Market Volatility Looms as U.S. Debt Default Risks Linger, Japan Stocks Surge and European Markets Brace for Lower Open"
On Wednesday, most Asian stocks experienced limited movement or declined, as concerns lingered about China's slowing growth and the U.S. debt ceiling. However, Japanese stocks stood out as the Topix index continued its upward trend, reaching its highest point since August 1990 for the fourth consecutive day. The Nikkei 225 index was also poised to surpass the significant 30,000 level. According to Goldman Sachs Group Inc., Japan may be on the verge of a rare bull market. The first-quarter data revealed that Japan's economy grew more than anticipated, primarily driven by strong consumer spending and increased tourism. Nevertheless, the economic outlook remained grim due to ongoing slowdowns in Japan's major Western export markets.
European markets are expected to open lower as traders await April inflation data for the eurozone.
Although negotiations between U.S. President Joe Biden and top congressional Republican Kevin McCarthy did not result in a deal, they made progress toward an agreement that would prevent a potentially catastrophic U.S. debt default. McCarthy, the speaker of the House of Representatives, stated that the two sides still had significant differences but expressed optimism about reaching a deal by the end of the week, emphasizing that it is not a challenging task.
With various Federal Reserve speakers scheduled throughout the week, investors should anticipate hawkish language that will leave them uncertain and speculating about the future course of interest rates.
President Joe Biden and top congressional Republican Kevin McCarthy have made progress in their negotiations to raise the U.S. debt ceiling, although a final agreement has not been reached yet. Biden emphasized the severe consequences of a potential default, warning that it could lead the economy into a recession. As a result, investors view the U.S. dollar as a safe haven,considering the negative global impact such a scenario could have.
The prospects of imminent interest rate cuts in the United States were diminished by the strong growth in consumer spending observed in April, along with hawkish statements from Federal Reserve officials. Austan Goolsbee, the President of the Chicago Federal Reserve, expressed that it was premature to discuss rate cuts at this stage. Similarly, Loretta Mester, the President of the Cleveland Federal Reserve, stated that the central bank could not maintain interest rates at current levels given persistent inflationary pressures.
From a technical perspective, the currency pair initially corrected towards 1.09000 but subsequently resumed its bearish downtrend, finding support at 1.0850. There is a higher likelihood of a breakout below this level, which is further reinforced by a similar inverted pattern observed on the DXY (Dollar Index).Key resistance levels to monitor for potential upward movements in the EURUSD pair are located at 1.0900, 1.0940, and 1.0960. Conversely, significant support levels to keep an eye on for potential downward movements are situated at 1.0850, 1.0800, and 1.0770.
Support 1.0850, 1.0800, and 1.0770..
Resistance 1.0900, 1.0940, and 1.0960
The British Pound remains under pressure due to disappointing monthly employment figures in the UK, leading to speculations that the Bank of England (BoE) may not need to implement as many interest rate hikes in the coming months to curb inflation. The UK Office for National Statistics (ONS) reported an increase of 46.7K in the number of individuals claiming unemployment-related benefits in April, surpassing the 26.5K recorded in March and significantly higher than the estimated decline of 10.8K. Additionally, the unemployment rate edged up from 3.8% to 3.9%, indicating the negative impact of the stagnating economy on the labor market. Further analysis of the report revealed that UK Average Earnings, excluding bonuses, rose by 6.7% in the quarter leading up to March, slightly lower than the anticipated 6.8% but marginally higher than the 6.6% in February.
Conversely, the US Dollar (USD) experienced a rebound and reached a five- week high, driven by the hawkish comments made by Cleveland Fed President Loretta Mester. These remarks added to the factors weighing on the GBP/USD pair. Mester expressed the view that current interest rates are not restrictive enough and suggested that the central bank has not yet reached a point where holding rates steady is appropriate.
The current resistance levels to watch are 1.2500. 1.2550, and 1.2580 while the support levels are 1.2450 and 1.2400. 1.2350.
Support 1.2450 and 1.2400. 1.2350..
Resistance 1.2500. 1.2550, and 1.2580
Preliminary data revealed that the Japanese economy experienced a growth of 0.4% quarter-on-quarter (QoQ) in the first quarter of 2023, surpassing market expectations of a 0.1% increase. This notable expansion marked the fastest pace of growth since the second quarter of 2022. The growth was primarily driven by a significant rise in private consumption, which increased by 0.6% compared to 0.2% in the previous quarter, following the full lifting of strict border controls. Attention will now turn to Japan's National Consumer Price Index (CPI) data for April, with expectations of a softening headline CPI to 2.5% from the previous release of 3.2%, and a deceleration in core inflation to 3.4% compared to the prior figure of 3.8%.
Despite the positive Q1 Gross Domestic Product (GDP) numbers, the Japanese Yen has struggled to gain strength in the current market environment. Concerns over the U.S. debt ceiling, coupled with weaker-than-expected Chinese macroeconomic data, have heightened recession fears and dampened investor appetite for riskier assets. Nevertheless, the underlying fundamentals suggest a favorable outlook for bullish traders, indicating that the USD/JPY pair is more likely to move toward the upside. As a result, there is a distinct possibility of a subsequent upward movement, potentially testing the 200-day Simple Moving Average (SMA) located around the 137.00 round-figure mark.
The current resistance levels to watch are 137.00, and 137.50, 138.00 while the support levels are 136.30, 135.60, and 135.20.
Support 136.30, 135.60, and 135.20.
Resistance 137.00, and 137.50, 138.00
Gold prices remained relatively stable at $1,988 per ounce. The strength of the safe-haven U.S. dollar throughout the day diminished the attractiveness of gold for international buyers.Despite occasional fluctuations, gold has found solid support whenever its price dipped below the 2,000 mark. The ongoing delays in the debt ceiling process have generated frustration in the market, negatively impacting sentiment. This frustration could potentially lead to increased safe-haven flows into gold. This was influenced also by a combination of factors, including stronger-than- expected U.S. retail sales data and hawkish remarks from Federal Reserve officials. These developments have led to speculation that any potential interest rate cuts may be delayed, which has affected market sentiment toward gold.
U.S. President Joe Biden and top congressional Republican Kevin McCarthy have made significant progress in their efforts to prevent an impending U.S. debt default. The potential economic repercussions of default have prompted Biden to curtail his Asia trip this week.
From a technical perspective, Gold has recently broken a significant support level that had been holding for a considerable period. This breakage confirms the bearish stance that was observed, indicated by the presence of a bearish descending triangle pattern and a consolidation of the price. Additionally, there is a divergence with the Relative Strength Index (RSI), further supporting the bearish outlook.The current resistance levels to watch are 1993, 2003, and 2012, while the support levels are 1980, 1973, and 1950.
Support 1980, 1973, and 1950
Resistance 1993, 2003, and 2012
European shares slipped on Wednesday as investors remained concerned about whether the outcome of the U.S. debt ceiling negotiations would result in averting a default, while a slew of downbeat earnings, led by exchange operators, weighed on the mood.
Euronext, the exchange operator, experienced a 4.2% drop in its stock price following a decline in first-quarter revenue and income. Similarly, the London Stock Exchange Group saw a 4.2% decrease as an investor consortium, including Blackstone and Thomson Reuters, sold approximately £2.7 billion ($3.41 billion) worth of shares.
Commerzbank AG, a German lender, slipped 3.7% despite nearly doubling its net profit in the first quarter. UBS Group AG remained flat as the Swiss bank anticipated a financial impact of around $17 billion from its acquisition of Credit Suisse Group AG.
On the positive side, SAP, a German business software maker, gained 1.6% after raising its total revenue outlook for continuing operations for 2025 and announcing a share buyback of up to €5 billion. Siemens AG, a German engineering and technology group, climbed 2.7% as it raised its full-year sales and profit guidance.
The focus remains on developments around the U.S.'s debt ceiling, with U.S. President Joe Biden cutting short a trip to Asia as officials edge closer to a deal to avoid a looming U.S. debt default.
DAX keeps moving in a narrow range of price not able to go beyond the 16000 level. The down parallel of the long bullish channel is still working as support for the price, waiting for more developments. The next support levels to watch are at 15900, 15800, and 15700. Regarding resistance, the next levels to watch for the DAX to reach its historically high level are 16000-16100 and 16270.