Higher-than-expected inflation figures have led market participants to assess a longer rate hike cycle from the Fed

The U.S. equities market went sideways and the dollar became muted after the release of the U.S. core CPI last night. The reading was 6.4% YoY, the lowest reading in a year, but higher than the market consensus of 6.2%. Several Fed presidents have commented on the data, saying that  inflation is sticky, and markets should prepare themselves for an extended period of higher interest rates. The Japanese Prime minister has appointed Kazuo Ueda as the new central bank governor; and the market expects gradual policy normalisation under BoJ’s new leader, including abandoning the Yield Curve control (YCC) and negative interest rate. Elsewhere, OPEC has uplifted the oil demand forecast of 2023 by 100,000 barrels per day in the monthly report; oil prices may be gradually climbing up to analysts’ prediction of $100 per barrel if the oil demand is strong.

---

 Look Out For

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

25 bps (90.8%) VS 50 bps (9.2%)  

---

Market Overview

---

Economic Calendar

Market Movements

DXY

The Dollar Index, which trades its value against a basket of six major currencies, rebounded from a roughly two-week low on Tuesday over the backdrop of a string of upbeat inflation data. The Greenback initially fell due to profit-taking after the release of the inflation report. Still, it edged higher later as rising US Treasury yields with the expectations of more aggressive rate hikes continued to boost market demand for the currency. According to the Bureau of Labour Statistics, the overall Consumer Price Index (CPI) surged 6.40% from a year earlier, exceeding the market expectations of 6.20%. The figures, combined with January’s blowout jobs report, supported officials’ recent assertions that the Federal Reserve was still required to hike rates further to tame inflation.

The Dollar Index is trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum. RSI is at 47, near the midlines, suggesting the index might continue to hover between the resistance and support level.  

 Resistance level: 103.70, 104.85

Support level: 102.55, 101.80

XAU/USD

Gold prices continue to hover in negative territory, as the better-than-expected inflation report and rising US Treasury bond yields continue to support the market demand on the US Dollar. US 10-year Treasury bond yields hover around 3.75% yesterday, reaching a six-week high, whereas the two-year counterpart jumped to its highest level since early November 2022, reaching 4.62%. On the inflation front, the overall Consumer Price Index (CPI) increased 6.40% from a year earlier, exceeding the market expectations of 6.20%, reported by the Bureau of Labour Statistics.

Gold prices are trading lower following the prior breakout below the previous support level. MACD has illustrated diminishing bullish momentum, while RSI is at 42, indicating the commodity might trade lower as the RSI stays below the midline.  

Resistance level: 1860.00, 1905.00

Support level: 1820.00, 1766.35

EUR/USD 

The highly anticipated U.S. CPI data did not have a big impact neither the dollar nor the equity market. The reading shows the inflation in the U.S. has eased but at a slower-than-anticipated pace. Several Fed’s presidents have commented on the data and acknowledge that the inflation is sticky. The market should prepare for an interest rate higher than 5% and a longer rate hike cycle. However, if the Fed puts in effort to ensure a soft landing for the market, the impact on the dollar will be mitigated. On the other hand, the Euro zone published GDP data for Q4 2022 with a growth of 0.1% and an annual pace of 1.9%. The data showed that the economy in the economic bloc is not as bad as previously thought which sustained the euro. 

EURUSD is trading sideways and is suppressed by the near resistance at 0.382 fibonacci retracement level of 1.0805. Both indicators show that the pair has temporarily out of the bearish momentum with the RSI hovering near to the 50 and the MACD is attempting to break through the zero line from below. 

Resistance level: 1.0775, 1.0920

Support level: 1.0685, 1.0585

BTC/USD

BTC has a minor rebound from its recent low at $21,380 but the momentum is not strong as several events have an impact on the cryptocurrency market. The U.S. SEC is drafting a plan to regulate hedge fund, venture capital and pension funds urging the institutional funds to possess client assets through qualified custodians. It is hard for crypto firms to be qualified custodians and this will result in a massive selloff in crypto as the institutional funds already holding cryptocurrency may need to move their holding elsewhere. Besides, the CPI reading is higher than the market consensus but is the lowest in more than a year which makes it ambiguous on the Fed next monetary policy moves. investors may avoid venturing into risky assets including cryptocurrency in the time of uncertainty. 

The indicators show that the bullish momentum is building up for BTC. The RSI has climbed from the oversold zone to above 50 while the MACD is attempting to break above the zero line. 

Resistance level: 22530  23765

Support level: 20723, 19782

DOW JONES

The Dow Jones index dropped 0.46% to 34,089 points on Tuesday after the U.S. CPI data stayed sticky in January, adding expectations for the Fed to have a rate hike pause. At the same time, U.S. Treasury yields were higher on investor expectations for tighter monetary policy. The CPI data increased to 6.4% year-on-year in January, higher than the market expectation of 6.2% but still lower than the previous reading of 6.5%. Market participants are concerned that inflation is not coming down fast enough and whether the Fed would stay hawkish. So, when the bond market gets jittery, it also translates into the stock market. Hence the stock market struggled to find a direction in yesterday’s trading session. 

The overall dow jones index’s movement keeps testing its resistance level of 34400, which is a crucial level to focus on. Investors can keep watching whether it can break through the resistance. The MACD has illustrated neutral-bullish momentum. RSI is trading at the midline of 54, suggesting a neutral-bullish momentum. 

Resistance level: 34390.00, 35640.00

Support level: 32730.00, 30945.00

GBP/USD 

The pound has little changes of 0.03% to $1.2150 on Tuesday after data showed British wages rose quicker than expected in the last three months of 2022, adding pressure on the BoE to continue raising rates. On Tuesday, data showed pay excluding bonuses rose by 6.7%, higher than expected by 6.5%, the fastest growth since 2001. It also hints that price and wage rises are becoming ingrained and will pressure the BoE to raise more rates, which would likely boost the pound. Furthermore, inflation eased in December to a 10.5% annual rate, and the market expects the upcoming inflation data to decline to 10.3%. Data will be released later today. Investors can keep an eye on more UK economic data for further trading signals. 

The overall movement remains bullish as the price stays above the support level of $1.2130. The MACD has illustrated bullish momentum ahead. At the same time, RSI is trading at 54, indicating a bullish momentum in the near term. 

Resistance level: 1.2426, 1.2670

Support level: 1.2105, 1.1928, 

USDJPY

Japanese Yen dipped on a pessimistic economic prospect after the release of bearish GDP data. The recent data indicated that Japan’s economy rebounded much less than market expectation in the fourth quarter amid sliding business investment, which could intensify the challenge for the central bank to phase out its massive quantitative easing program. In addition, uncertainties remain after Japanese Prime Minister Fumio Kishida announced on Wednesday that the next successor of the Bank of Japan (BoJ) governor nominee would be Kazuo Ueda, a well-known economist globally and expert in the financial field. Hence, investors are advised to continue to focus on the monetary policy decisions from the new Bank of Japan (BoJ) governor to gauge the likelihood trend of the Japanese Yen.

USDJPY is trading higher while currently testing the resistance level. MACD has illustrated diminishing bearish momentum, while RSI is at 56, suggesting the pair might extend its gains after it successfully breakout as the RSI rebounded from the midline. 

Resistance level: 132.85, 133.85

Support level: 131.75, 130.40

CL OIL

Oil prices dipped on Tuesday following the American Petroleum Institute (API) indicating a large increment in US crude oil and distillate inventories, sparking concerns about mounting oil supplies. According to the American Petroleum Institute (API), US API Weekly Crude Oil Stock increased significantly from the previous reading of -2.184M to 10.507M, exceeding the market expectations of 0.321M. Meanwhile, the US Department of Energy (DOE) said it would release 26 million barrels of oil from its Strategic Petroleum Reserve (SPR), spurring further supply concerns from the market. Nonetheless, the losses experienced by oil prices were limited after the Organization of the Petroleum Exporting Countries (OPEC) increased its 2023 oil demand forecast by 100,000 barrels per day in the monthly report, citing the reopening of the Chinese economy would boost oil demand.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 41, suggesting the commodity might extend its losses as the RSI stays below the midline.

Resistance level: 80.20, 81.70

Support level: 78.50, 77.35