US stocks traded lower on Friday as investors are worried about rate hikes and extra tight Covid measures (lockdowns) in Shanghai. The concern is that they could create recession as they hinder global growth. Rate hikes and continued hawkish messaging from the Fed make investors careful. Strong employment numbers intensified the worries on Friday. As soon as the NFP numbers came out bond traders started to sell their inventory pushing yields higher. This reaction suggests traders believe the Fed can keep on raising rates without having to worry about their impact on employment. Add to this EU’s plans to ban Russian and the continued supply-side pressures and we have quite a negative set of fundamentals which certainly aren’t encouraging the investors to buy risky assets. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
In today’s report trade ideas, analysis and key technical levels on
AMZN – Downtrend breakout in the trend direction
GOOG – Downside breakout to happen soon?
Gold – Created a medium-term market top
BTCUSD – At a key support level but risky
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XAUUSD has stayed weak both fundamentally and technically. After the NFP release on Friday, I wrote: “Bonds rallied slightly before the NFP report but as soon as the numbers came out bond traders started to sell pushing yields higher. This reaction suggests traders believe the NFP report’s most important contribution is that the Fed can keep on raising rates.” This obviously indicates lower prices for gold as yields keep on ticking higher. Technically XAUUSD is weak as traders keep on selling rallies and break supports. Gold stays bearish below 1909.75 as it has now created a medium-term market top with a lower high. Therefore, we could see a move down to 1841 in the first place and perhaps much deeper unless something changes in the fundamentals that drive the gold price. Such changes could be for instance Fed becoming a less hawkish direction or the escalation of the Russia-Ukraine war. If the war was to spread to other countries or the Russian rhetoric about nuclear weapons became more threatening institutional money could flow into gold.
BTCUSD is another market that has suffered from rising yields. As a result, bitcoin has lost almost 30% of its value in six weeks. The market is still trading inside a massive price range between 28600 and 69000. Bitcoin has now retraced back to a key support level (at 32950) and could therefore be ready to bounce a little. But with the current risk aversion sentiment being rather strong the risk of further downside remains. If this support breaks decisively it’s likely that the market moves down to 28600. This level is highly important and should it break we’d have a major top in this market. In such a case, the market could eventually correct all the way down to 12500 – 12600. Now, however, the market is still inside the sideways range formation so I’ll visit the above scenario should the market break the 28600 support. The nearest key resistance levels for BTC are 37400 and 39218.
AMZN broke decisively a key support level (2870) on April 29th as the company reported a massive negative earnings surprise (Reported: -7.56, Estimate: 8.35). After the initial shock AMZN was trading in a sideways range until it broke out of this continuation formation on Friday. On Friday traders started shorting AMZN at the 2367.48 – 2383.36 range which suggests that the level could act as a resistance level again should the market rally back to it. Friday’s low at 2261 is the nearest key support level as it coincides roughly with a historical weekly support level at 2255.70. The market is in a downtrend which means we look for shorting opportunities until there’s evidence of the downtrend reversing. The stock has, however, created a major topping formation between 2870 and 3772 and there’s a significant resistance level at 2707 suggesting it could be hard to justify long exposure in the stock before it has corrected deeper. At the same time, on top of the recent massive earnings disappointment, there are numerous bearish factors that impact the stock markets. Chinese covid restrictions, high inflation, Fed hiking rates and tightening sanctions related to a major war in Europe pushing the price of energy higher all sour the risk sentiment. Therefore, it’s difficult to see why weakness in the stock wouldn’t continue but as always, look for price action confirmation to validate the thesis.
GOOG stayed weak as I expected on Friday. Now the question is whether the stock will follow the lead from AMZN and break out of the current sideways range to the downside. My analysis from Friday is still valid: The stock has created a long-term market top by breaking below the 2493 resistance level. The failed post FOMC rally was a classic return move that indicates further uncertainty and weakness in this mammoth stock. As long the rallies fail and the stock keeps on breaking supports it we have no evidence of aggressive institutional buying. Instead, failing rallies suggest the institutions are using the occasional strength to lighten the load. The next technical support area in GOOG is around the 50% Fibonacci retracement (2024) or roughly 14% below yesterday’s close. The next major support area can be found in the 1700 – 1800 region. That’s about 25% lower than the current market price.
Stock being one of the heavy-weights in Nasdaq and the index as a whole is pressured by rising interest rates it’s likely that (even if we get occasional rallies) downside risks are still substantial. The recent negative earnings surprise (-3.8%, reported: $24.62, estimate: $25.59) must have been priced in already as the earnings release didn’t immediately bring about a new strong wave of selling in the stock. Instead, the stock has been ranging sideways since the earnings report. It seems that investors are, and quite rightly, focused on general market trends, rising yields and inflation risks. Technically the stock is trading at a lower end of a bear channel but the nearest resistance is not very far (at 2493, just above last week’s high). The nearest key S&R levels to watch are 2335.76 and 2465.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March nonfarm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for March came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
GBP – MPC Member Saunders Speaks
USD – FOMC Member Waller Speaks
USD – FOMC Member Mester Speaks
EUR – ECB President Lagarde Speaks
USOIL – OPEC Meetings
USD – CPI
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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