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Federal Reserve Governor Christopher Waller has said that rates could rise as early as March, following a decision to end asset purchases sooner than planned

Market Focus

US stock declined on Friday amid downbeat market sentiment, dropping to two-week lows as traders and market participants weigh up this week’s main macro narratives, including the Fed’s hawkish pivot. The Fed and the European Central Bank have both started to tighten their monetary policy, given the fact that they see inflation pressures as a higher priority than protecting output and employment from further pandemic fallout. More bad news for equity investors, the Fed might need to end its upcoming hiking cycle sooner, which suggest that the stock markets are due for a rougher patch and that economic growth could be at risk. Long-term US bond yields also fell on Friday, weighing on the appeal of cyclical stocks. On top of that, concerns about the spread of Covid-19 remain, as New York reports over 20,000 cases in a single-day record and caused a wave of school closings as well as business disruptions.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average, all dropped on Friday amid a downbeat market mood and the perspective that the Fed is about to end its asset purchases sooner than planned. S&P 500 was down 1.0% day-on-day, while the Nasdaq 100 declined with a 0.4% loss for the day. All eleven sectors stayed in negative territory, with the energy and financial sectors being the worst-performing among all groups, losing 2.27% and 2.24%, respectively. The Dow Jones Industrial Average dropped the most with a 1.5% loss on Friday and the MSCI World index fell 0.9%.

In Asia, the focus in China is on the loan prime rate decision. A property sector crackdown has weighed on economic expansion and calls for a rate cut are now gaining momentum, even though the Chinese central bank’s benchmark hasn’t been cut since April 2020.

Main Pairs Movement

The US dollar advanced on Friday, staying in positive territory amid risk-off market sentiment. The DXY index climbed to a daily top around the 96.67 area near the end of the day, as the hawkish Fed and renewed weakness in stock markets both pushed the Greenback higher. Federal Reserve Governor Christopher Waller has said that rates could rise as early as March, following a decision to end asset purchases sooner than planned. Additionally, the Summary of Economic Projections, also known as SEP, also showed that the US central bank policymakers expect three rate hikes by the end of 2022, projecting the FFR at 0.90%.

GBP/USD declined 0.64% on Friday amid renewed US dollar strength, falling back to the 1.330 area after the Bank of England surprised markets with a 15bps rate hike on Thursday. Cable touched a daily top in the early European session, then retreated to surrender most of its intraday’s gain. Meanwhile, EUR/USD dropped to a daily low under 1.124 level, losing 0.82% for the day.

Gold edged lower and touched a daily low of around $1795 in the late American session. The falling US stock market failed to push the precious metal higher, which dropped 0.06% day-to-day. Meanwhile, WTI oil tumbled 2.18% for the day, as the market’s risk appetite faded amid this week’s hawkish turn for many G10 central banks and a continued rise in Omicron cases across the world.

Technical Analysis

XAUUSD (4- Hour Chart)

Gold rides higher on hawkish central bank decisions, having taken out the psychological level at 1800. The renewed upside in gold price, however, might be limited by the Santa rally. From the technical perspective, the intraday bias turns bullish on the 4-hour chart as gold has overcome the critical psychological resistance at 1800. If the latter is scaled, gold will head toward its next immediate resistance at 1815; nonetheless, the upside momentum might be capped as the RSI indicator has reached the overbought territory, suggesting a pullback. Selling interest can begin accelerating once gold prices fall below 1800 again, opening floors toward the previous descending wedge.

Resistance: 1815, 1829

Support: 1800, 1782, 1770, 1753

GBPUSD (4- Hour Chart)

GBPUSD erased most of the gains from yesterday after the BOE’s hawkish tone as the US dollar holds steadily above 96.00. In terms of technical analysis, GBPUSD looks to head back to a consolidation phase in the 1.3332- 1.3163 range. At the time of writing, GBPUSD is at a critical point, the intersection of the 20 SMA and the support at 1.3267. If the pair falls below the level, then it will turn downside in the near term. From the technical indicator, the RSI looks to favour sellers while the MACD has started turning south, suggesting that the buyers’ side is less powerful. As a result, the currency pair might gradually shift to the selling side.

Resistance: 1.3321, 1.3419, 1.3499

Support: 1.3267, 1.3163

AUDUSD (4- Hour Chart)

AUDUSD has trimmed its early gains from this week, trading at 0.7142 at the time of writing. The Australian dollar is seeing a downside as the markets appear to be assuming that economic disruption in Australia will likely happen as the new variant Covid spreads more rapidly. On the technical side, the Aussie sees a turnaround after testing its monthly high around 0.7227. The outlook of the Aussie remains neutral as the pair seems to have fallen back to the consolidated phase, and the range is looking to fall within 0.717 and 0.7116. For the time being, the Aussie is expected to continue heading toward its immediate support at 0.7116 as the RSI is leaning down, suggesting that the sellers are more favourable; at the same time, the MACD is negative, giving the pair room to extend further south.

Resistance: 0.7170, 0.7227

Support: 0.7116, 0.6997

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