The dollar surged above 105 while stock markets plunged after Fed Chair Jerome Powell gave his testimony in front of Congress,

Jerome Powell spoke in a 2-day testimony before the Senate Committee on Banking last night, rocking markets with his hawkish comments. The U.S. dollar surged to its highest since last December while stock markets plunged after the Fed’s chair warned of higher and faster rate hikes if needed, given the current stronger-than-expected economic data. Prices of all asset classes denominated with the dollar stumbled, including gold and oil, after the dollar went up by more than 1% following Powell’s hawkish stance. On top of that, U.S. 2-year treasuries yield jumped above 5%, the highest since 2007, causing the yield curve inversion with 10-year treasuries yield to be the most extreme in 4 decades. Elsewhere, the Bank of Canada is set to announce its interest rate decision today; the Canadian central bank is expected to keep its current policy rate unchanged. 

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Look Out For

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

25 bps (25.1%) VS 50 bps (74.9%)

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Market Overview

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Economic Calendar

Market Movements

DXY

The US dollar skyrocketed in response to the hawkish remarks made by Federal Reserve Chairman Jerome Powell. In his latest address to Capitol Hill, Powell cautioned that interest rates were likely to surge higher than initially predicted by central bank policymakers. Citing the recent data showing that inflation had reversed its downward trend toward the end of 2022, Powell warned that tighter monetary policies would be necessary to curb a rapidly expanding economy. In December of last year, officials had estimated the terminal rate to be 5.10%. However, following Powell’s remarks, current market pricing indicated a range of 5.5% – 5.75%, according to data from CME Group. As a result, US Treasury yields spiked, while stocks saw a sharp decline.

The Dollar Index is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 82, suggesting the index is entering overbought territory.  

Resistance level: 105.60, 106.25

Support level: 105.05, 104.25

XAU/USD

Gold prices experienced a significant slump on Tuesday, primarily due to the strengthening of the US dollar following the hawkish remarks made by Federal Reserve Chairman Jerome Powell. Powell’s recent address to Capitol Hill warned that interest rates were likely to surge higher than initially predicted by central bank policymakers, citing upbeat economic data observed recently. Powell’s comments immediately impacted the US dollar, which surged in response. The strengthening of the US dollar, in turn, put downward pressure on gold prices as a relative basis.

Gold prices are trading lower while currently testing the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 16, suggesting the commodity is entering the oversold territory.   

Resistance level: 1820.00, 1830.00

Support level: 1805.00, 1790.00

EUR/USD 

The euro was hammered by the bullish dollar by more than 1% last night after Jerome Powell gave his 1st day of testimony. The Fed’s chair commented hawkishly last night and warned the market to prepare for higher and faster rate hikes if the economic data shows the economy is still resilient. Investors perceived a higher chance the Fed might go for a 50 bps rate hike in March than previously predicted 25 bps. Although the inflation in certain countries in the Eurozone are high, and the ECB has hinted at a 50 bps rate hike in March, it failed to strengthen the euro to trade higher against the dollar. The NFP data is set to be released on this Friday (10th March), a higher-than-expected NFP reading may lead to a higher chance the Fed may raise a higher rate and further strengthen the dollar. 

On the technical front, although the euro dropped by more than 1% last night, the indicators showed that the bearish momentum is not strong. The RSI is floating in between the 30 to 50 range while the MACD is still hovering close to the zero line. 

Resistance level: 1.0613, 1.0698

Support level: 1.0463, 1.0386

BTC/USD

BTC was previously ranging in between 22180 to 22630, but the BTC prices broke below the price range after Jerome Powell gave his testimony. The dollar strengthened after the Fed’s chair gave a relatively Hawkish statement and asset prices that are denominated by the dollar stumbled. The entire financial market was under pressure after Jerome Powell signalled that the central bank would need to increase interest rates higher and for longer to tame stubborn inflation. On the other hand, U.S. federal officials, including the Federal Deposit Insurance Corp ( FDIC) have been sent to Silvergate headquarter to examine a way for the crypto-friendly bank to stay in business. Solving this crypto market turmoil will definitely spur the crypto prices, including BTC. 

Deposit the dollar strengthened by more than 1% last night, and the selling pressure faced by BTC seems to be relatively low. Both indicators has little changed with the RSI remaining near the 30-level while the MACD stayed flat close to the zero line

Resistance level: 22816, 23713

Support level: 22183,  21540

USDJPY

USDJPY surged 1.3% to 137.65 on Tuesday after data showed Japan hit a record deficit. The trade balance data showed a deficit of 1.98 trillion yen, more than double the median market forecast of 818.4 billion yen. January was the second straight month in which the current account balance was weaker than a year earlier, according to the Ministry of Finance. Furthermore, a persistent trade deficit can weaken the country’s currency, which impacts its economy, adding pressure on the Japanese Yen. in addition, the US dollar strengthens against the yen as Powell signals to raise interest rate expectations, leading the pair to move upward further. 

USD/JPY is moving upward to stand above its previous resistance level of 137.20, indicating a solid uptrend ahead. MACD has illustrated increasing bullish momentum, while RSI is at 71, indicating the pair has touched its overbought zone and might have a technical retrace in the short term.

Resistance level: 139.60, 142.26

Support level: 137.20, 134.80

GBP/USD 

On Tuesday, the pound sank 1.83% to $1.1817, a two-month low against the U.S. dollar. Moreover, the BoE policy maker said the pound could be vulnerable to other central banks’ outlooks, while the Fed chair said interest rates might need to increase further. In addition, market participants are pricing in that the BoE interest rate will peak in September at 4.75%. it currently stands at 4% after ten rate increases in a row since late 2021. Most traders also attach a 93% chance of a 25 basis point rate increase on March 23. There was no probability priced in that the BoE could raise rates by more than a quarter point until Powell’s speech on Tuesday. Therefore, the pound’s movement remains subdued. Investors are waiting for Friday’s nonfarm payroll data for further trading signals. 

The pound broke its two support levels in a row on Tuesday. MACD has illustrated increasing bearish momentum ahead. RSI is at 25, indicating the price has already entered the oversold zone. It might have a slight rebound very soon. 

Resistance level: 1.1845, 1.1926

Support level: 1.1634, 1.1447

Dow Jones

The Dow Jones Index slumped 1.72% to 32,856 points on Tuesday as the Fed signalled more rate needs to be increased. Powell sent stock investors fleeing when he told U.S. lawmakers earlier in the day that the Fed is prepared to raise more rate than previously market expected if future economic data suggests inflation is still high. The remarks followed recent data showing an unexpected inflation increase in January and an unusually large job gain for the month. After Powell’s comments, traders dramatically raised their bets for a 50 basis point rate hike in March, prompting the stocks market to slump as investors might shift away from riskier assets. Data to be focused on will include Friday’s closely watched nonfarm payroll additions for February. 

Dow Jones is moving down to its support level of 32,531 points. MACD has illustrated diminishing bullish momentum. RSI is at 41, indicating bearish momentum in the near term. 

Resistance level: 34308, 35639

Support level: 32531, 30945

CL OIL

Oil prices slumped on Tuesday, recording their most significant single-day percentage decline since 4th January. Investors braced themselves for a stronger US dollar and potential rate hikes from the central bank, which continued to act as a headwind for oil prices. In a recent address to Congress, Fed Chair Jerome Powell indicated that the Federal Reserve would likely need to increase rates more than previously expected, citing upbeat economic data. These remarks contributed to the strengthening of the US dollar, which surged over 1% to reach a three-month high, putting downward pressure on dollar-denominated oil by making it more expensive for buyers paying with other currencies.

Oil prices are trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 29, suggesting the commodity might enter oversold territory.    

Resistance level: 78.40, 80.55

Support level: 76.60, 75.10