What You Need to Know

The market continues to be optimistic ahead of the U.S. key inflation reports which will be released later today. Stock markets closed higher and the dollar extended its bearish momentum in the hope that the Fed will be more lenient in the upcoming rate hikes. Australia extended its strength in metals exports and recorded trade surpluses for the 5th consecutive year; China dropped its import ban on Australia and opening up its economy may have spurred the Aussie dollar. Elsewhere, bitcoin surged to its 2-months high and is trading above $18000 ahead of the U.S. CPI report release. 

Look Out For

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

25 bps (79.2%) VS 50 bps (20.8%) 

Market Overview

Economic Calendar

Market Movements

DXY

The US Dollar traded essentially flat yesterday, hovering at 7-month lows as investors cautiously wait for the US inflation data. Since the recent data points to slower economic growth, including easing wage growth seen in the December jobs report, economists expect the consumer price index to decline from the previous reading of 7.1% to 6.5% in December. In addition, the US Dollar received further bearish momentum following the Federal Reserve’s dovish tone toward the monetary outlook. According to Bloomberg, Federal Reserve Bank of Boston President Susan Collins claimed that the central bank should lean toward supporting a smaller rate hike at the central bank’s next meeting ending 1st February.        

The Dollar Index is trading lower following the prior breakout below the previous support level. MACD has illustrated diminishing bullish momentum, while RSI is at 40, suggesting the index might extend its losses as the RSI stays below the midline.

Resistance level: 105.20, 108.35

Support level: 101.30, 99.05

XAU/USD

Gold prices continue to hover at the highest level in over eight months as investors anticipate the easing figures on Consumer Price Index (CPI) inflation data due Thursday. Economists expect the CPI data to indicate a smaller reading of 6.5%, lower than November’s 7.1% pace. As for now, investors are monitoring the data closely as the expectations are that if it continues to decline, it will diminish the Federal Reserve’s pace of rate hikes while underpinning the market demand on the gold market.

Gold prices are trading flat while currently testing the support level. However, MACD has illustrated increasing bearish momentum, while RSI is at 59, suggesting the commodity might trade lower as the RSI retreats sharply from the overbought territory.

Resistance level: 1915.00, 1980.00

Support level: 1870.00, 1820.00

EUR/USD

The Fed’s chair did not provide any comment on the Fed’s next move ahead of the U.S. CPI report. The market continues to believe that the inflation growth rate has peaked, leading the dollar to extend its bearish momentum. Besides, several ECB officials have given Hawkish statements and reiterated that the ECB has to raise its rate significantly to curb the very high inflation in the economies. The pair might trade above its 6-month high level if the CPI report came cooler than the market expectation later today. 

The Euro continued to be bullish and was trading near its resistance level before the crucial U.S. CPI data was released. The RSI has remained near to the overbought zone suggesting a relatively strong buying power over the days. The MACD stays flat awaiting for the CPI report to provide a catalyst for the pair to move. 

Resistance level: 1.0743, 1.0988

Support level: 1.0495, 1.0277

BTC/USD

The sentiment in the global financial market has been optimistic lately with stock markets closing higher in the 1st month of 2023 ahead of the U.S. CPI report. Investors’ risk appetite has been increasing in the hope that the central banks will be more lenient in upcoming rate hikes. Bitcoin is once again trading above 18000 for the 1st time in a month given that the BTC supply is tighter and the demand for BTC is increasing lately. If the CPI report came cooler than the market expected, this might have spurred BTC prices. 

For technical discussion, BTC prices seem positive as it steadily increases after breaking its psychological resistance level at 17000. The RSI shows that BTC’s buying power is very strong as the reading is held at the 86-level as of writing. The MACD has also moved up slowly depicting a bullish bias for BTC.

Resistance level: 17746, 18465

Support level: 15843, 14975

DJ30

 The Dow edged higher yesterday as the global risk-on sentiment surged ahead of an inflation report that could increase the probability of the Federal Reserve diminishing its aggressive rate hike decisions. The much-anticipated report due on Thursday is expected to grow by 6.5% year-on-year in December, easing from the previous reading of 7.1%. As for now, money market participants see 75% probabilities that the Fed will only increase its benchmark rate by 25 basis points in February.

The Dow is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 61, suggesting the index might trade higher as the RSI stays above the midline. 

Resistance level: 34110, 35320

Support level: 32620, 31165

GBP/USD 

The pound lost a little ground by 0.08% to $1.2164 against the dollar on Wednesday as the market was calm across currency markets ahead of the possible storm following the U.S. CPI, which will be released on Friday. The dollar has been trading weak in recent months, with hopes that U.S. inflation is on the way down. It also shows signs that the U.S. economy is under pressure, driven by expectations that the Fed is close to the end of its rate hike path. Investors anticipate that the British currency will do quite well compared to the dollar later this year because they expect more aggressive rate cuts from the Fed. Everything has to wait for the U.S. CPI data release, and investors could keep an eye on it. 

As we can see, the pair still hovers within the range in the short term. The MACD line remains above zero line, indicating a bullish momentum ahead. While RSI is trading at 58, indicating the pair remains in bullish momentum.

Resistance level: 1.2345, 1.2670

Support level: 1.1935, 1.1650

HK50

The Hong Kong stock market is losing 0.70% to 21285 points in early trade as a technical retracement as of writing. SSince foreign investors have started to buy back beaten-down stock in China, as a good sign of money flows into the country again. The economic and market effect of that reopening is just beginning to be felt, and it could be a long path on upbeat Chinese equities and the currency. Hong Kong Stock Index is up 47% since November, and investors are suggested to focus on the hottest China property and tech sectors.

As we mentioned yesterday, the index might be doing some technical retracement for a few days. But the HK50 is still trading above the resistance level of 21,000, suggesting that the overall sentiment remains strong. MACD has illustrated increasing bullish momentum. However, RSI is at 69, indicating the index has already near overbought territory, and a slight retracement could continue in the coming days.

 Resistance level: 22520, 22885

Support level: 20000, 18838

CL OIL

Oil prices surged to a one-week high yesterday as the weakening US Dollar and concern over the impact of sanctions on Russia’s crude supply outweighed a massive increment build in US crude inventories. Meanwhile, risky assets such as the equity market and crude oil were up yesterday, with investors hoping that US inflation and earnings figures due on Thursday will prompt the Federal Reserve to slow down the pace of interest rate hikes to boost the economic momentum. Investors are now seeing oil prices head higher, as they expected China’s reopening of its economy after the end of strict Covid-19 restrictions would send the oil demand to skyrocket.

Crude oil prices are trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 63, suggesting the commodity is entering overbought territory.  

Resistance level: 81.55, 86.15

Support level: 77.10, 73.25