Both the dollar and euro have traded relatively flat despite Hawkish Signals Coming from Both Fed and ECB

A few Fed officials have voiced out in various events after the Fed chair gave his speech days ago; Fed officials stressed that rate hikes will continue, with the benchmark rate hitting as high as 6%, especially after the higher-than-expected NFP reading . Things are similar in the Eurozone; hawkish comments from a few German officials at the ECB have urged the central bank to raise rates further so that the favourable 2% inflation rate is achievable. However, neither the dollar nor the euro has reacted toward these Hawkish comments from both sides, staying relatively flat. Moreover, oil prices took a breather after surging for more than 8% since Monday, perhaps due to worries over higher interest rate rise from the Fed as well as the U.S. crude stockpiles reading remaining high. 

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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 dollar index rebounded to $103.468 after several officials spoke at separate events on Wednesday. The New York Fed President John Williams said the monetary policy might need to be tight for a while to bring inflation down. The Fed Officials insisted on attaining a sufficiently restrictive stance of policy and ensuring they reached the inflation target of 2%. Therefore the tightening process will be higher for longer. At the same time, Governor Lisa Cook said officials were committed to tame inflation, and further tightening was warranted because the fight against inflation has yet to be won. Moreover, traders increased forecasts for rates to peak at 6% following the comments. Meanwhile, a hawkish tone also makes it tough for the equities market. 

The dollar index is moving toward the resistance level of $103.713. However, MACD remains illustrated in neutral-bullish momentum, while RSI is at 59, indicating the index is still hovering in a neutral-bullish momentum. 

Resistance level: 103.70, 104.85

Support level: 102.55, 101.80

XAU/USD

Gold prices rose to $1874 in a choppy session on Wednesday after several Federal officials’ comments. Four policymakers are giving a hawkish positioning on the tightening policy in separate events on Wednesday. Furthermore, the Federal Reserve officials reinforce the need to keep raising interest rates, including the potential for borrowing costs to peak at a higher level than previously expected amid ongoing price pressures. In this case, a hawkish tone might boost the dollar, and gold prices might drop. While raising rates would increase recession risk, gold is likely to be an attractive investment at that time. Investors are suggested to trade cautiously and look forward to more economic data for further trading signals. 

Both upward and downward directions are possible at the moment. MACD has illustrated diminishing bearish momentum. While RSI is at 41, indicating the commodity remains to trade in a neutral-bearish momentum ahead. Investors are suggested to monitor the support brea kout as gold prices remain testing the support level of 1870.

Resistance level: 1904, 1960

Support level: 1870, 1820

EUR/USD 

After a plunge of more than 3% since early of the month, the Euro took a breather staying flat with minimal volatility against the dollar. Although central banks from both economies have commented Hawkishly in terms of monetary policy, investors seem to be not buying the idea or perhaps the news has already been priced in as neither currency reacted toward such Hawkish tones. In addition, the German CPI reading will be released later today (9th Feb); higher-than-expected reading may encourage the ECB to be more aggressive in upcoming rate hikes. 

Despite a huge plunge of more than 3% for the past week, the pair is still trading above its long-term bullish support line. 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 couldn’t hold the strength to stay above $23000 and plunged by more than 2% as of writing. The reinforcement of the idea that the Fed may be more aggressive in rate hikes to tackle inflation, especially after the high reading of NFP released last Friday. A strong labour market with the lowest unemployment rate in decades, not to mention the climbing wage growth in the U.S., suggests the Fed’s benchmark rate could go as high as 6%. A high interest rate environment may deter investors from investing in riskier assets, and higher borrowing costs may suppress asset prices. 

On the technical front, BTC prices are testing the support level at $22500, suggesting a bearish trend if it breaks through the support level. For indicators,  the RSI has dropped and is approaching the oversold zone which suggests a strong selling power for BTC while the MACD stays flat below the zero line which gives a neutral bearish-bias signal for BTC. 

Resistance level: 23765,  24878

Support level: 22530, 21767

DOW JONES

The Dow Jones dropped 0.61% to 33949 points due to a shift in sentiment on the Federal reserve policy on Wednesday. Several policymakers said the Fed would need to keep raising interest rates to bring down inflation. Such hawkish tones make it tough for the equities market, leading to a selloff in tech stocks. The worsening earnings and economic expectations have produced “massive disconnects” that threaten market stability. On the other hand, President Biden is expected to call for a 400% hike in the tax on stock buybacks, which would also impact the stock market. 

The Fed officials’ hawkish comments surround the overall market sentiment, hurting the equities market. The MACD is indicating a diminishing bullish momentum. While RSI is trading at 52, it also indicates a neutral-bearish momentum. In the short term, we expect the prices to continue to float within the range of 32700 to 34400. 

Resistance level: 34388, 35639

Support level: 32731, 30945

GBP/USD 

Risk-off sentiment emerged in the global financial markets following several Federal Reserve members unleashing their hawkish tone, prompting investors to sell risky assets such as Pound Sterling yesterday. According to Reuters, Federal Reserve Governor Christopher Waller warned that it still requires a longer period for the Fed to curb inflation successfully while reiterating the central bank is still required to maintain its aggressive rate hike path in the future.

GBP/USD is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 43, suggesting the pair might extend its losses as the RSI stays below the midline.

Resistance level: 1.2105, 1.2425

Support level: 1.1925, 1.1745

USDJPY

USD/JPY rebounded following the fresh insights from Federal Reserve officials, prompting investors to reassess the monetary policy decision from the US central bank. Yesterday, four Fed officials who spoke at separate events reinforced a similar hawkish tone, claiming that the fight to tame inflation has yet to be won. At the same time, the central bank might continue to maintain its tightening monetary policy long-term.

USDJPY is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 53, suggesting the pair might extend its gains as the RSI stays above the midline. 

Resistance level: 134.45, 137.75

Support level: 130.70, 126.75

CL OIL

Oil prices surged by more than 5% in the prior two sessions following plunging 7.5% last week on recession fears and the uncertainties of the monetary decision from the Federal Reserve. Market participants continue to make speculation on impending demand recovery from China, the world’s largest crude buyer. Earlier, the EIA raised its crude oil demand and price forecast in 2023, with the expectations of 1.1 million barrels per day in 2023 and by 1.8 million barrels in 2024, driven primarily by growth in China. According to the Energy Information Administration (EIA), US crude oil inventories came in at 2.423M, less than the market expectations of 2.457M, spurring bullish momentum on this black commodity.

Oil prices are trading higher following the prior breakout above the previous resistance level. MACD has illustrated diminishing bullish momentum. However, RSI is at 63, suggesting the commodity might extend its gains as the RSI stays above the midline. 

Resistance level: 79.95, 82.30

Support level: 78.10, 76.05