Monday held very little in economic releases, but price direction and the market’s risk profile remained unchanged. However, many Central Bank members spoke to journalists yesterday regarding the future monetary policy and the stock market decline.
This includes members of the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). This was a relief for investors as it gave them further indications of what may lie ahead over the next 2-3 months.
US Stock Market
US stock indices declined for a second consecutive day, with the NASDAQ seeing the most significant price drop. Although investors looking at the US Index charts may notice a bullish candlestick, the market opened with a gap down.
Therefore, technically speaking, the price continued to decline. The only stock within NASDAQ that saw a serious price increase was Pinduoduo (NASDAQ:PDD) Inc. climbing 14%.
Neel Kashkari, the Minneapolis Federal Reserve President, has advised the market that he was happy to see a correction in the stock market and that "the market is now taking the Fed seriously”.
According to Mr. Kashkari, the market had many indications that the regulator would look to pressure demand and the economy to bring down inflation. The investors, though, continued to purchase stocks.
Some analysts took this as an indication that Mr. Kashkari believes that the stock market will continue to decline and that it may currently be overpriced.
XAU/USD Outlook
Yesterday, gold saw mixed movements after being influenced by two opposing factors. First, the US Dollar slightly declined, which provided some support. However, even with the US Dollar slightly declining, gold struggles to find longer-term support, while the US Dollar Index remains strong.
Currently, the price remains below most moving averages, including the two and 3-month moving averages. The price is also attempting to form a new lower swing indicating a continuation of the trend.
In addition to this, the price is also being pressured by the bond market. Bond yields are declining, indicating investors are opting for bonds rather than gold. It should be noted that both are in the safe haven category and compete for investors.
Lastly, the US Commodity Futures Trading Commission (CFTC) advised that the futures market continues to see investors largely speculate that gold will decline in the medium term. According to the CFTC, there are 22.539 thousand contracts against 56.677 thousand sellers. More than double the number of contracts shorting gold.
EUR/USD - Technical View
The price of the EUR/USD is currently hovering around the short-term neutral level, forming a symmetrical triangle. Symmetrical triangle patterns indicate low volatility and the market awaiting further price drivers.
The price has more or less formed a full correction after Friday’s bearish rally. However, after the correction, it lost momentum. Traders will be looking to see whether the price will breakout downward or upward.
The price is still being influenced by the Fed’s latest comments from last Thursday and Friday. However, the European Central Bank members have also been active in the market over the past 24 hours.
Yesterday, the price was supported by comments from ECB members Isabel Schnabel and Martins Kazaks. Both members spoke to journalists and advised that they believe the Eurozone requires a strong monetary policy and even indicated a possible 75 basis point hike. A hike of this magnitude had not been signaled in Europe previously.
The market is not entirely certain whether the ECB would opt for such a high rate hike. This morning, ECB Member, Philip Lane, fought back against Mr. Schnabel and Kazaks.
He advised that the central regulator should opt for a gradual rate hike considering the risk of a recession and the current energy crisis. Most economists still believe the ECB will hike by 50 basis points.
Crude Oil - Technical View
The price of crude oil sees its strongest price increase this month. The price of crude oil increased by 4.40% and has managed to form a further price swing which has broken through the previous resistance level. However, it should be noted that retracements continue to remain strong, meaning traders need to be cautious of price volatility.
OPEC's potential new cuts in oil output mainly support crude oil. Last week, Saudi officials raised the possibility of cutting production to offset the recent downturn in the energy market and the potential negative consequences of the "nuclear deal" between Iran and Western countries.
Traders look forward to OPEC’s next meeting, where members may provide further indications.