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Market Volatility: Stocks Decline, US Dollar Strengthens, and Cryptocurrencies Hold Steady

September 7, 2023

On Wednesday, the stock market saw declines, driven by concerns about potential Federal Reserve interest rate hikes, leading to a 0.57% drop in the Dow Jones Industrial Average, a 0.7% dip in the S&P 500, and a 1.06% fall in the Nasdaq Composite. Rising Treasury yields played a role in these losses, particularly affecting technology stocks like Nvidia and Apple. Meanwhile, the US dollar strengthened due to positive ISM data, while the euro (EUR/USD) had a modest gain. GBP/USD declined below 1.25 as Bank of England officials questioned the need for further rate hikes. Precious metals like gold and silver slid due to rising US yields, while cryptocurrencies remained resilient amid discussions about a global cryptocurrency framework within the G20.

Stock Market Updates

On Wednesday, the stock market experienced a notable decline, extending its lackluster performance into September. Investors grew increasingly apprehensive that the Federal Reserve might not have completed its interest rate hikes. The Dow Jones Industrial Average, for instance, dropped by 198.78 points, equivalent to 0.57%, settling at 34,443.19. Similarly, the S&P 500 saw a 0.7% dip, concluding the day at 4,465.48, while the Nasdaq Composite fared even worse, falling by 1.06% and closing at 13,872.47. These declines were largely attributed to rising Treasury yields, particularly the 2-year Treasury note, which surged by approximately 6 basis points and exceeded the 5% threshold.

The upward trajectory in Treasury yields was unsettling for risk assets, with technology stocks, in particular, underperforming. Notably, the Nasdaq experienced its third consecutive day of losses, with leading tech companies like Nvidia and Apple both witnessing declines of over 3%. This negative sentiment also weighed on the Dow, with stocks like Amgen and Boeing declining by around 2% each. The surge in Treasury yields coincided with stronger-than-expected economic data, causing concerns about the possibility of further interest rate hikes. Recent readings on the U.S. economy’s services and manufacturing sectors indicated that prices were moving unfavorably, triggering market uncertainty. Additionally, the probability of a rate hike in November rose, with traders assigning a greater than 40% chance, while a 93% likelihood of the central bank maintaining rates this month was noted, according to the CME Group. In light of this, Boston Fed President Susan Collins suggested cautious progress on rate hikes, although she acknowledged that further tightening might be warranted based on data trends.

Data by Bloomberg

On Wednesday, the overall market saw a decline of 0.70%. Among the sectors, Utilities and Energy showed slight gains, with increases of 0.20% and 0.14%, respectively. On the other hand, several sectors experienced losses, with Information Technology being the hardest hit with a substantial drop of 1.37%. Consumer Discretionary also faced a significant decline of 0.97%. Other sectors like Health Care, Communication Services, Industrials, and Materials saw moderate declines ranging from 0.48% to 0.61%. Financials, Consumer Staples, Real Estate, and All Sectors recorded smaller losses, ranging from -0.17% to -0.70%.

Currency Market Updates

On Wednesday, the dollar index strengthened as the ISM non-manufacturing PMI outperformed expectations, leading to a reversal in Treasury yields. Initially, these lower yields had put pressure on the U.S. currency, but the upbeat ISM data boosted expectations of a Federal Reserve interest rate hike in November, pushing the odds above 50%. Meanwhile, EUR/USD saw a modest increase of 0.12%. The European Central Bank (ECB) was mirroring the Fed’s rate hike expectations, with a potential hike in September and roughly a 50% chance of a rate increase on October 26. Traders were looking ahead to euro zone employment data and Q2 GDP figures for insights into the ECB’s near-term policy decisions.

USD/JPY managed to recover from earlier losses, thanks in part to rising Treasury yields and positive ISM data, bringing it closer to its early Asia 2023 high at 147.82. However, earlier remarks from Japan’s top currency diplomat, Masato Kanda, expressing concern about speculative yen selling, had initially weighed on the pair. On the other hand, GBP/USD dipped below 1.25, hitting lows not seen since early June 2023. The downward pressure was exacerbated by comments from BoE Governor Andrew Bailey, Deputy Governor Jon Cunliffe, and Swati Dhingra, who raised questions about the necessity for further rate hikes, adopting a less hawkish stance. Key support at the 200-DMA around 1.2425 was in focus, with a close below potentially signaling a move toward 1.1805, the March 8, 2023 low.

In the commodities market, rising U.S. yields had a negative impact on precious metals, with gold sliding by 0.4% to $1,917 and silver dipping 1.5% to $23.17. Meanwhile, cryptocurrencies defied the weight of high-interest rates, as Bitcoin rose by 0.5% to $25.8k, and Ether gained 0.55% to reach $1,641.30. This resilience was attributed to discussions within the G20 about establishing a global framework for cryptocurrencies.

Picks of the Day Analysis
EUR/USD (4 Hours)

EUR/USD Trends Lower Amid Economic Dynamics

The EUR/USD pair reached a new three-month low, hovering just above 1.0700, primarily due to robust US economic data and a prevailing sense of risk aversion bolstering the US Dollar. In contrast, Eurozone indicators painted a concerning picture, with a substantial 11.7% drop in German Factory Orders and a 0.2% decline in Eurozone Retail Sales for July, casting uncertainty over the European Central Bank’s (ECB) upcoming decisions. Despite these setbacks, the Euro managed to outperform the Pound and Swiss Franc. Upcoming Eurostat releases on Q2 employment and GDP data are not expected to have a significant impact since they involve revisions.

Conversely, in the US, the ISM Manufacturing PMI surpassed expectations, bolstering the Greenback. After briefly touching a low of 1.0702, the EUR/USD pair rebounded to 1.0730. The US Dollar’s strength continues to be driven by robust economic performance and risk aversion. Looking ahead, Jobless Claims and Unit Labor Cost data are anticipated on Thursday, likely to further influence the currency market.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD moves flat on Wednesday and is currently trading just above the lower bands of the Bollinger Bands. This movement suggests the possibility of another downward move to create a lower push to the lower band. The Relative Strength Index (RSI) is currently at 34, indicating that the EUR/USD is trending lower and attempting to stay in a bearish trend.

Resistance: 1.0759, 1.0803

Support: 1.0702, 1.0653

XAU/USD (4 Hours)

XAU/USD Extends Decline Amid Dollar’s Ongoing Strength and Mixed Economic Data

On Wednesday, the US Dollar continued its ascent, causing XAU/USD (Gold) to decline for the fourth consecutive day. Gold traded near an intraday low of $1,915.27 per troy ounce, reacting to mixed US macroeconomic data.

S&P Global revised down the August Services PMI, indicating a slowdown in growth, while the ISM Services PMI reported expansion in the services sector. The IBD/TIPP Economic Optimism Index also rose, signaling resilience in the economy. However, inflation-related concerns persisted, leading to increased odds of a 25-basis points rate hike by the Federal Reserve in November, which in turn drove demand for the safe-haven US Dollar. As a result, stock markets turned negative amid these developments.

Chart XAUUSD by TradingView

According to technical analysis, XAU/USD moves lower on Wednesday and created a push to the lower band of the Bollinger Bands. Currently, the price is moving slightly above the lower band, indicating a possibility of a slight increase in Gold’s value, but it’s still in a bearish mode. The Relative Strength Index (RSI) currently stands at 34, suggesting that the XAU/USD pair is now in a bearish mode.

Resistance: $1,925, $1,935

Support: $1,912, $1,903

Economic Data
CurrencyDataTime (GMT + 8)Forecast
USDUnemployment Claims20:30232K