A week of risk-off sentiment has ended as the Fed reiterated that it will continue being hawkish, raising estimates for the Fed Fund rate to 5.25%

What You Need To Know

The 10-year US Treasury note yield rose after the Fed stressed that interest rates have to rise further to fight the strongest inflation in 4 decades. Some analysts estimate that the Fed will raise the nation’s interest rate to 5.25% as compared to the previous estimation between 4.75% to 5% to meet their favourable inflation rate. After the Fed reaffirmed its hawkish monetary policy, the dollar stopped its bearish trend. On the other hand, oil prices had a weekly loss of over 7% as the demand outlook for the black gold remained gloomy. 

Look Out For

Current rate hike bets on 14th December Fed interest rate decision: 

75 bps (19.4%) VS 50 bps (80.6%)

Market Movements

DXY

The Dollar Index was buoyed by a string of upbeat economic data yesterday. According to the Department of Labor, US Initial Jobless Claims came in at 222K, which fared better than the expected 225K, indicating the job market in the United States remained tight and solid. The US Dollar received further bullish support following a US Federal Reserve official unleashing hawkish tones. St Louis Fed President James Bullard claimed that the Federal Reserve still needs to keep increasing interest rates given that the current contractionary monetary policy has limited effects on the spiking inflation rate.

The Dollar Index is trading higher following prior rebounded from the support level. Nonetheless, MACD has illustrated diminishing bullish momentum, while RSI is at around the midline, suggesting the index would hover in a range from the 107.80 and 106.15. 

Resistance level: 107.80, 109.65

Support level: 106.15, 104.75

XAU/USD

The gold market fell yesterday as a hawkish statement from the Federal Reserve and optimistic economic data continues to weigh on the dollar-denominated gold. St Louis Fed President James Bullard claimed that the current policy rate still needs to be in a state that may be considered sufficiently restrictive to combat the inflation rate. On the economic data front, US Initial Jobless Claims and Building Permits came in at 222K and 1.526M, faring better than the economist forecast of 225K and 1.512M, respectively.

The gold market is trading lower following prior retracement from the resistance level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 52, suggesting the commodity to be trading higher in short-term as the RSI stays above the midline.  

Resistance level: 1770.35, 1809.25

Support level: 1727.20, 1681.85

EUR/USD

Inflation in the eurozone hit an all-time high of 10.6% in October due to increased energy prices. In the long run, the ECB wants to keep inflation at 2% over the medium term and has been sharply raising interest rates since July to help curb price growth. The price of the pair might come to a halt unless stronger-than-expected data is released on the energy situation. 

As of writing, EUR/USD is trading on the sidelines from 1.0289 to 1.0484. In addition, MACD has illustrated diminishing bullish momentum. While RSI is at 56, the pair might be moving to below 50 in the short term, which suggests a diminishing bullish momentum ahead.

Resistance level: 1.0484, 1.0640

Support level: 1.0289, 1.0112

BTC/USD

BTC saw a minor spike last night, perhaps due to El Salvador’s president announcing that the nation will start buying one bitcoin per day. However, the market believes that the Fed will be more aggressive on rate hikes from the previously estimated 5% targeted rate to 5.25% to fight against the strongest inflation in 4 decades. A more intense rate hike that will lead to a stronger dollar will definitely put pressure on btc.

BTC has been consolidating between 17450 to 15900 for the past 8 trading days but has recently been trading above its uptrend support line. The MACD is approaching the zero line and the RSI has also flown above the 50-level, suggesting that there is support in this price range. 

Resistance level: 17450, 18440

Support level: 15900

DJ30

The US equity market edged modestly lower as the hawkish statement from the Federal Reserve and upbeat economic data from the US region spurred an aggressive rate hike expectation. Recent positive economic data has continued to prompt the US Treasury yield higher, which may continue going forward on the condition that the economic performance in the United States keeps outperforming market expectations. Speculations from traders of a 75-basis point hike during the Fed’s next meeting climbed to around 19% from the previous reading of 15%, according to CME Group’s FedWatch tool.

The Dow is trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 62, suggesting that bears are in control of the index as the RSI retreated sharply from the overbought territory. 

Resistance level: 34320, 35720

Support level: 33065, 31045

GBP/USD

The pound dropped on Thursday after Chancellor Jeremy Hunt announced a budget of tax increases and spending cuts to tackle inflation. Higher taxes and lower spending might be necessary for the UK to cool down inflation. Market reactions have been slightly weakened on the pound and UK government bond after the announcement from the finance minister. 

MACD is trading above the zero line, illustrating a bullish momentum ahead. While RSI is trading around 57, which also indicates bullish momentum in the short term. Investors could keep an eye on the next resistance would be 1.2000

Resistance：1.200, 1.2266

Support： 1.1779, 1.1464

USD/JPY

The dollar was weak after the release of the U.S. CPI data, which led the market to believe that inflation has peaked. The bearish momentum has eased, and the pair is now consolidating in the range between 140.89 to 138.56 in the past week. With the Fed has reiterated that the tightening monetary policy is still firmly on-going, we could expect the pair will have some bullish momentum ahead. 

The MACD depicts a bullish signal for the pair with both the signal line and MACD line flowing toward the zero line from below and the gap is widening. However, the RSI has dropped from the 50-level to 44.6 as of writing, suggesting that the buying power is still weak. 

Resistance level: 141.96, 143.73

Support level: 138.58  136.45

CL OIL

Oil prices dipped significantly yesterday, with pessimistic demand prospects due to spiking Covid-19 cases in China. The new Covid-19 cases in China rose above 23,000, which is the highest level since April while approaching their record high. With the steep increase in interest rate adding to the headwinds, oil prices continue to receive bearish momentum. St. Louis Federal Reserve President James Bullard — one of the central bank’s biggest policy hawks – added further bearish pressure on dollar-denominated oil by claiming that the U.S. inflation remained “unacceptably high” for the Fed to slow down its future hikes path.

Crude oil prices are trading lower following prior breakout below the previous support level. However, MACD has illustrated increasing bearish momentum, while RSI is at 30, indicating the product was going  oversold territory.    

Resistance level: 83.05, 85.25

Support level: 79.50, 76.20