The Greenback rebounded significantly yesterday as a technical correction ahead of the week’s crucial economic data and events from the United States

What You Need to Know

The Greenback gained some strength overnight as uncertainty over the approaching Fed’s monetary policy and worries over the Eurozone’s geopolitical tension. The FOMC meeting minutes, which will be released at 21:00 (GMT+2) today, will significantly impact the DXY index. On the other hand, oil prices slipped by 4% last night due to a pessimistic global economic outlook. OPEC recorded a higher oil output last month by an additional 150000 barrels per day mainly due to Nigeria reviving its oil production. Elsewhere, the Japanese Yen edged higher following the efforts by BoJ to depress the yields on government debt. 

Look Out For

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

25 bps (100%) VS 50 bps (0.00%)

Market Movements

DXY

The Greenback rebounded significantly yesterday as a technical correction ahead of the week’s crucial economic data and events from the United States. Investors are now focusing on the Federal Reserve meeting minutes and US jobs data, due to be released later in the week, to speculate on the rate hike perspective from the Federal Reserve in the new year. Earlier, the Fed raised its interest rate by only 50 basis points last month, vowing that it will continue to maintain its restrictive monetary policy for the long-term to tame inflation. Nonetheless, the overall trend for the US Dollar remains subdued as investors are still waiting for a further catalyst from the United States.

The Dollar Index is trading flat while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 48, suggesting the index might extend its gains after it successfully breakout above the resistance level as the RSI rebounds sharply from the oversold territory.   

Resistance level: 105.05, 108.35

Support level: 101.30, 99.05

XAU/USD

Gold prices surged to their highest levels in more than six months, with investors bracing for uncertainty over the Fed’s rate-hike path and geopolitical risks, which stoked a shift in sentiment toward safe-haven gold. The market focuses are now on the FOMC meeting minutes and other expected economic data this week for further trading signals. 

Gold prices are trading higher following prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 71, suggesting the commodity is entering the overbought territory.

Resistance level: 1870.00, 1910.00

Support level: 1820.00, 1770.00

EUR/USD

The pair set for the biggest decline since September last year, dropping more than 1.2% last night. The dollar gained some strength as there is uncertainty over the Fed’s next move before the FOMC meeting minutes is released. The intensified geopolitical issues in the Eurozone have drawn down investors’ risk appetite and turned to the safe-haven dollar. All eyes will be on the FOMC meeting minutes where a Hawkish statement from the minute which is against the market consensus, will see the dollar extend its gain. 

The pair broke through its price consolidation range with a drop of 1.2% last night. However, it is still trading above its crucial support level at 1.0495, suggesting that the bearish momentum is not strong. The RSI has dropped and reached the oversold zone but has a slight rebound afterwards suggesting that the selling power has eased. The MACD on the other hand, depicts a bearish bias for the pair.  

Resistance level: 1.0743, 1.0988

Support level: 1.0495, 1.0277

BTC/USD

BTC has stayed extremely sideways and is consolidating in the price range between 16206 to 17030. Although the dollar has gained more than 1.2% over the night, BTC prices are able to withstand the strength of the dollar and gained by nearly 1%. This suggests that BTC is stronger and the optimism is installed in the cryptocurrency market. The FOMC meeting minutes which will be released later today may increase the volatility of BTC. A hawkish stance from the meeting minute will pressure the BTC as the dollar may benefit from an aggressive monetary policy. 

The price volatility and the trading volume remained low in the new year. The RSI indicates that the buying power for BTC is increasing as it flows toward the overbought zone. The MACD indicates a rather neutral BTC signal hovering closely to the zero line. 

Resistance level: 17640, 18397

Support level: 16166, 15448

DJ30

The Dow edged lower, dragged by slumping in the US technology sector as investors shifted their portfolio from the high-risk asset to avoid market uncertainty ahead of the release of the FOMC meeting minutes. The US equity market ended 2022 with its worst performance since 2008 as rising interest rates throughout the year continued to pressure high-flying growth and big tech stocks. During the earlier statement, the Monetary Policy Committee (MPC) had vowed that the central bank would continue to raise its interest rate until it satisfied its mission to tame the inflation rate to the 2% target goal. On the other hand, Tesla Inc fell more than 12% yesterday, following its reporting lower-than-expected deliveries for the previous quarter.

The Dow is trading flat while currently near the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 50, suggesting the index might continue to trade sideways between resistance level and support level. 

Resistance level: 34110, 35320

Support level: 32620, 31165

GBP/USD

The pound dropped 0.92% to 1.1991 against the dollar on Tuesday. It is the biggest drop since mid-December. Downward movement can be attributed to a stronger dollar rather than UK-specific factors. Moreover, the UK manufacturing PMI showed a reading of 45.3, which is stronger than the expectation of 44.7. Furthermore, millions of low-income households will receive cost of living support from the government or up to 900 pounds over the financial year. Investors could focus on the upcoming minutes’ statement from the Fed, which will be released later on Wednesday. 

The pound slid down against the dollar on Tuesday. MACD has illustrated diminishing bullish momentum, while RSI is trading at 44, suggesting the pair might be trading in neutral-bearish momentum. 

Resistance level: 1.2345, 1.2670

Support level: 1.1935, 1.1650

Nas100

The Nasdaq dropped 0.76% to 10,386 points on Tuesday. The index fell 33.1% in 2022, mainly dragged down by growth stocks. Besides the energy sector, technology was the second decliner. Apple hastened the decline as it ended the day with a market valuation below $2 trillion for the first time since March 2021. In addition, Tesla shares tumbled more than 12% on Tuesday after the release of fourth-quarter vehicle production and delivery numbers for 2022. In contrast, the biggest gainer was the Meta Platforms, leading the advancers there with a gain of 3.7%. Investors could monitor the minutes from the Fed, which will be released later on Wednesday. 

The index is trading in a weak momentum. However, MACD has illustrated bearish momentum ahead. While RSI is trading at 42, suggesting a bearish momentum ahead. 

Resistance level: 11479, 12158

Support level: 10487, 9765

CL OIL

Oil prices dropped by more than 4% yesterday, weighed by downbeat economic data from China, a gloomy economic outlook, and an appreciation of the US Dollar. According to the Markit, China Caixin Manufacturing Purchasing Managers Index (PMI) shrank sharply in December as Covid-19 infections continued to disrupt production. The index fell to 49.0 in December from the previous reading of 49.4. The below 50-point would suggest that the manufacturing economy in China is still deteriorating, adding further uncertainty toward the oil demand. Meanwhile, the US Dollar experienced its largest one-day rise in more than 2 weeks ahead of FOMC meeting minutes. A stronger US Dollar can drag down demand for oil as dollar-denominated commodities become more expensive on a relative basis.

Crude oil prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 40, suggesting the commodity will extend its losses after it successfully breakout below the support level.

Resistance level: 81.55, 86.15

Support level: 77.10, 73.70