What You Need to Know

U.S. economic data came out worse than the market expectation with retail sales dropping by 1.1% and the PPI index dropping by 0.5% suggesting that the country may be stepping into a recession. However, the supposed-weakening dollar was saved by Hawkish statements from several Fed president comments to push interest higher, targeting 5.5% by the end of this year which strengthened the dollar. In addition, oil prices dropped more than 5% due to the pessimistic U.S. economic data overshadowing the impact of China’s economy reopening. Elsewhere, the New Zealand dollar tumbled after the shocking resignation of the country’s Prime Minister.

Look Out For

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

25 bps (96.4%) VS 50 bps (3.6%) 

Market Overview

Economic Calendar

Market Movements

DXY

The Dollar Index rebounded slightly yesterday despite downbeat economic data, as investors bracing for hawkish tone from the Federal Reserve. According to Reuters, St. Louis Fed President James Bullard claimed that the Federal Reserve policymakers should increase their benchmark interest rate above 5% as quickly as it can to battle an ongoing outbreak of inflation. Bullard also reiterated that the previous aggressive rate hike decision had worked well and saw no reason to stop until the inflation and policy rate was reaching the Fed’s goals.

The Dollar Index is trading flat while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 37, suggesting the index might extend its losses after it breakout as the RSI stays below the midline. 

Resistance level: 105.20, 108.35

Support level: 101.30, 99.45

XAU/USD

Gold prices traded flat yesterday amid mixed market sentiment in the global financial market. On the positive front, the gold market received bullish momentum after the United States released its pessimistic economic data. According to the US Bureau of Labor Statistics, the US Producer Price Index (PPI) for last month declined significantly from 0.20% to -0.50%, missing the market forecast at -0.10%. Meanwhile, US Retail Sales came in at -1.10%, which also fared worse than expectations of -0.80%. Though, the gains experienced by the gold were capped by hawkish tones from several Fed policymakers.

Gold prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 51, suggesting the commodity might trade lower as the RSI retreats sharply from the oversold territory. 

Resistance level: 1920.00, 1980.00

Support level: 1870.00, 1820.00

EUR/USD

The Eurozone CPI reading came in line with the market expectation of at single digit at 9.2% fall from 10.1% last month. A drop in CPI reading may lead to a more dovish approach from the ECB in upcoming monetary policy and Euro may depreciate as a result. Investors may gauge the speech from the ECB president later today for the future price movement of the Euro. On the other side, the dollar has lost its ground with poor U.S. retail sales and PPI indices; however, Hawkish signals from several Fed presidents have strengthened the dollar and hinted that the Fed is aiming to raise the interest rate to 5.5% by the end of the year. 

The indicators have shown a relatively pessimistic sign for the pair. The RSI hovers near the 50-level, giving a neutral signal for the pair. The MACD has fallen from the above and is approaching the zero line suggesting that the bullish momentum is vanishing. 

Resistance level: 1.0988, 1.1150

Support level: 1.0743 1.0495

BTC/USD

The cryptocurrency market has hit $1 trillion market capitalization for the first time after the FTX collapse signal that investor confidence is gradually returning to this asset class. However, BTC prices dropped by nearly 5% last night due to the U.S.’s poor economic data, which worries the market in fear of recession. Besides, after a rally of over 26% over the week, the RSI reading suggests an overheated situation for BTC; hence, a technical retracement is predictable. 

BTC plummeted by nearly 5% yesterday and the RSI drop to the 50 level suggests that the buying power has dropped drastically. The MACD has been dropping since Monday depicting that the bullish momentum is weakening. 

Resistance level:21767, 22529

Support level: 20723, 19630

DOW JONES

The Dow dipped by 1.81% to 33,296.96, ending a seven-day win streak following the Federal Reserve’s hawkish tone toward the monetary policy plan, although the recent economic data fared pessimistic reading. According to Reuters, St. Louis Fed President James Bullard claimed that the Federal Reserve policymakers should increase their benchmark interest rate above 5% as quickly as possible to tame the inflation rate. The US Retail Sales data came in at -1.10%, missing the market expectations of -0.80%. The report suggested that consumers are slowing down their spending, which dialled down the market optimism toward the economic progression in the United States. Elsewhere, another major tech firm (Microsoft) announced plans to lay off about 10,000 employees, jeopardising investor sentiment.

The Dow is trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish  momentum, while RSI is at 43, suggesting the index might extend its losses toward support level. 

Resistance level: 34390.00, 36810.00

Support level: 31370.00, 28760.00

GBP/USD 

The pound edged up by 0.5% to $1.2328 against the dollar on Wednesday as UK inflation dropped to a 3-month low of 10.5% in December. The UK’s inflation readings were in line with the forecast, with the downward momentum likely giving some comfort to the BoE and households struggling with a cost of living crisis. However, the overall outlook remains gloomy as recession fears, high inflation, and the cost of living crisis weigh on the British economy.   

As we can see, the pound remains strong in line with expected economic data. MACD has illustrated the pair stay in bullish momentum in the short term. At the same time, RSI is trading at 62, which indicates a bullish momentum ahead. 

Resistance level: 1.2343, 1.2662

Support level: 1.1936, 1.1649

USDJPY

The Japanese Yen tumbled yesterday after the Bank of Japan vowed to maintain its yield-curve control program, defying expectations of abandoning the easing policy to restore market liquidity. Meanwhile, the Bank of Japan (BoJ) also claimed it would continue its large-scale bond buying and increase it flexibly if needed. However, several investors claimed that they do not rule out the possibility of the policy-shifting from the Bank of Japan (BoJ) amid spiking inflation in the Japanese region. As for now, investors will continue to scrutinise further economic data and policymakers’ statements from Japan to gauge the likelihood trend for the USD/JPY.

USDJPY is trading lower following the prior retracement from the resistance level as technical correction. MACD has illustrated diminishing bullish momentum, while RSI is at 45, suggesting the pair might trade lower as the RSI stays below the midline. 

Resistance level: 130.70, 134.45

Support level: 126.75, 123.90

CL OIL

Oil price dropped from $80 per barrel to $79 per barrel on Wednesday as investors worried about U.S. recession risk. U.S. retail sales fell -1.1% more than expected by -0.8%, on hopes the Federal Reserve would ease up on interest rate hikes. However, several Federal officials said rates need to rise beyond 5% to control inflation, and oil prices dropped after the announcement, implying a hawkish comment. 

As we can see, the prices dropped once it touched the crucial resistance of $81. It could not break through its resistance level. MACD has illustrated a diminishing bullish momentum. While RSI is sliding from 64 to 47, suggesting a diminishing bullish momentum ahead. 

Resistance level: 81.00, 85.16

Support level: 76.97, 73.52