Wall Street Dip With Looming U.S. Recession

• The U.S. Equity market faced intense selling pressure, with the Dow Jones closing 1000 points lower yesterday. 
• Soft NFP continues to weigh on the dollar with the DXY trading at below $103 mark. 
• BTC dipped below $50k before it climbed back in the New York session last night. 

Market Summary

The financial markets, especially the equity sector, continue to be shattered by recession fears. The U.S. equity fear index, VIX, spiked to 65.70—the highest level since the pandemic in 2020—before quickly retracing to 38. This fear weighed heavily on the equity market, with the Dow Jones closing more than 1000 points lower in yesterday’s session.

Meanwhile, the dollar has dipped to its lowest level in 2024, hammered by dovish Fed expectations and the soft NFP reading from last Friday. In contrast, the Reserve Bank of Australia is set to announce its interest rate decision later today. The Aussie dollar has strengthened ahead of the announcement, but the Australian central bank is expected to hold its interest rate unchanged amidst global economic uncertainty.

In Japan, after a strong move by the Japanese Yen, the Yen eased in yesterday’s New York session. However, the hawkish prospect from the BoJ, with expectations of another 25 bps rate hike by the end of this year, may continue to bolster the Yen.

Additionally, BTC prices crashed below the $50k mark but quickly recovered above $55k as BTC investors viewed the price below $50k as a bargain, given the bright prospects for the cryptocurrency. 

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Current rate hike bets on 18th September Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (88.5%) VS -25 bps (11.5%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index, trading against a basket of six major currencies, extended its losses following the release of much worse-than-expected US jobs reports, which dampened market optimism about the US economic recovery. Several Federal Reserve members have mentioned potential rate cuts in the upcoming monetary policy meeting. Currently, traders are speculating more than a 50% probability of a 50 basis points rate cut if the US economic performance remains downbeat. US economic data released yesterday showed mixed results, with the S&P Global Services PMI coming in at 55, below expectations of 56.0, while the ISM Non-Manufacturing Prices came in at 57, better than the expected 56.0.

The Dollar Index is trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum. However, RSI is at 31, suggesting the index might enter oversold territory. 

Resistance level: 104.05, 106.05

Support level: 102.40, 100.90

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XAU/USD, H4

Gold prices retraced sharply yesterday as the global equity market selloff led to margin calls from banks, forcing investors to sell off safe-haven assets like gold to raise cash. However, as the global financial market stabilized, investors began reallocating their portfolios into gold, adopting a wait-and-see approach.

Gold prices are trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 46, suggesting the commodity might extend its gains since the RSI rebounded sharply from oversold territory. 

Resistance level: 2420.00, 2450.00

Support level: 2380.00, 2355.00

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GBP/USD，H4

Pound Sterling is currently witnessing a higher-high price pattern, suggesting a potential trend reversal after a bearish trend that lasted for the past three weeks. The pair is encountering resistance at its short-term resistance level near 1.2805. The UK’s composite PMI and service PMI readings exceeded market expectations, fueling the strength of the Sterling and helping the pair find support above the 1.2700 mark, stemming from its previous bearish trend.

GBP/USD has formed an ascending triangle pattern, suggesting a potential trend reversal for the pair. The RSI is rebounding from the oversold zone, while the MACD has a bullish cross below the zero line, suggesting the bearish momentum is easing. 

Resistance level: 1.2855, 1.2940

Support level: 1.2760, 1.2705

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EUR/USD，H4

The EUR/USD pair has surged past its strong resistance level at 1.0940, indicating a solid bullish signal. The eurozone PMI exceeded market expectations, and the upbeat PPI reading has propelled the pair to trade at its highest level in 2024. This combination of positive economic indicators is bolstering the euro and contributing to the pair’s strong performance.

The pair climbed to its highest level in 2024 after breaking its key resistance level, suggesting a bullish bias for the pair. The RSI has broken into the overbought zone while the MACD edges higher after breaking above the zero line, suggesting the bullish momentum remains strong. 

Resistance level: 1.0986, 1.1040

Support level: 1.0937, 1.0895

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USD/JPY, H4

The USD/JPY pair dipped to its lowest level since the beginning of 2024, declining by nearly 8% in August. The Japanese Yen was bolstered by hawkish expectations from the BoJ, with speculation of another 25 bps rate hike within the year. Meanwhile, the carry trade is also harming the U.S. dollar amid the strengthening Yen, leading to significant selling pressure on the dollar and contributing to the pair’s substantial decline.

The pair experienced a technical rebound followed by a strong bearish trend. However, the pair is expected to continue to trade lower as the bearish momentum seems strong. The RSI remains close to the oversold zone, while the MACD edged lower at below the zero line, suggesting the pair remains trading with bearish momentum. 

Resistance level: 147.10, 148.65

Support level: 143.55, 142.25

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AUD/USD, H4

The AUD/USD pair has dipped to its lowest level since April, even though the U.S. dollar has been lacklustre in recent sessions, indicating a weakness in the Aussie dollar. The Reserve Bank of Australia (RBA) is set to announce its interest rate decision later today, with expectations to hold the borrowing cost unchanged amid global economic uncertainty. The high unemployment rate in Australia and easing economic growth suggest that the RBA may soon shift from its current monetary policy stance.

The pair has rebounded after dropping from its key support level at 0.6490, but it remains trading within its bearish trajectory. The RSI has rebounded, while the MACD has been edging higher at below the zero line, suggesting a potential trend reversal for the pair. 

Resistance level: 0.6550, 0.6610

Support level: 0.6490, 0.6420 

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NIKKEI225, H4

After the global market wipeout yesterday, Japanese equities edged higher today, recovering losses from Monday’s rout. The Nikkei 225 Stock Average jumped by 8.30% after falling 12.4% the day before, buoyed by a rebound in US equity futures during early Asia trading and lower Treasury yields. On Monday, the Nikkei 225 futures circuit breaker was triggered before the market opened after suffering its biggest one-day slump in yen terms. The sell-off, which led to a 2% jump in the yen and a 12% drop in the Topix stock index, wiped out $15 billion of SoftBank Group Corp.’s value. The wave of selling in Japan may now be subsiding, with the global financial market showing signs of stabilisation in today’s Asian trading hours.

NIKKEI225 is trading higher while currently testing the resistance level. MACD has illustrated diminishing bearish momentum, while RSI is at 33, suggesting the index might extend its gains since the RSI rebounded sharply from oversold territory. 

Resistance level: 35290.00, 37085.00

Support level: 33745.00, 31935.00

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CL OIL, H4

Oil prices rebounded sharply after global risk appetite stabilised, prompting traders to refocus on the possibility of supply disruption due to rising Middle East tensions. The market is closely watching the potential scale of Iran’s retaliatory attack and Israel’s response. If the conflict escalates, oil prices are expected to rise. Israel and the U.S. are bracing for significant escalation after Iran and its allies, Hamas and Hezbollah, pledged to retaliate against Israel for the killings last week of a Hamas leader and a Hezbollah military commander.

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 43, suggesting the commodity might extend its gains since the RSI rebounded sharply from oversold territory. 

Resistance level: 75.30, 78.55

Support level: 72.45, 70.40