US Dollar and Tech Stocks on The Backfoot Following Tuesday's Selloff

Over the past 24 hours and especially during this morning’s Asian Session, investors have been focused on the NASDAQ ($NAS100) and the US Dollar. The US Dollar unexpectedly saw its strongest decline in almost 10 days. So, the US Dollar Index has dropped below 111.00 for the first time in 3 weeks.

The price of Crude Oil ($OIL.WTI) continues to move within the price range confirmed in yesterday’s market analysis. The price on Tuesday saw a strong decline to $82.79 during the first half of the day. Though, the price then saw an even stronger correction after the Dollar significantly declined. However, the price still remains below $85 per barrel.

UK investors focused on the appointment of the new Prime Minister, Rishi Sunak. The country still faces a serious economic crisis with the economy lacking investor confidence, mortgage rates hitting 7% and a cost of living crisis. The new Prime Minister is faced with the difficult task of convincing investors that the UK government will not fall into a major account deficit. At the same time, citizens are already protesting his leadership as they believe he will not assist in their difficulties. Citizens are currently calling for “price freezes”.

So far the Pound has slightly improved since Mr Sunak’s leadership has been confirmed and the $FTSE100 has stabilized. Investors are clearly happy to see that the Bank of England and UK government are again cooperating, which wasn’t the case under Truss’s government. Investors will now turn their attention to the new budget and the Bank of England’s Rate decision next week.

NASDAQ

The NASDAQ ($NAS100) started the day strong on Tuesday, increasing by 2.38% to almost a monthly high. However, as discussed yesterday, the price will largely depend on the earning reports for the US’s largest technology companies. The earnings did indeed disappoint after showing clear strain from lower economic growth. The index declined by 1.88% after the release of the third quarter’s earning reports.

NASDAQ 100 15-minutes chart on October 26th

Alphabet, who owns Google ($GOOG) and YouTube, stocks declined by 6.58% after market close and Microsoft ($MSFT) stocks declined by 6.65%. Both companies saw sales increase, but at a much slower pace compared to previous quarters. Alphabet’s sales rose by 6% which is the lowest in almost 10 years. Microsoft’s ($MSFT) sales rose by 11% which is better but still the lowest in more than 5 years.

Earnings per Share for Alphabet missed expectations by 15%, which was largely due to YouTube shrinking for the first time since it started reporting publicly.

Both companies commented on the current economic environment and expressed their concerns for 2023. Analysts have also advised that US companies are struggling with the stronger US Dollar, as it makes prices significantly higher for foreign investors.

EUR/USD

The $EUR/USD increased by 0.91% yesterday and has also continued the trend, climbing a further 0.25% during this morning’s Asian session. When looking at technical analysis, we can see a clear “higher high and higher low” condition in the price since the 21st of the month. The price this morning has also broken onto a higher impulse wave and Moving Averages are indicating a bullish trend.

EUR/USD 12-hour chart on October 26th

The price is largely being driven by the decline in the US Dollar after a streak of poor economic figures. This week, the US has confirmed much lower than expected PMI reports as well as a poor CB Consumer Confidence figure released yesterday. In addition to this, most economists, including the CEO of Goldman Sachs ($GS), have advised over the past 24 hours that a US recession is likely.

Lastly, investors are readying their positions for the expected interest rate hike due to take place tomorrow by the European Central Bank. The ECB is expected to increase interest rates by 0.75% which will take the refinancing rate into the “neutral zone”. The interest rate is still far lower than the Federal Reserve’s, but investors are clearly pricing this into the exchange rate.

Quick Summary

• The US Dollar saw its strongest decline in almost 10 days, and the US Dollar Index dropped below 111.00 for the first time in 3 weeks.
• The US has confirmed much lower than expected PMI reports, as well as a poor CB Consumer Confidence figure.
• The CEO of Goldman Sachs, has advised over the past 24 hours that a US recession is now more likely.
• The ECB is expected to increase the interest rates by 75 basis points, or 0.75%.
• Both Alphabet ($GOOG) and Microsoft ($MSFT) see poor sales growth figures.