The dollar is trading lower after a three-day surge as Powell states that inflation is declining

What You Need To Know

Fed Chair Jerome Powell has given a similar tone from his speech during last Wednesday’s interest rate announcement. A relatively less-hawkish tone after a sizzling job report in the U.S. hammered the then-bullish dollar to trade lower after a 3-day surge. His remarks suggesting a 5.1% interest rate peak this year is lower than the market prediction of 5.4% have encouraged the market to opt for riskier assets; the equities market and cryptocurrency market edged higher last night. On the other hand, the Indian Rupee may appreciate with an expectation that the Indian central bank is set to raise the interest rate; the interest rate decision announcement will be made later today(8th Feb). Elsewhere, oil prices continue it bullish trend with WTI trading above $77 per barrel because of oil supply disruption due to the Turkey earthquake as well as brighter oil demand outlook from China.

Look Out For

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

25 bps (90.8%) VS 50 bps (9.2%) 

Market Overview

Economic Calendar

Market Movements

DXY

The U.S. Dollar dropped 0.39% to $103.338 on Tuesday after the Federal Reserve Jerome Powell’s statement. “We think we are going to need to do further rate increases,” the Federal Reserve Chair Jerome Powell said during the Economic Club of Washington session. The dollar index dropped after the announcement as the market expected the Fed to increase higher than the target rate of 5.1% in December. But, the Federal Reserve maintained its interest rate peak forecast at the end of this year. He also said that it might increase the rate only if the labour data continues to increase. Lastly, the important takeaway is that Powell had a chance to signal a shift to a more aggressive policy but he didn’t take it.

The Dollar Index is retracing after it touches the resistance level of 103.713. However, MACD has illustrated diminishing bullish momentum, while RSI is at 60, indicating a bearish momentum ahead in the near term. 

Resistance level: 103.70, 104.85

Support level: 102.55, 101.80

XAU/USD

Gold prices edged a little of 0.35% to  $1876 on Tuesday after the Federal Reserve’s comments that they will need further rate hikes to tame inflation. Higher-than-expected U.S. Jobs data are increasing the chances of higher inflation. Therefore the Fed said the process of taming inflation would be held longer. Furthermore, stock markets closed higher on Tuesday, proving that investors are shifting their risk appetite at the movement, dragging down the appeal of the safe-haven asset. Investors are suggested to trade cautiously because the overall market sentiment was mixed at the moment. 

Investors might shift their risk appetite to risky assets. MACD has illustrated neutral-bearish momentum. While RSI is at 41, indicating the commodity is trading in a neutral-bearish momentum ahead. Investors are suggested to monitor the support breakout as gold prices keep testing the support level of 1870.

Resistance level: 1904, 1960

Support level: 1870, 1820

EUR/USD 

The Euro has a chance to take relief from its bearish trend which dropped by more than 3% from its recent peak against the dollar. The Fed’s chair is “reluctant” to comment or counter the sizzling job market in the U.S. by referring to the latest NFP reading. His remark from his speech last night suggested a 5.1% interest rate peak which is lower than the market speculation of 5.4%, sending the dollar to trade lower after a 3-days surge. Moreover, the ECB is catching up to the Fed in the monetary tightening program and is expected to raise the rate by another 50 bps in March; the Euros may be stronger against the dollar if the Fed is raising just a quarter of a point for the upcoming rate hike. 

Both indicators gave a turning point signal for the pair where the RSI rebounded above the oversold zone while the MACD line and the Signal line converged below the zero line. Both indicators suggest the bearish momentum has significantly diminished. 

Resistance level: 1.0785, 1.0915

Support level: 1.0615, 1.0462

BTC/USD

BTC prices seesawed within a price range between 22520 to 23800, edging slightly higher after the speech given by the Fed’s chair. BTC prices followed the sentiment of Wall Street with greater risk appetite as Jerome Powell, the Fed’s chair, gave a relatively less Hawkish comment even after the hot job number shown by the NFP reading. However, there is still a lack of catalyst at the moment for BTC to break either side of its current price consolidation. 

Despite the strong US job data hitting stock and crypto prices hard, the BTC is still able to trade within its consolidating price range defending its support level. The RSI is gradually moving in an uptrend and stays above 50 as of writing, while the MACD line is breaking above the zero line, with both giving a bullish bias for BTC.

Resistance level: 23765,  24878

Support level: 22530, 21767

DOW JONES

The Dow edged higher on Tuesday as investors digested the dovish tone from the Federal Reserve. At the Economic Club of Washington, Federal Reserve Chair Jerome Powell struck a dovish tone by acknowledging that the US inflation rate will start to decrease in 2023. Moreover, the US equity market received further bullish momentum, buoyed by upbeat quarterly earnings announcement. According to Refinitiv, more than half of the companies on the S&P 500 have reported quarterly earnings, with 69.1% of them beating market expectations. As for now, investors are advised to keep an eye on the upcoming US inflation data for further trading signals.

The Dow is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 52, suggesting the index might extend its losses as the RSI retreated sharply from the overbought territory. 

Resistance level: 34388, 35639

Support level: 32731, 30945

GBP/USD 

Due to the lack of market catalysts from the UK market yesterday, the overall bearish momentum for the pair of GBP/USD was primarily due to the strong US Dollar. The king dollar slumped significantly following the Federal Reserve Chair Jerome Powell unleashing their dovish tone, claiming he expects a significant downward shift of inflation this year. Nonetheless, he also acknowledged that future interest rate decisions are mostly data dependent. The possibility of greater rate hikes should still be considered if the economic conditions remain strong. At this juncture, the investors will focus on the upcoming inflation figure, which includes the CPI and PPI data from the United States, to gauge the likelihood trend for the pair of GBP/USD.

GBP/USD is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 41, suggesting the pair might extend its gains as the RSI rebounded sharply from the oversold territory. 

Resistance level: 1.2130, 1.2426

Support level: 1.1926, 1.1743

AUDUSD

The Australian Dollar surged following the Reserve Bank of Australia (RBA) announcing its monetary decisions. The Monetary Policy Committee (MPC) decided to raise their interest rates by a quarter-percentage point to 3.35%, the highest level since September 2012. In addition, the central bank vowed to continue its tightening monetary policy to crush stubbornly high inflation, prompting the Aussie and bond yield to rise.

AUDUSD is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 48, suggesting the pair might extend its gains as the RSI rebounded sharply from the overbought territory. 

Resistance level: 0.7135, 0.7280

Support level: 0.6885, 0.6720

CL OIL

Oil prices climbed more than 3% on Tuesday after the Federal Reserve eased market concerns over interest rate hikes. Friday’s strong job data affirmed that the central bank has some way to increase interest rates further. Moreover, the dollar index fell after the announcement, driving oil prices up. In addition, China’s oil market seems to have made a comeback, followed by a burst of travel during the Lunar New Year break. A rapid economic recovery as the world’s biggest crude importer finally puts the virus behind it will significantly impact the oil prices. According to Bloomberg, output in China’s larger refineries should return to peak levels in the first quarter. Furthermore, Saudi Arabia is not afraid to raise crude prices for Asian buyers, especially China, directly proving that the demand from China’s recovery is real, boosting oil prices. 

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated bullish momentum ahead. While RSI is at 57, also indicating a bullish momentum ahead in the short term. 

Resistance level: 82.09, 85.46

Support level: 76.81, 73.35