moved higher as the Fed confirmed its hawkish tone in their monetary policy meeting this week. Having said this, the important price level when it comes to the gold price is 1,800, which continues to become support and resistance. Traders know that if the price can continue to trade above this price level, we have much stronger hopes for the price to continue to make higher highs and lower lows.
Brent and Crude oil prices are trading mostly soft but on track to claw back half of the losses that they recorded last week. There is hope among traders and investors that China’s zero covid policies are now moving in the right direction, and that should help oil demand. However, the main concern among traders is the potential of a global recession taking place and taking a toll on oil prices. The odds are strong that going into Q1 of 2023, we will see a wave of GDP readings contracting around the globe, and that could take the wind out of oil prices. For now, oil prices continue to consolidate, and the prices are very much trading in our previously defined price range of $70 to $80 for Crude Oil.
On the technical side, if bulls need to show their power, then the price must move above the 50-day SMA on the daily time frame. Currently, Crude Oil is trading at $75 and the 50-day SMA is trading near the price level of $82.
BTC prices also reacted positively to the weakness of the dollar index earlier this week when the US CPI data was released. The BTC price jumped above the 18K price, which was a sign of strength, but now the price has dipped below that critical price level. Another bearish sign also emerged for the price action when the BTC price failed to move above the 50-day SMA after testing the strength of the SMA yesterday. Technical traders pay close attention to these SMAs, and for them, this matters a lot. Nonetheless, the price is still trading pretty close to the 50-day SMA, and there are strong chances that we may see another retest of this in the coming days.
Crypto traders are also keeping a close eye on Binance, the largest crypto exchange in the world. Traders are concerned about the capital outflow that has happened so far this week, and the concerns are that the exchange may not have that much of a strong reserve pot that it communicated in the past few weeks.
The Asian stock market mainly traded lower on the week’s last trading day. The Nikkei index dropped by 1.95%. The Shanghai index dropped by 0.35%, while the KOSPI index declined 0.38%. The Hang Seng index moved higher by 0.38%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth lost further momentum. 58% of the Dow Jones stocks are trading above their 200-day moving average.
The S&P 500 stock breadth also confirmed some more weakness in its momentum. 56% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading lower today. In terms of economic data, investors will be looking at the US Flash Services PMI reading, which is coming out at 2:45 PM GMT. The number is expected to print a reading of 46.5, while the previous reading was 46.2.
The Dow Jones futures have experienced a minor sell-off this week and have added more losses to their performance than they recorded last week. The price is still trading above the 50, 100, and 200-day SMA on the daily time frame, which confirms that it is bulls in the driving seat, and this sell-off is only a retracement. Given the optimism about de-escalating geopolitical tensions, we may see further gains for the Dow Jones’s price action in the coming days. The RSI has also eased off from its overbought levels and that could stimulate more buying.
The near-term support is 32,091, while the resistance is 36,654.
Stock Market Rally
The S&P 500 stock index closed lower on Thursday; the index moved lower by 2.49%. The communication sector led the index lower, and all 11 sectors closed lower yesterday.
The Dow index dropped on the second last trading day of the week; the Dow stocks moved the index lower by 2.25%..
The NASDAQ composite, the tech-heavy index, closed lower by 3.23% yesterday.