The latest FOMC meeting minutes has revealed that the Fed is nowhere near rate cuts even as the pace of tightening slows

What You Need To Know

FOMC’s minutes sent out a message that the Fed will not be ending its rate hike cycle but at the same time economic conditions will not be neglected. The Hang Seng Index ( HSI) has gained more than 10% this week reaching its highest level since July last year. Despite a nationwide surge in Covid cases, the outlook for China to reopen its economy is positive and the risk appetite in China’s assets is rising. On the other hand, oil prices slumped by more than 10% in the past 2 trading days. A warmer temperature in the U.S. and the Euro region has slowed down the energy demand. The U.S. API data also showed an increase of 3.3 million barrels of crude oil investors suggesting that the crude oil demand in the nation is not tight.

Look Out For

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

25 bps (71.6%) VS 50 bps (28.4%)

Market Movements

DXY

The meeting minutes, which were released on Wednesday, indicated that all Monetary Policy Committee (MPC) agreed that the Federal Reserve should start to slow down the pace of its aggressive interest rate increases, allowing them to continue increasing the borrowing cost to stabilise the inflation rate but gradually decreasing the risks to economic growth. Nevertheless, most participants emphasised the need to retain flexibility and optionality when moving policy to a more restrictive stance to ensure the 2% inflation goal will be met. The short-term US treasury yield and the US Dollar went up slightly following the FOMC meeting minutes showing the intensity of maintaining the restrictive monetary policy until the inflation rate stabilises.

The Dollar Index is trading flat while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 48, suggesting the index might extend its gains after it successfully breakout above the resistance level as the RSI rebounds sharply from the oversold territory.   

Resistance level: 105.05, 108.35

Support level: 101.30, 99.05

XAU/USD

Gold prices continue to go up for a fourth consecutive day, with a firmly bullish stance as the global risk-off sentiment with rising recession risks continues to spark market demand for safe-haven gold. On the economic data front, the overall economic data from the United States were mixed. The Job Opening and Labour Turnover report (JOLTs) came in better than market expectation, signalling continued labour market strength in the United States. However, the ISM Manufacturing Index showed a contraction in the sector, indicating that a high-interest rate environment may be working to slow the economy. Next, investors will scrutinise Friday’s jobs report for further information about the economic outlook in the United States.

Gold prices are trading higher following prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 71, suggesting the commodity is entering the overbought territory.

Resistance level: 1870.00, 1910.00

Support level: 1820.00, 1770.00

EUR/USD

The pair has broken through its consolidation price range but the Euro has gained back some strength as the bullish momentum of the dollar has eased. The FOMC meeting minutes informed that the Fed is committed to tackling inflation and will not be ending its rate hike cycle, although markets perceived that the inflation in the country has peaked. However, The Fed has also reiterated that the institution will also take the risk of the economic recession into account, implying that the Fed will be more dovish in upcoming monetary policy moves. Since the comment from the Fed is in line with the market consensus, the volatility of the dollar index is minimal and the movement for the pair is also stable. 

The RSI has rebound from the oversold zone to the 50-level suggesting that the selling power for the pair is eased. The MACD has indicated a sign of rebound from below the zero line, implying that the pair’s bearish momentum is also easing. 

Resistance level: 1.0743, 1.0929

Support level: 1.0468, 1.0311

BTC/USD

BTC has stayed extremely sideways and is consolidating in the price range between 16400 to 17030. The FOMC’s minutes reveal a relatively dovish signal from the Fed which informs that the Fed will slow down its rate hike pace after considering the economic condition. The movement of the dollar index is moderate as it is in line with the market consensus over the Fed monetary approach. BTC edged slightly higher as the dollar’s strength stayed at ease but the uncertainty over the global economic outlook will reduce the investor’s risk-appetite in the cryptocurrency market. 

The RSI has been climbing slowly toward the overbought zone, suggesting that the demand for BTC gradually increases over the day. The MACD has also broken above the zero line indicating that the bearish momentum is over but the bullish momentum is minimal. 

Resistance level: 17746, 18465

Support level: 15843, 14975

DJ30

The Dow edged higher on dip-buying strategies after swinging upside down after investors looked past hawkish statements from the FOMC meeting minutes. Earlier, the Monetary Policy Committee vowed to maintain rate hike decisions for a sustained period until the inflation rate achieved its 2% goal. Nonetheless, the long-term trend for the US equity market as for now remains pessimistic, as the rising interest rate and stagflation risk continue to jeopardise the global economic growth, dragging down the appeal for the high-risk asset. The International Monetary Fund warned that China, US, and Europe were all in slowdown mode. Recent data from China and the United States have indicated that the manufacturing sector shrank significantly in December.

The Dow is trading flat while currently near the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 50, suggesting the index might continue to trade sideways between resistance level and support level. 

Resistance level: 34110, 35320

Support level: 32620, 31165

GBP/USD

The pound rose 0.7% to $1.2051 against the weakened dollar on Wednesday as China easing covid rules triggered investors to shift direction to risky currencies. The pair’s movement might depend on the Bank of England’s rate hikes decisions. As for now, the pound went up due to the dollar weakening as the Fed minutes released and said that they might slow down its pace for interest rate hikes. Furthermore, markets are still preparing for the worst as it predicted a deep recession in the UK this year. 

The pound rose against the dollar on Wednesday. As we can see that the MACD line is moving upward to the zero line, indicating a bullish momentum in the short term. While RSI is trading at 52, above the middle line, the pair might change its momentum into a bullish term after a long period.  

Resistance level: 1.2345, 1.2670

Support level: 1.1935, 1.1650

HK50

The Hang Seng index rose 2% to a six-month high at 20793 points, breaking the psychological resistance of 20000 points on Wednesday. China is reopening its country and spurs tourism and consumption, easing some of the supply chain crunches seen during 2022. Moreover, China’s central bank will provide financial support to spur domestic consumption and key investment projects and support its real estate market. Investors can continue monitoring China’s property and real estate sectors, which are Wharf Real Estate, Longfor, Swire, etc. Besides that, investors can look for the major tech stocks, which are Tencent holdings in the Hong Kong equities market and Alibaba Group, Baidu, and JD.com in ADR. 

At the same time, stocks that are breaking their previous resistance, including Galaxy Entertainment and Sands China Ltd as China’s reopening its economy, help boost gaming sectors as well. Basically, most of the China and Hong Kong Stocks are rebounding in the recent boost. The index is currently trading in fabulous momentum, suggesting a bullish momentum ahead. 

Resistance level: 21200, 22519

Support level: 20000, 18800

CL OIL

Oil prices continue to extend their losses significantly as investors are concerned that the global recession risk and spiking Covid-19 cases in China will continue to weigh on the demand for this black commodity. Scientists warn that millions of people in China are potentially estimated to be at risk from Covid-19 infections before herd immunity has been achieved. Meanwhile, the International Monetary Fund warned that China, US, and Europe were all in slowdown mode. Recent data from China and the United States have indicated that the manufacturing sector shrank significantly in December, affected by the restrictive monetary policy. On the other hand, the US API Weekly Crude Oil Stock rose substantially from the previous reading of -1.300M to 3.298M, according to the American Petroleum Institute.

Crude oil prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 28, suggesting that the commodity is entering oversold territory.

Resistance level: 77.10, 81.55

Support level: 73.25, 70.20