US stocks lower as Fed might raise more interest rate

February 22, 2023

US stocks recorded their worst day in two months on Tuesday, as investors were unnerved by economic data suggesting interest rates have further to rise after months of increases by the Federal Reserve.  The blue-chip S&P 500 index ended down 2 percent, with declines in every sector. The tech-heavy Nasdaq Composite slid 2.5 percent. Both indices had their steepest daily losses since December 15.

Markets have wobbled in recent days as investors gird for further interest rate rises from the Fed to combat inflation in the US economy. Yields on benchmark Treasury bonds reached three-month highs on Tuesday, pushing yields up to 3.95 percent.

Ahead of Wednesday’s trade, market participants will be closely monitoring the latest FOMC meeting minutes as well as a speech from FOMC member Williams. Key reports to watch include the PCE Prices Index this Friday (2/24), the Job Openings and Labor Turnover report on 3/8, the February Employment Report on 3/10, and the Consumer Price Index on 3/14.

Main Pairs Movement

DXY trades within a tight range near Friday’s closing levels in the sub-104.00 zone.

Higher Treasury yields and a projected 5.3% terminal Fed funds rate have seen a resurgence in the US Dollar index, DXY. At the time of writing, the price traded at 104.171.

GBP/USD grinds higher past 1.2100, mildly bid around 1.2115 during the initial hours of Wednesday’s Asian trading, as upbeat UK fundamentals keep Cable buyers hopeful ahead of the key Federal Open Market Committee’s Monetary Policy Meeting Minutes. At the time of writing, the price traded at 1.2118.

Gold price holds lower grounds near $1,835, following a two-day downtrend, at the time of writing, price trading at 1836.18.

Brent crude settled 1.2 percent lower to $83.05 a barrel, while the US equivalent WTI price is declining towards $75.50 as the expectations for more rate hikes by the Fed are escalating.

Technical Analysis

GBPUSD (4-Hour Chart)

The GBPUSD lost upside traction and hover around the 1.21000 level as of writing, as the stronger-than-expected PMI data from the US provided a boost to the US dollar and limit the pair’s upside. The monthly data published by S&P Global showed on Tuesday that Composite PMI in early February jumped to 53 from 48.5 in January. Manufacturing PNI came in at 49.2 to beat the market expectation of 46.8 and Services PMI climbed to 53.3 from 48.7. With the UK private sector holding resilient in the face of strong inflation, the Bank of England is likely to continue to raise its policy rate without worrying about a deep recession.

From the technical perspective, the four-hour scale RSI indicator figured 58 as of writing, suggesting that the pair was surrounded by bullish momentum. As for the Bollinger Bands, the pair was priced above the 20-period moving average and limited by the upper band, showing the pair currently was more favored to the positive path in the near term. Once the bulls break the upper band, the next stop would be the 1.2210 level.

Resistance: 1.2211, 1.2400

Support: 1.2012, 1.1935, 1.1859

XAUUSD (4-Hour Chart)

Gold price remains under pressure on Tuesday as the benchmark US 10-Year Treasury rose 2.97% to 3.956, capping any further gains on Gold price. At the time of writing, the Gold price is trading at $1835.10, posting a 0.46% loss daily. On the other hand, investors keep their eyes on geopolitical tensions. The recent visit of US President Joe Biden to Ukraine led Russia to suspend its nuclear arms treaty with the United States. Russian President Vladimir Putin also vowed to continue the military campaign in Ukraine. Worrying about geopolitical tension could directly influence the risk sentiment, and provide a fresh catalyst to Gold prices.

For the technical aspect, RSI indicator 43 figures as of writing, holding around mid-line as the price is amid a consolidation phase in the near term. As for the Bollinger Bands, the price moves up and down around the moving average. The price needs a decisive breakthrough to trigger some following traction. In conclusion, we think the market is under a modest bearish trend as the price is edging lower and weighed by upbeat US Treasury yield, though both indicators show no strong bearish potential. For the downtrend scenario, the next support level is at $1,820. If the price close below the level, it may trigger some technical selling and drag the price deeper.

Resistance: 1870, 1900, 1920

Support: 1820, 1800

Economic Data:

CurrencyDataTime (GMT + 8)Forecast
NZDRBNZ Interest Rate Decision09:004.75%
NZDRBNZ Rate Statement09:00 
NZDRBNZ Press Conference10:00 
EURGerman CPI (YoY) (Feb)15:008.70%
EURGerman Ifo Business Climate Index (Feb)17:0091.4
NZDRBNZ Press Conference22:00