Markets have pivoted risk-off on fears that the Fed might raise rates more than expected, inflation key to further clues

Negative sentiment spread across major indexes, including the U.S. and Asia, before the U.S. CPI release tomorrow (14th Feb). Markets widely speculate that the Fed may raise further than its then-targeted interest rate; the equity markets are facing a headwind from higher inflation and interest rates. On the other hand, the new Japanese governor will be announced tomorrow to take over the office from the current Governor, Haruhiko Kuroda, who advocates for ultra-loose monetary policy. A new Japanese governor may possess a chance for the BoJ to shift from its current monetary easing program; an interest rate hike from the Japanese officials may bolster the Japanese Yen. In addition, Russia plans to cut its oil supply by half a million barrels per day as a retaliation toward Western sanctions; this may have spurred oil prices adding higher oil demand from China.

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 Look Out For

Current rate hike bets on 22nd March Fed interest rate decision: 

25 bps (90.8%) VS 50 bps (9.2%) 

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Market Overview

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Economic Calendar

Market Movements

DXY

The US Dollar rallied ahead of the inflation report, which will be released later this week. Investors speculated the US inflation rate could come in at higher reading following the recent jobs data (Nonfarm Payroll & Unemployment Rate), both faring optimistic readings. Economists expected the US Consumer Price Index (CPI) to increase by 0.4% monthly in January. A strong inflation reading could force market participants to reassess whether the Fed will slow down the rate hike pace by the end of the year – potentially hurting the equity and bond markets.

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated diminishing bearish momentum, while RSI is at 61, suggesting the index might extend its gains after it successfully breakout the resistance level as the RSI stayed above the midline.

Resistance level: 103.70, 104.85

Support level: 102.55, 101.80

XAU/USD

Gold prices edged lower last Friday, weighed by rising short-term yields as market participants reassessed their expectations of more aggressive rate hikes from the global central bank. Recently, increasing short-term yields following a string of hawkish statements from several Fed officials had continued to keep non-yielding assets under pressure. Investors are advised to continue focusing Tuesday’s US CPI figures on gauging the likelihood trend for the gold market.

Gold prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 40, indicating that the commodity might trade lower since the RSI stays below the midline.

Resistance level: 1905.00, 1960.00

Support level: 1860.00, 1820.00

EUR/USD 

Markets widely speculate that the Fed may be more aggressive in rate hikes given a much higher reading from the latest NFP releases early this month. The dollar is strong against most currencies, including the euro. Investors may refer to two key economic data to gauge the future movement of the pair; the U.S. CPI data may reveal last year’s effort from the Fed in taming inflation, while the Eurozone GDP tells the economic condition of the economies. Any hawkish comment from the Fed after the release of the CPI index may spur the dollar further. 

The pair traded below its bullish support line and hit its monthly low. The RSI is approaching the oversold zone, which depicts a strong selling power for the pair, while the MACD stays flat below the zero line given a neutral-bearish signal. 

Resistance level: 1.0785, 1.0915

Support level: 1.0615, 1.0462

BTC/USD

BTC stayed flat after it plunged by more than 6% last week after the U.S. SEC charged Kraken, a crypto exchange, failed to register the Staking service program. Rumor spread that the law may apply to U.S. registered crypto exchanges and anxiety is created in the cryptocurrency market. Elsewhere, markets expect the Fed to be more aggressive in rate hikes after a surprise reading of NFP data released in early of the month; a high-interest rate environment may negatively impact the crypto market. 

Despite a plunge of BTC a week earlier, the indicator depicts a turning point for BTC. The RSI is climbing slowly getting out from the oversold zone, while the MACD line has converged with the Signal line from below the zero line; both suggest the bearish momentum has eased. 

Resistance level: 22530  23765

Support level: 20723, 19782

DOW JONES

The Dow Jones increased by 0.5% to 33,869 points on Friday as a rally driven by energy giant Chevron (CVX), up nearly 2%. The stock has been hovering near its 200-day line since breaking through its 50-day moving average. This week, investors will closely monitor January’s CPI data and PPI index. While on the earning front, major companies are set to report their earning results throughout the week, including Coca-Cola Co, Paramount Group Inc, Cisco Systems Inc, and Deere & Company. Investors could focus on the upcoming earnings report from major companies and U.S. CPI data due today. 

The overall dow jones index’s movement remains sideways from 33500 to 34500. The MACD has illustrated neutral-bullish momentum. RSI is trading at the midline of 50, suggesting a neutral-bullish momentum as well. 

Resistance level: 34390.00, 35640.00

Support level: 32730.00, 30945.00

GBP/USD 

The pound dropped 0.50% to $1.2048 on Friday after data showed the UK economy ground to a halt in the last quarter of 2022, avoiding recession risk but logging zero growth. The UK GDP data for December showed a 0.5% contraction, larger than the forecast of 0.3%. The BoE also forecasted the British would enter into a lengthy recession starting in the first quarter of this year. Investors are suggested to focus on UK consumer inflation data due next week, which may impact those expectations more.

The outlook for the overall pound remains bearish in the near term. The MACD has illustrated a bearish momentum ahead. While RSI is at 40, it also indicates bearish momentum in the short term. 

Resistance level: 1.2105, 1.2426

Support level: 1.1928, 1.1731

USDJPY

The Japanese Yen dipped amid heightened uncertainties on the monetary outlook from the Bank of Japan (BoJ). Last Friday, Japan Prime Minister Fumio Kishida sent shockwaves across global markets after he picked an unexpected outsider, Kazuo Ueda, an economist and former member of the Bank of Japan’s policy board, to become the central bank’s next governor to succeed Haruhiko Kuroda. The Japanese Yen experienced a renewed selloff after Kazuo Ueda vowed to continue to support the central bank’s current monetary position, maintaining its quantitative easing program.

USDJPY is trading higher while currently testing the resistance level. However, MACD has illustrated increasing bullish momentum, while RSI is at 61, suggesting the pair might extend its gains after its breakout since the RSI stayed above the midline. 

Resistance level: 131.75, 132.85

Support level: 130.40, 129.10

CL OIL

Oil prices surged significantly last Friday while posting weekly gains of over 8% following Russia announcing its plans to reduce oil supply next month. According to Reuters, Deputy Prime Minister Alexander Novak claimed on Friday that Russia would cut its oil production by 500,000 barrels per day starting in March after several West countries-imposed sanctions on Russian oil. Meanwhile, OPEC+ members signalled that they would not take action to fill the supply gap. In addition, several OPEC officials predicted that oil prices might resume their rally in 2023 as easing Covid-19 restrictions from China will boost demand recovery on the black commodity, with an estimation of $100 a barrel. Nonetheless, some analysts expected the Russia cuts are unlikely to affect global oil prices in the long term. Rising recession fears in the global financial market continue to act as a headwind on oil prices.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 54, suggesting the commodity might extend its losses as the RSI retreated sharply from the overbought territory.

Resistance level: 80.10, 81.70

Support level: 76.65, 76.45