What You Need to Know

The Bank of Japan has sprung a surprise increase of 0.25% on the cap for its 10-year bond yield, prompting the yen to surge

Investors are focused on inflation data and the interest rate decision from the BoJ, who are expected to stay within its current ultra-easy monetary stimulus program as there are signs that inflation has peaked in some major economies. However, the Yen has surged on a surprise increase of 0.25% to the BoJ’s cap on its 10-year bond yield. In Australia, the Reserve bank’s board considered pausing its policy tightening cycle and will make further decisions based on incoming economic data including the inflation rate and employment rate. In addition, oil prices edged higher this week as the optimism over China reopening its economy has overshadowed the gloomy global economic outlook. 

Look Out For

Current rate hike bets on 1st February Fed interest rate decision: 

25 bps (72%) VS 50 bps (18%)

Market Movements

DXY

The lack of extensive earnings reports and economic data from the US region yesterday prompted investors to re-focus on economic fears and interest rates. The Greenback edged slightly higher on Monday, with investors bracing for hawkish statements from the Federal Reserve to continue to boost bullish momentum on US Treasury yields. 

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 41, suggesting the index might extend its gains after it breakout the resistance level as the RSI rebounded sharply from the oversold territory. 

Resistance level: 105.70, 109.05

Support level: 101.20, 97.70

XAU/USD

Gold prices retreated from their key levels on Tuesday as concerns over rising interest rates prompted investors to shift their portfolio into other treasury bonds as the substitution for safe-haven gold. The US Dollar continues to recover from a five-month low hit, while 10-year US Treasury yields firmed for a third consecutive session with the expectation of further restrictive monetary policy. Nonetheless, the trading volumes are expected to be subdued ahead of market holidays. Investors are advised to monitor further economic development for additional trading signals.  

The gold market is trading flat while currently seesawed between resistance and support level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 45, suggesting the commodity might trade lower in short-term as RSI stays below the midline. 

Resistance level: 1810.00, 1870.00

Support level: 1770.00, 1725.00

EUR/USD

By entering into the festive season, it is notable the trading volume has been low and the pair is expected to trade sideways in a smaller price range. The ECB last week had announced its interest rate decision of 50 bps hikes in rate and also gave a somewhat hawkish signal from the European officials. The pair is expected to appreciate a hawkish stance from the ECB, especially when the inflation rate in the region is exceptionally high. 

The pair has been sideways on the technical front after it touched its highest level at 1.0736 since June this year. The bullish momentum vanishes as the MACD line approaches the zero line. The RSI has also stayed near to the 50-level which gives a neutral signal for the pair. 

Resistance level: 1.0743, 1.0988

Support level: 1.0495, 1.0277

BTC/USD

BTC has tumbled nearly 10% over the weekend and fell below its psychological support level at 17000. BTC fell alongside with the equities markets as these riskier assets are still under pressure after the Fed signalled to keep its Hawkish monetary policy in 2023. Investors in the cryptocurrency market continued to retreat as the outflows in the market continued. Binance, the biggest crypto trading platform, has seen an outflow of $ 7.2 billion over the week signal that investors lack confidence in this asset class. 

On the technical front, BTC crashed by nearly 10% after it touched its highest point in a month at 18366. The king of coin turned bearish as it broke below its crucial psychological support level at 17000. The RSI has a slight rebound before it breaks into the oversold zone, suggesting that the selling pressure has eased. The MACD has also stayed near to the zero line although it has broken through it from above. The indicators suggest that the bearish momentum is easing and may be consolidating at this price range. 

Resistance level: 16870, 17640

Support level: 16166, 15448

DJ30

Sentiment on the equity market was weighed by the ongoing rise in Treasury yields, with the US technology sector continuing to fall for the fourth-straight day. The spill-over effects continue to drag down the whole equity market in the United States, the Dow continues to receive bearish momentum. The trading volumes are expected to be subdued ahead of market holidays. Investors are advised to monitor further economic development for additional trading signals.  

The Dow is trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 41, suggesting the index might extend its losses as RSI stays below the midline. 

Resistance level: 34390.00, 36810.00

Support level: 31370.00, 28760.00

GBP/USD

The pound traded flat against the dollar at $1.2153 on Monday as the BoE raised interest rates by 50 basis points as expected last week. Furthermore, investors are still concerned by comments that rates could go higher in future. Traders expect the central bank to raise rates by 25 basis points on 2 February. 

As we can see, the pound was traded flat on Monday. The MACD line crosses below the zero line, indicating bearish momentum ahead. At the same time, RSI is trading at 47, and the trend remains bearish. We could expect that the pair’s movement would stay on the sidelines until further economic data released. 

Resistance level：1.2343，1.2664

Support level： 1.2119， 1.1950

USDJPY

The Japanese yen rose by (3.03%) or 4.164 points to 133.14 against the weakened dollar as of writing. The yen strengthened as the BoJ announced that it would let benchmark bond yields rise further. From the latest announcement released by the BoJ, they decided to keep the monetary policy unchanged, but it raised the upper band limit on the yield target to 0.5%, up from the previous upper limit of 0.25%. Yet, it led to appreciation in the Japanese yen since late October. 

Since the BoJ announced that they were adjusting the central bank’s yield curve control program, the yen jumped. The MACD is moving down to the zero line, suggesting the pair is trading in bearish momentum. At the same time, RSI drops from 56 to 30 straight to the oversold zone, indicating a bearish momentum. 

Resistance level: 134.00, 138.22　

Support level: 131.30, 126.40

CL OIL

Oil prices extended their gains yesterday, as expectations of easing Covid-19 restrictions around China outweighed fears of a global recession that would jeopardise energy demand. Meanwhile, China, the world’s top oil importer, vowed to unleash support for its economy to offset the negative impact of Covid-19-related disruption after easing the Covid-19 zero policy. Despite the fact that the policy would lead to a significant surge in cases, Beijing’s pledge of economic support sparked hopes that energy demand would remain steady.

Crude oil prices are trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 49, above the midline, suggesting the commodity might extend its gains in short-term    

Resistance level: 77.50, 82.30

Support level: 73.75, 70.25