Fed’s Hawkish Tone Bolsters Dollar

The dollar index received a boost from a hawkish tone adopted by Federal Reserve officials, including the New York President and Chicago President.

The dollar index received a boost from a hawkish tone adopted by Federal Reserve officials, including the New York President and Chicago President. This stance dampened market speculation of a potential rate cut in March next year, contributing to the sudden strengthening of the dollar’s strength. In contrast to the bullish U.S. equity markets, the bullish run in gold prices was hindered by the resurgence in the dollar. Meanwhile, oil prices continue to rebound, driven by short-term declines in Russia’s exports due to attacks by the Houthis in the Red Sea. The upcoming Bank of Japan (BoJ) meeting on Tuesday has drawn attention in the market, with traders hoping to gain insights into the BoJ’s upcoming monetary policy, providing clues about the strength of the Japanese Yen.

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Current rate hike bets on 31 January Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (89.0%) VS 25 bps (11%)  

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Market Overview

Economic Calendar

Market Movements

DOLLAR_INDX, H4

In a stark reversal from its recent lacklustre performance, the US Dollar staged an impressive rebound after New York Federal Reserve Bank President John Williams emphatically dismissed any notions of imminent rate cuts. John Williams, in an exclusive interview with CNBC, categorically stated, “We are not really talking about rate cuts right now,” underscoring the Federal Reserve’s cautious approach. The resurgence in the Dollar followed a tumultuous week triggered by the Fed officials’ earlier indications of a potential 75 basis points cut in 2024.

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 44, suggesting the index might extend its gains after breakout since the RSI rebounded sharply from oversold territory. 

Resistance level: 102.55, 103.40

Support level: 101.80, 101.30

XAU/USD, H4

The precious metal markets faced headwinds as gold prices retreated, mirroring the strengthening US Dollar. The hawkish tone struck by John Williams, signalling uncertainty regarding future interest rate cuts, led investors to reevaluate their positions. The market now anticipates the upcoming personal consumption expenditure report on Friday, seen as the last update on inflation for the year, with expectations for the PCE Price Index to remain stagnant for a second consecutive month in November.

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 49, suggesting the commodity might extend its losses since the RSI stays below the midline. 

Resistance level: 2030.00, 2055.00

Support level: 2010.00, 1980.00

GBP/USD，H4

The GBP/USD pair faced resistance from its uptrend resistance level, resulting in a technical retracement. However, support was found near the 1.2670 level. The dollar’s strength was reinforced by a hawkish tone from several Federal Reserve officials, dispelling speculation of a rate cut in March after Jerome Powell’s dovish statement last week. Traders are now eagerly awaiting the UK’s Consumer Price Index (CPI) data, scheduled for release on Wednesday, to assess the strength of the Sterling. The interplay of technical levels, central bank communication, and upcoming economic data continues to shape the GBP/USD pair dynamics.

GBP/USD experienced a technical retracement after its surge to its uptrend resistance level. The Cable has found support at the Fibonacci level of 38.2%, suggesting the bullish momentum remains. The RSI remains at an elevated level while the MACD has crossed above, suggesting the bullish momentum is diminishing.

Resistance level: 1.2729, 1.2815

Support level: 1.2630, 1.2528

EUR/USD，H4

The Euro experienced a technical retracement from its recent bullish run but has maintained a generally bullish trajectory. The U.S. dollar strengthened last Friday, supported by a hawkish tone from several Federal Reserve officials, which curbed market speculation of a potential rate cut in March. However, the U.S. long-term treasury yield continues to hover below 4%, putting pressure on the dollar’s strength. Investor focus is now turning to the Euro’s Consumer Price Index (CPI) data scheduled for tomorrow, as it is anticipated to impact the Euro’s strength.

The sudden strengthening of the dollar hinders the EUR/USD uptrend but was supported above the Fibonacci level of 61.8%, suggesting the bullish trend remains. The RSI decline from the overbought zone while the MACD has crossed on the above, suggests the bullish momentum is diminishing. 

Resistance level: 1.0954, 1.1041

Support level: 1.0866, 1.0775

USD/JPY，H4

The Japanese Yen has been trading sideways in anticipation of tomorrow’s crucial Bank of Japan (BoJ) Monetary Policy statement. Despite the strengthening of the dollar last Friday, the Japanese Yen has managed to hold its ground, keeping the currency pair trading below 142.35, representing its recent lows. The BoJ is also set to announce its interest rate decision on Wednesday, but market expectations lean toward the BoJ maintaining its current interest rate policy unchanged. 

USD/JPY is trading flat at its recent low, awaiting a catalyst to pick a direction. The RSI flowing near the oversold zone while the MACD has crossed at the bottom suggests the bearish momentum is diminishing. 

Resistance level: 143.70, 145.20

Support level: 141.55, 140.00

AUD/USD, H4

The Australian dollar is currently trading at its recent highs against the U.S. dollar, with traders closely watching the minutes of the upcoming Reserve Bank of Australia (RBA) meeting. Investors are eager to gain insights into the RBA’s potential monetary policy moves, with market sentiment leaning toward a more dovish approach by the central bank. In contrast, the U.S. dollar has been bolstered by a hawkish tone from various Federal Reserve officials, emphasising that it is too early to declare victory against inflation. 

AUD/USD is trading at an elevated level, awaiting a macro factor to push the pair to trade higher. The RSI flowing near the overbought zone while the MACD hovering flat above the zero line suggests the bullish momentum persists. 

Resistance level: 0.6744, 0.6800

Support level: 0.6677, 0.6614

Dow Jones, H4

U.S. equity markets display vibrancy and a strong risk-off sentiment following the dovish stance expressed in Jerome Powell’s recent speech. The U.S. 10-year treasury yield continues to slide and is facing challenges in finding support below the 4% mark. Market sentiment is increasingly convinced that the Federal Reserve may initiate rate cuts as early as March next year. This conviction has propelled the Dow to trade at its all-time high, as investors respond to the perceived accommodative stance from the Fed.

The Dow is trading with an extremely bullish momentum while breaking its all-time high level. The RSI remains within the overbought zone while the MACD continues to flow at an elevated level above the zero line, suggesting the bullish momentum is strong. 

Resistance level: 37660.00, 39000.00

Support level: 36550.00, 35700.00

CL OIL, H4

Oil prices marked their first weekly gain in two months, buoyed by anticipations of potential global central bank rate cuts in the upcoming year. The prospect of these cuts is viewed as a stimulant for economic growth and, subsequently, crude oil demand. Despite a measured tone from New York Fed President John Williams pushing against premature rate cuts, the market found support in the International Energy Agency (IEA) lifting its 2024 oil demand forecast, signalling a positive trajectory for the oil market

Oil prices are trading higher following the prior breakout above the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 65, suggesting the commodity might extend its gains since the RSI stays above the midline. 

Resistance level: 74.85, 78.30

Support level: 72.15, 69.25