The yen continues to find strength in the Bank of Japan’s surprise bond yield cap increase, rising nearly 5% since the announcement

What You Need to Know

The BoJ surprised the market by widening the bond on its 10-year note by 0.25% to 0.5% through yield curve control, a policy that started back in 2016. The yen rose nearly 5% against the USD after the announcement was made. Japan’s 2-year bond yield rose above zero for the 1st time since 2015, leading the market to speculate that the Japanese official might soon pivot to policy normalisation. On the other hand, data indicates that the U.S. housing market is cooling down which optimised the inflation outlook. Investors will gauge further economic data such as initial jobless claims and PCE price index for the Fed’s next policy moves.

Look Out For

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

25 bps (72%) VS 50 bps (18%)

Market Movements

DXY

The Dollar Index extended its losses against the backdrop of the downbeat economic data from the United States region. New US home construction continued to slump in November as high borrowing costs and costs for labour and construction materials due to spiking inflation continue to jeopardise housing demand. According to the Census Bureau, US Building Permits fell 11.2% in November to 1.342M, missing the market forecast of 1.485M, the weakest level since 2020.

The Dollar Index is trading lower following the prior breakout below the previous support level. MACD has illustrated diminishing bullish momentum, while RSI is at 38, suggesting the index might extend its losses as the RSI stays below the midline.  

Resistance level: 105.05, 108.35

Support level: 101.30, 99.05

XAU/USD

The weak US Dollar, weighed by the recent downbeat housing data, continued to underpin the demand for dollar-denominated gold. US Census Bureau reported that the US Building Permits declined to 1.342M, much lower than the market expectations of 1.485M. Meanwhile, investors are waiting for key inflation data due on Friday to gauge the likelihood trend for the safe-haven gold.

The gold market is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 70, suggesting the commodity is entering the overbought territory. 

Resistance level: 1820.00, 1870.00

Support level: 1770.00, 1725.00

EUR/USD

By entering into the festive season, it is notable the trading volume has been low and the pair is expected to trade sideways in a smaller price range. In the past trading week, the pair has been consolidating in a price range between 1.0580 to 1.0740. However, the upcoming U.S. economic data such as initial jobless claims and the PCE price index, might have spurred the dollar volatility. Given that the Fed has a Hawkish stance on its monetary policy, the expectation of economic recession has been a big issue lately that the Fed should pay attention to. The market and the Fed will gauge the upcoming data for the next monetary policy moves. 

The pair has been sideways on the technical front after it touched its highest level at 1.0736 since June this year. The RSI gave a neutral signal where the reading has been staying near the 50-level for the past few trading days. The MACD has remained flat and flows closely to the zero line which also signals no bias in either way of the future trend. 

Resistance level: 1.0743, 1.0988

Support level: 1.0495, 1.0277

BTC/USD

BTC has tumbled nearly 10% over the weekend and fell below its psychological support level at 17000. But the bearish momentum seems to ease and climbed back to near 17000 level last night. The upcoming U.S. economic data which include initial jobless claims and also the PCE price index, will be the gauge for investors to speculate the next move from the Fed. Although the Fed Chair gave a Hawkish statement last week when the interest rate decision was announced, the risk of recession after aggressive rate hikes will also need to be taken into account by the Fed. A slowdown in rate hikes will weaken the dollar and is favourable for other riskier asset classes including cryptocurrency. 

On the technical front, BTC crashed by nearly 10% after it touched its highest point in a month at 18366. The king of coin turned bearish as it broke below its crucial psychological support level at 17000. The RSI has rebounded slightly from near the oversold zone, suggesting that the selling power is eased. There is also a sign of slow down in bearish momentum as the MACD line is climbing toward the zero line from below. 

Resistance level: 16870, 17640

Support level: 16166, 15448

DJ30

The Dow rebounded from its four-day losing streak yesterday amid rising energy stocks outweighed the negative impact of higher Treasury yields following the Bank of Japan’s vow for policy shifting. Rising oil prices, buoyed by a weaker Dollar continue to add bullish momentum on US energy stocks. However, global government bond yields jumped after the Bank of Japan unleashed its hawkish policy, capping gains in rate-sensitive tech sectors. Consumer discretionary sectors were the biggest drag on the Dow, with Tesla leading to the downside after the analysts cut its price target on EV makers from $300 to $200.

The Dow is trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 42, suggesting the index might extend its losses as RSI stays below the midline. 

Resistance level: 34110.00, 35320.70

Support level: 32620.00, 31165.00

GBP/USD

The pound eked out a small gain against the dollar at $1.2166 on Tuesday with low-volume trading ahead of the Christmas holidays. However, the pound rose 8.8% against the dollar in the year’s final three months, putting it on track for its best quarter in more than 13 years. Furthermore, economists are pessimistic about the pound’s outlook as they foresee the British economy will fare worse than its major peers in the following years.

As we can see, the pound has a very low volume trading on Tuesday. The MACD line hovers below the zero line, indicating bearish momentum ahead. At the same time, RSI is trading at 46, which indicates a bearish movement ahead. We expect the pair’s movement to stay on the sidelines until further economic data is released. 

Resistance level：1.2343，1.2664

Support level： 1.2119， 1.1950

USDJPY

The Japanese yen rose by (3.83%) or 5.254 points to 132.11 against the weakened dollar as of writing. The pair slipped to 130.56 at one time after the announcement released from the BoJ said that they decided to keep the monetary policy unchanged, but it raised the upper band limit on the yield target to 0.5%, up from the previous upper limit of 0.25%. Currency traders shifted their focus to the Japanese yen as the BoJ shocked the market by tweaking its bond yield control program on Tuesday. Therefore the pair dropped significantly. 

The MACD is moving downward with a broader range, suggesting the pair is trading in bearish momentum. At the same time, RSI drops from 56 to 30 straight to the oversold zone, indicating a bearish momentum.

Resistance level: 134.00, 138.22　

Support level: 131.30, 126.40

CL OIL

Oil prices extended their bullish momentum yesterday, buoyed by the weakening US Dollar. Meanwhile, US crude stockpiles declined more than expected last week, spurring further bullish bets on this black commodity. According to American Petroleum Institution (API), US crude inventories notched down from the previous reading of 7.8M to -3.1M, lower than the economists’ forecast of -0.167M. Though, the gains experienced by oil prices were capped by uncertainty over the impact of spiking Covid-19 cases in China. Cities across China have been racing to add hospital beds following Beijing’s decision to dismantle its zero-Covid restrictions. 

Crude oil prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 56, suggesting the commodity might trade higher after it successfully breakout above the resistance level as the RSI stays above the midline. 

Resistance level: 77.45, 81.55

Support level: 73.70, 70.20