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The U.S. central bank kept interest rates unchanged and announced a monthly reduction of $15 billion in asset purchases

4 November 2021, 03:17

Market Focus

While the Fed currently buys $120 billion in bonds every month to inject liquidity into the financial system, it is expected to scale back its bond-purchasing programme starting this month and develop a plan to stop buying bonds in the middle of the next calendar year.

In view of the strong performance announced by companies, all three benchmark US indexes closed at historical highs. The Dow Jones Index rose 0.39%, the S&P 500 Index rose 0.37%, and the Nasdaq Composite Index rose 0.34%. 83% of S&P 500 companies that have announced results have exceeded analysts’ continued optimistic earnings expectations.

Bed Bath & Beyond Inc. surged in the late trading hours after announcing accelerated stock repurchase and the launch of a new digital marketplace for third-party producer goods. Lyft Inc. reported third-quarter revenue to be 73% higher than last year, causing its stock to go up 8%. Avis Budget Group Inc. has soared amid a retail frenzy as the car rental company said it will play an important role in the adoption of electric vehicles in the United States. Tesla’s stock price fell by 0.72% because Elon Musk expressed doubts about Hertz Global Holdings’ plan to purchase 100,000 electric vehicles and downplayed the potential of the deal.

Main Pairs Movement

After the Federal Reserve announced its monetary policy, the U.S. dollar fell slightly against most of its major competitors at the close of trading on Wednesday. As expected, the U.S. central bank kept interest rates unchanged and announced a monthly reduction of $15 billion in asset purchases. The Federal Reserve will begin to reduce the size of U.S. Treasury bond purchases by US$10 billion and reduce mortgage-backed securities by US$5 billion later this month. In addition, policymakers still believe that inflation will be “temporary,” although Fed Chairman Jerome Powell pointed out that supply chain problems might continue into next year, which means that inflation will also remain high.

EUR/USD maintains its continuation pattern as the currency pair still cannot break through the 1.1615 level. Later in the day, the Manufacturing PMIs will be released, which might provide some clear direction for pairs.

The US dollar index reversed Monday’s decline and rose 0.22% in trading yesterday. The US dollar index was flat and rose 2 basis points in early trading today. The U.S. 10-year Treasury bond yield is 1.55%.

Technical Analysis

EURUSD (4- Hour Chart)

EUR/USD edged higher on Wednesday, ending the slide that started yesterday. The pair was trading higher in the early Asian session, but bears started to take over during the European session. The EUR/USD pair is currently rebounding back toward the 1.158 area, paring most of its intraday loss. The pair has stayed in positive territory amid the weaker US dollar across the board, despite the US ADP report showing that the US economy added 571K jobs in October. This report will influence expectations from Friday’s official Nonfarm Payrolls. On top of that, investors are waiting for ECB’s action, with expectations of a probable lift-off sooner than anticipated.

From a technical standpoint, the RSI indicator reads 46 as of writing, suggesting tepid bear movement ahead. The MACD has also fallen below the signal line, which means the pair is likely to experience downward momentum. If we take a look at the Bollinger Bands, the price fell from the moving average after touching it, which also means that the bearish momentum is likely to persist. In conclusion, we think the market will be bearish as long as the 1.1613 resistance line holds.

Resistance: 1.1613, 1.1692, 1.1755

Support: 1.1535, 1.1425

AUDUSD (4- Hour Chart)

After plummeting to a two-week low yesterday, AUD/USD rebounded moderately in early trades on Wednesday, but failed to preserve its bullish traction and is now flitting around the 0.7425 area at the time of writing. A less hawkish Reserve Bank of Australia and upbeat Chinese macro data assisted AUD/USD to gain some traction earlier today. On top of that, the Fed is scheduled to announce its monetary policy decision, as well as Fed Chair Jerome Powell’s comments at the press conference later during the American session. If they are hawkish, AUD/USD could decline further. AUD/USD was last seen trading at 0.7419, posting a 0.12% loss for the day.

From a technical standpoint, the RSI indicator is at 32 figures as of writing, suggesting that the pair is surrounded by heavy selling now. As for the MACD indicator, the negative histogram also indicates a possible downward trend for the pair. Looking at the Bollinger Bands, the price is sitting between the moving average and the lower band, therefore the pair is likely to experience downward momentum. In conclusion, we think the market will be bearish as the pair is now testing the 0.7421 support, and chances are high that it could break it, which will open the door for additional near-term losses.

Resistance: 0.7502, 0.7556

Support: 0.7421, 0.7379, 0.7324

XAUUSD (4- Hour Chart)

XAU/USD tumbled on Wednesday amid strong US job data and is sitting in negative territory for a second day. The pair dropped to a three-week low and is now flirting just under the 1764 level. The better-than-expected ADP report acted as a tailwind for the Greenback and weighed heavily on the XAU/USD pair. An upbeat ADP estimate usually increases the chance the NFP report is going to be strong, which may trigger a more hawkish Fed. Market focus has now shifted to the Fed announcement later in the session, as investors expect the Fed to announce its bond tapering plans.

For the technical aspect, the RSI indicator reads 28 as of writing, suggesting that the pair is in the oversold zone, investors should be aware of a trend reversal. The MACD has also fallen below the signal line, which indicates a bear market. As for the Bollinger Bands, the price is moving out of the bands so a strong trend continuation can be expected. In conclusion, we think the market will be bearish as the pair is trying to test the 1750.24 support.

Resistance: 1796.40, 1813.83, 1834.04

Support: 1750.24, 1721.74