U.S. equity markets slumped and the dollar traded above $105 for the 1st time in a month after the PCE price index showed the country’s inflation rose at its fastest pace since last June. The PCE index was 0.6% last month which is higher than the market consensus of 0.4%; the reading evaporates the economic recession woes in the market and it is perceived that the Fed may be more aggressive in taming the sticky inflation. It is the same goes for Australia; the RBA is expected to have a further rate hike with a jump in inflation in the country; however, unlike the U.S., the consumer sentiment slumps to near recessionary level along with the Australian central bank’s monetary tightening campaign. In addition, the oil prices sustained in the backdrop of Russia’s oil cuts and China’s high demand despite the fact that the expectation of a jumbo rate hike from the Fed is increasing. 

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Look Out For

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

25 bps (71.6%) VS 50 bps (28.4%)

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Market Overview

Economic Calendar

Market Movements

DXY

The Dollar Index, a measure of the greenback’s value against a basket of six major currencies, surged after the strong PCE data was released last Friday. The U.S. Core PCE price index increased to 0.6% last month after gaining 0.2% in December. At the same time, the PCE price index rose 5.4% in the 12 months through January after rising 5.3% in December. Moreover, U.S. new home sales figures increased by 670k in January, higher than expected by 620k, the highest since March 2022. Strong inflation data may reinforce the expectation that interest rates could stay higher for longer, driving up the dollar robustly.

In addition, the MACD has illustrated increasing bullish momentum. RSI is at 70 and has been touching the overbought zone, suggesting investors trade cautiously as it may have a technical correction.

Resistance level: 105.54, 107.12

Support level: 104.61, 103.85

XAU/USD

Gold prices slumped against the strengthened dollar on Friday as the U.S. PCE data showed a better-than-expected reading. Market participants are braced for more challenging U.S. economic data, including the ISM measures of manufacturing and services, the latter being crucial following January’s unexpected spike in activity. At least six Fed members will speak this week to comment on the likelihood of further interest rate hikes. Meanwhile, strong data last week has driven up the dollar, prompting a burden for gold, which shed 1.7% last week and was trading at $1813 as of writing.

As we can see, the gold price has been broken through the previous support level, shifting to a new region between $1792 to $1820. MACD has illustrated increasing bearish momentum, while RSI is at 33, suggesting the commodity might extend its losses further. 

Resistance level: 1820, 1842

Support level: 1792, 1767

EUR/USD 

A higher-than-expected U.S. PCE price index strengthened the dollar to its monthly high and sent the euro to trade to its lowest since early January. The Fed preferred inflation gauge rose higher than the market consensus, reflecting a robust economy in the U.S. and the market is expecting a more aggressive rate hike; this has bolstered the dollar to edge higher and pressure the riskier assets’ prices. Since the Eurozone CPI index is in line with the market consensus and has a sign of slowing down, the market may gauge that the ECB may be more lenient in rate hikes with the worry of economic recession in the economies bloc. 

The strengthened dollar suppresses the euro and is traded at its monthly low. The RSI showed that the pair is heading toward the oversold zone while the MACD is moving downward with both depicting a bearish signal for the pair. 

Resistance level: 1.0583, 1.0760

Support level: 1.0520, 1.0458

BTC/USD

Bitcoin dropped after the release of the PCE price index which saw U.S. inflation remain high and the prospect of a bigger rate hike from the Fed is almost inevitable to tame inflation. However, the BTC prices climbed back by more than 3% after Friday’s slump as investors are optimistic over Bitcoin prices in the near future. In addition, the difficulty of mining bitcoin has increased by 9.95% to a new time high with the measures shown due to higher energy requirements. A slowdown in Bitcoin supply may see the Bitcoin prices surge, given that the risk appetite of crypto investors has been increasing lately. 

The indicators depict a positive signal for BTC prices with the RSI rebound strongly before entering the oversold zone. The MACD line has converged with the signal line giving a reversal signal for BTC. 

Resistance level: 23713, 25085

Support level: 22816, 22183

USDJPY

Last week’s bullish US inflation data drove US Treasury yields to new all-time highs, further widening the yield gap between Japanese and US government bond yields. The US Bureau of Economic Analysis reported that the US Core PCE Price Index rose to 0.60%, exceeding market expectations of 0.40%. Meanwhile, the Japanese Yen continued to weaken after Bank of Japan Governor-in-waiting Kazuo Ueda shot down speculations of a policy pivot, reiterating his commitment to the BoJ’s yield curve control. This policy is aimed at keeping Japanese government bond yields capped at a low target level.

USDJPY is trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, RSI is at 64, suggesting the pair might trade lower in short-term as technical correction since the RSI retreated sharply from the overbought territory. 

Resistance level: 137.45, 139.60

Support level: 132.90, 129.90

GBP/USD 

The pound dropped 0.54% to $1.1956 against the strengthened dollar on Friday. Strong U.S. data helped the dollar to strengthen against most of its major peers, reinforcing the expectation of the Federal Reserve to raise more rates to tame inflation. Moreover, the currency pair was still headed for its first monthly drop since September. The BoE is widely expected to increase rates to a peak of 4.6% by August from 4% now. Money markets show traders believe U.K. rates will be around the 4.5% mark by the end of the year. 

As we can see, the pound has already broken its support level of $1.20 and hovered in a new region from $1.1915 to $1.2000. Meanwhile, MACD has illustrated diminishing bullish momentum ahead. While RSI is at 37, indicating the pair is in neutral-bearish momentum in the near term. 

Resistance level: 1.2000, 1.2126

Support level: 1.1915, 1.1749

Dow Jones

The Dow suffered a steep decline on Friday, capping off what has been a tumultuous week for the index. The sell-off came in response to the latest inflation figures from the Bureau of Economic Analysis, which showed that the US Core PCE Price Index had risen to 0.60% in January, surpassing market expectations of 0.40%. It is worth noting that the PCE (Personal Consumption Expenditures) is the Fed’s preferred measure of inflation, as it captures a more comprehensive range of household spending than other measures. The higher-than-anticipated inflation reading has fueled concerns that the Fed may need to take a more aggressive stance on monetary policy to curb price pressures, potentially leading to further rate hikes.

Dow Jones is trading lower while currently testing the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 39, suggesting the index is entering the overbought territory. 

Resistance level: 34310.00, 35640.00

Support level: 32730.00, 30945.00

CL OIL

Oil prices rebounded strongly from their recent three-week lows, as investors exhibited robust buying amid growing optimism around Chinese oil demand. As Wednesday’s Purchasing Managers’ Index (PMI) data release approaches, investors are keen to gain insights into China’s economic reopening progress, with early indications suggesting a resurgence in consumer activity. On the supply side, Russia’s decision to halt oil supplies to Poland via the Druzhba pipeline, which is one of the world’s longest and largest oil pipeline networks, has raised concerns of further supply disruptions. The move comes a day after Poland delivered its first Leopard tanks to Ukraine. Investors are closely watching the potential implications of EU sanctions on Russia, as well as monitoring the latest oil inventory data for trading signals.

Oil prices are trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 61, suggesting the commodity might extend its gains toward resistance level.

Resistance level: 77.30, 78.50

Support level: 76.10, 74.65