Commodities are trading flat as uncertainty about coming Fed hikes overshadow geopolitical tension.

The tension between the U.S. and China has heightened after China’s top diplomat commented on China’s tight relationship with Russia, and it is reported that China’s president is planning to visit Moscow in the coming month. While geopolitical tension usually drives commodity prices higher, it was not the case at least last night. Gold and oil prices were muted, perhaps due to the market gauging the prospect of a more aggressive rate hike from the Fed before the FOMC meeting minutes release. U.S. equity markets recorded the worst daily loss this year while the dollar index stayed strong. On the other hand, the New Zealand dollar remained firm against the strengthened dollar as New Zealand’s central bank raised the interest rate by 50 bps, lifting the cash rate to 4.75%, signalling for further rate hikes to tame inflation. 

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Look Out For

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

25 bps (77.5%) VS 50 bps (22.5%)

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Market Overview

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Economic Calendar

Market Movements

DXY

US Treasury yields skyrocketed to an all-time high, driven by the prospect of a more extended-than-expected tightening of monetary policy by the Federal Reserve. Robust economic data further bolstered this sentiment, prompting the US dollar to rebound from a weekly low and surge to 104 at the time of writing. Investors worldwide are now keenly anticipating the release of the FOMC meeting minutes, scheduled to be unveiled on February 22nd at 21:00 (GMT+2). This eagerly anticipated report will provide a glimpse into the Federal Reserve’s thinking on inflation and interest rates and is expected to have significant implications for the financial markets.

The Dollar Index is trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 55, suggesting the index might extend its gains as the RSI stay above the midline

Resistance level: 104.60, 105.55

Support level: 103.85, 102.85

XAU/USD

Gold prices retreated yesterday, with investors speculating on tightening monetary policy decisions from the Federal Reserve. US Treasury yields surged to a fresh high on Tuesday, spurring significant bullish momentum on the US Dollar while dragging down the appeal of dollar-denominated gold. All eyes were on the FOMC meeting minutes, which are set to be released on February 22nd at 21:00 (GMT+2).

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bearish momentum, while RSI is at 45, suggesting the commodity might trade lower in short-term as technical correction since the RSI stays below the midline.

Resistance level: 1845.00, 1860.00

Support level: 1820.00, 1765.00

EUR/USD 

The euro edged down by 0.16% to $1.0660 against the strengthened dollar on Tuesday. Data showed that the U.S. business activity rebounded in February to its highest level in eight months, prompting the dollar to rise, and the euro dropped. On the other hand, the euro composite PMI likewise rose to a nine-month high of 52.3 in February, supported by surprisingly strong services growth. However, the pair failed to benefit from the data. Moreover, the euro may be facing a more difficult situation, given that there’s a general sense that the ECB still has more work to do, adding pressure to their growth outlook.  

The overall trend for the euro seems weak. Investors are suggested to wait for the FOMC meeting minutes due on Wednesday for further clues on the interest rate hikes path. Furthermore, MACD has illustrated a neutral-bearish momentum. While RSI is trading at 45, it indicates a neutral-bearish momentum ahead. The pair remains trading sideways, and investors might need to trade cautiously as the sentiment remains weak. 

Resistance level: 1.0760, 1.0866

Support level: 1.0583, 1.0458

BTC/USD

After the U.S. market rested for a day and enjoyed its holiday, it resumed with a bad outcome. The U.S. equity market recorded its daily worst loss this year amid market worry over a more aggressive monetary policy that will probably be revealed in the FOMC meeting minutes, which will be released later today. The market perceived for higher interest rates led to a strong dollar and a loss in appetite for risky assets, including cryptocurrency. On the bright side, the market perceived a softening attitude toward the crypto market from the Chinese government. Hong Kong’s securities and futures commission (SFC) has announced its plans to allow retail crypto trading within the financial hub. Besides, loosening monetary controls by China’s central bank may indirectly provide more liquidity to the crypto market. 

On the technical front, both indicators depict a bearish signal for BTC. The RSI falls below the 50 level for the 1st time in a week while the MACD is flowing toward the zero line from the above suggesting that the bullish momentum is diminishing drastically. 

Resistance level: 25085, 26250

Support level: 23713, 22816

Nasdaq

Three major U.S. stock markets plunge on Tuesday. Nasdaq declined 2.5% to 11,490 points, the worst performance of the year, as investors interpreted a rebound in the U.S. business activity in February, hinting more rates will be raised to tame inflation. The index was pressured by widespread declines in tech stocks, with Tesla, Amazon, Microsoft and Alphabet all falling between 2.1% to 5.3%. In addition, the U.S. 10-year Treasury notes hit a fresh three-month high, and higher yields typically weigh on growth stocks. Hence, the semiconductor index was also impacted, dropping 3.3%. Furthermore, investors will look to the minutes’ discussion at the Fed’s last policy meeting, due on Wednesday, for further clues on the interest rate hikes decision. 

Market sentiment is flooded with the stay ‘higher for longer’ interest rate hikes path. Therefore, higher rates will likely to pressure the stock markets, leading to the Nasdaq dropping further. At this point, the price has been lowered to the support level of 11997, and it’s a crucial level to focus on whether it can break down. Meanwhile, MACD has illustrated a diminishing bullish momentum. While RSI is trading at 39, indicating a bearish momentum ahead. 

Resistance level: 12808, 13778

Support level: 11997, 11445

GBP/USD 

The Pound Sterling has recently experienced a significant rally thanks to a series of positive economic data releases. These upbeat reports have led investors to increase their bets on potential Bank of England rate hikes shortly. According to the latest report by S&P Global/CIPS, the February UK Composite Purchasing Managers’ Index (PMI) has increased to 53.0, showing a substantial increase from the previous reading of 48.5, and it is the first time since July that the index has surpassed the critical 50 thresholds for growth. The Composite PMI Index measures business activity in the manufacturing and services sectors, so a higher-than-expected reading indicates strong growth and economic expansion.

GBPUSD is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 62, suggesting the pair will extend its gains as the RSI stays above the midline. 

Resistance level: 1.2125, 1.2210

Support level: 1.2020, 1.1915

Dow Jones

US Treasury yields surged to a fresh high on Tuesday, fueled by the possibility of a longer-than-anticipated monetary policy tightening by the Federal Reserve amidst robust economic data. In contrast, the US equity market suffered its worst performance this year, with major benchmarks declining due to the expectation of rate hikes. The decline in US equities is particularly pronounced for growth stocks, whose valuations are often based on future profits. Higher rates mean these profits are heavily discounted, making these stocks less attractive to investors. This trend is particularly relevant in the current market, where growth stocks have been the primary drivers of market gains over the past year.

Dow Jones are trading lower while currently near the support level. MACD has illustrated increasing bearish momentum, RSI is at 34, suggesting the index might extend its losses as the RSI stays below the midline. 

Resistance level: 34310.50, 35640.00

Support level: 32730.00, 30945.00

CL OIL

The oil market took a hit yesterday as concerns over global economic growth took centre stage, outweighing the supply curbs that had been in place. All eyes were on the FOMC meeting minutes, which are set to be released on February 22nd at 21:00 (GMT+2). This cautious sentiment in the market and the global equity markets’ major downside resulted in a decrease in risk appetite, further dragging down the appeal for high-risk assets like crude oil. Despite the current market sentiment, tighter supply prospects have supported oil prices. Russian plans to cut oil production by 500,000 barrels per day, coupled with predictions about China’s oil demand likely rebounding this year following the easing of Covid-19 restrictions, are positive developments that could impact oil prices.

Oil prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 37, suggesting the commodity might extend its losses as the RSI stays below the midline.

Resistance level: 77.35, 78.50

Support level: 76.15, 74.65