A Hawkish outlook from the Federal Reserve has seen a surge in the U.S. Dollar

What You Need To Know

U.S. equities market dropped last night as the markets expect better-than-expected U.S. payroll data which will be released later today. The Fed officials have also given a relatively Hawkish statement that a robust labour market will allow the Fed to continue its rate hike cycle higher and longer. In the Eurozone, the market is speculating that the CPI, which will be released today, will fall to 9.5% from 10.1% last month. An easing inflation rate will lead the market to believe that the ECB will be more dovish in upcoming rate hikes, not to mention the economic outlook in the region is rather pessimistic. Elsewhere, oil prices gained nearly 1% after dropping for 2 consecutive days by more than 10%.

Look Out For

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

25 bps (59.1%) VS 50 bps (40.9%)

Market Movements

DXY

The Dollar Index, which trades against a basket of six major currencies, surged significantly over the backdrop against a string of upbeat economic data yesterday. The ADP survey on Employment Changes indicated that the private sector had created another 235,000 new job positions last month, much higher than the market anticipation of 150K. Additionally, US Initial Jobless Claims declined to 204,000 in the previous week of December, which also fared better than market expectations of 225K. 

The Dollar Index is trading flat while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 52, 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: 105.20, 108.35

Support level: 101.30, 99.05

XAU/USD

The strong US Dollar, buoyed by the upbeat jobs data from the United States yesterday, has put pressure on the dollar-denominated gold. Nonetheless, the short-term movements for the gold market remain uncertain ahead of the release of Nonfarm Payrolls data tonight. Investors should continue scrutinising the latest jobs figures updates to get a clearer snapshot of US employment.

Gold prices are trading lower while currently testing at the support level. MACD has illustrated increasing bearish momentum, while RSI is at 46, suggesting the commodity might extend its losses since the RSI stays below the midline.  

Resistance level: 1870.00, 1910.00

Support level: 1820.00, 1770.00

EUR/USD

The pair dropped by 1% last night before the U.S. non-farm payroll and Eurozone CPI index were released. U.S. private payroll data suggest that the data will surpass the estimated number implying that the labour market in the country is robust. A strong job market and pressure from wage growth will intensify inflation risk in the nation and will eventually lead to more aggressive rate hikes from the Fed. Apart from that, the market predicted a softer reading for the Eurozone CPI data which will be released later today. A softer reading of the CPI index allows the market to believe that the ECB will be more lenient in the upcoming rate hikes. 

The indicators suggest a bearish bias for the pair. The RSI has dropped and approaching the oversold zone indicates that the selling power is higher lately. The MACD has also dropped further, implying that the pair’s bullish momentum is strong. 

Resistance level: 1.0743, 1.0929

Support level: 1.0468, 1.0311

BTC/USD

The volatility for BTC has hit a record low and has been consolidating in the past 3 weeks. The price range stayed between 16915 to 16435 for the past 20 trading days. with low trading volumes. A big BTC mining company is shutting down its 37000 mining machines as it is recording high losses daily due to low BTC prices and high energy prices. A low in supply of BTC in the market might allow the BTC prices to edge higher in the future. However, a better-than-expected NFP which will be released today will put BTC price under pressure as the Fed may be more aggressive in rate hikes to tame its high inflation rate in the country. 

The RSI has constantly been staying above the 50-level, suggesting that the buying power has been building. However, the MACD stays flat above the zero line, indicating that the bullish momentum is not strong. 

Resistance level: 17746, 18465

Support level: 15843, 14975

DJ30

The Dow dropped 1.02% to 32,930 points on Thursday as job data fuels fears of further monetary policy tightening from the Federal Reserve. The U.S. ADP data showed a higher-than-expected reading of 235k in private employment in December. While weekly jobless claims dropped last week. Data also indicates that the labour market is remarkably resilient. Good news on the labour market means bad news for the stock market. Therefore the index dropped yesterday. As long as the labour market is resilient, the Federal Reserve will likely continue its tightening monetary policy to bring inflation down.

The Dow remains trading within the range from 32619 to 33500. However, MACD has illustrated diminishing bullish momentum, while RSI is at 44, suggesting the index might continue to trade sideways between the resistance and support levels. 

Resistance level: 34110, 35320

Support level: 32620, 31165

GBP/USD 

The pound dropped 1.11% to $1.1926 against the dollar on Thursday as business data showed the likelihood that Britain is already in recession. It is the biggest daily decline since December 21. Moreover, yesterday’s data made investors pessimistic about the UK economic outlook. Economists also predict that the UK economy is almost certainly in recession with low productivity and no investment growth. In the recent term, it might be difficult for the market to become optimistic about the pound. 

The pound dropped against the strengthened dollar on Thursday. As we can see that the MACD line is moving down to the zero line, indicating a diminishing bullish momentum in the short term. While RSI is trading at 43, below the middle line, the pair might change its momentum into a bearish term.

Resistance level: 1.1935, 1.2345

Support level: 1.1650, 1.1344

HK50

Investors are now re-focusing back on their investment in China following the Chinese authorities easing the Covid-19 restrictions. With an estimated 37 million daily infections at the peak, scientists expect that several of China’s big cities have already hit herd immunity. Meanwhile, the Chinese New Year is just around the corner, analysts expect some revenge consumption in China to kickstart the economy. With China exposing into an early stage of the business cycle while others economic peers are suffering with a potential recession, several investors have started to shift their portfolio into China. Since the 7th of December reopening, the benchmark MSCI China Index has outperformed the major indexes in the United States. 

HK50 is trading higher following the prior breakout above the resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 74, suggesting the index might enter the overbought territory.

 Resistance level: 20930.0, 22885.0

Support level: 18515.0, 14610.0 

CL OIL

Oil prices hovered around the negative territory after the bearish EIA oil inventories data was released. According to the Energy Information Administration (EIA), US Crude Oil Inventories increased from the previous reading of 0.718M to 1.694M, exceeding the market expectations of 1.154M. On the other hand, Saudi Arabia reduced oil prices for its primary market of Asia and Europe, signalling that the surging number of Covid-19 cases in China and the economic recession could prompt the oil demand to remain sluggish. Meanwhile, with the steep increase in interest rates adding to the headwinds, the economic outlook remains extraordinarily uncertain, clouding the oil demand prospect.

Crude oil prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 37, suggesting that the commodity is entering oversold territory.

Resistance level: 77.10, 81.55

Support level: 73.25, 70.20