Markets are now expecting the Fed to lower their target interest rate after signs of moderating inflation

What You Need To Know

The U.S. stock market gained, encouraged by the favourable labour cost data from the U.S. labour department. Positive sentiment also spread to the Asian markets, with signs of cooling inflation in the U.S. and the risk appetites increasing ahead of the Fed rate announcement today (1st Feb). A moderating inflation signal hammered the dollar after 2 days of straight gains. The market expects the Fed to set a lower target interest rate and end the rate hike cycle earlier. Meanwhile, oil prices gained by taking advantage of the cheaper dollar. Investors gauge oil prices to be favourable before the U.S. crude inventories data and the OPEC meeting results, which will be released later today. 

Look Out For

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

25 bps (99.9%) VS 50 bps (0.1%)  

Market Overview

Economic Calendar

Market Movements

DXY

The Greenback plugged after releasing the labour cost data from the U.S. labour department. The labour cost increased by 1% which is the smallest growth in a year signalling that the inflation rate in the country is moderating. As a result, it is widely expected that the Fed may reconsider its rate hike target which is above %% and investors are expecting the Fed to end the rate hike cycle earlier. The U.S. Non-farm payroll and the U.S. unemployment rate may be the key data for investors to gauge the Fed’s next monetary policy moves. 

On the technical side, the RSI was climbing higher over the week and stayed above 50 as of writing, suggesting a buying momentum is building. The MACD has also crossed the zero line from below depicting a bullish bias for the dollar. 

Resistance level:  103.45, 105.70

Support level: 101.20, 97.70

XAU/USD

Gold prices gained more than 1.5% by taking advantage of the weakening dollar. The gold prices tumbled to its 2 weeks low before it rebounded yesterday after releasing the U.S. labour cost data. Besides, the U.S. CB consumer confidence data has also dropped compared to the previous reading. A lower reading of consumer confidence measures may drag the dollar and the safe-haven, gold may be investors’ favourite in the time of uncertainty. 

Gold prices are able to hold its crucial support level at $1900 and rebound from there. The RSI has also rebounded to 50 while the MACD line has crossed against the signal line from below, both suggesting the bearish momentum is diminishing.

Resistance level: 1946.24, 1979.25

Support level: 1901.13, 1869.23

EUR/USD 

The dollar had lost its bullish momentum before the announcement of the Fed rate decision. The dollar closed lower after the market perceived the inflation risk was under control in the U.S. by referring to the latest U.S. labour cost data. However, the Euro could not take advantage of the weakening dollar and stayed flat within a minimal price range. Perhaps the discouraging economic data from Germany with lower GDP growth and a higher unemployment rate may lead the ECB to reconsider its Hawkish stance toward its monetary policy. 

EUR/USD has been trading sideways after it broke above its then-resistance level at 1.0778. The RSI remained flat hovering near the 50 while the MACD flowing just below the zero line with both indicators showing a neutral signal for the pair.

Resistance level: 1.1048, 1.1238

Support level: 1.0785, 1.0615

BTC/USD

BTC stays flat and could take advantage of the weakening dollar and vibrant sentiment of Wall Street. The fundamental side of BTC is favourable given that the Fed is widely expected to increase a quarter basis point for the upcoming rate hike and a more dovish approach since the inflation risk in the U.S. is seems under control by now. Crypto investors perceived a strong correlation between Bitcoin and the S&P 500 and thus, BTC still has room to catch up with the S&P. An increasing risk appetite of investors may send Bitcoin to test its near psychological resistance level at $24000 again. 

The RSI is climbing slowly from the oversold zone and stays near 50 as of writing. Meanwhile, the MACD has once again crossed above the zero line; both indicators suggest that the bullish momentum for BTC is building. 

Resistance level: 23765, 24878

Support level: 22529, 21767

DOW JONES

Dow Jones closed higher with a gain of 1.09% or 368.95 points last night ahead of the Fed rate decision. The market’s risk appetite is increasing with the perceived inflation risk in the country moderating. Besides the widely speculated 25 bps rate hike in the upcoming monetary move from the Fed, the market is expecting the Fed to lower their targeted interest rate as the inflation rate in the U.S. is seemingly moving downward. However, a slight decrease in CB consumer confidence measures may gauge by the investors that the economic condition in the U.S. is not as good as expected. 

The Dow is trading in line with its bullish trend line and is moving toward its near-resistance level at 34392. The RSI is moving toward the overbought zone while the MACD has a sign of rebound from above the zero line giving a bullish bias signal for the Dow Jones. 

Resistance level: 34390.00, 35320.00

Support level: 32619.00, 31166.00

GBP/USD 

The Cable is not able to grasp the advantage of a weakening dollar and is moving flat with a bearish bias. The UK inflation rate is set to decline in January and it is the 2nd straight decline. Besides, according to Reuters, the UK housing market slumped to the level of the global financial crisis back in 2008, according to the mortgage approval data. Investors may refer to the BoE rate decision announcement which is set to be released on 2nd February and the UK composite PMI index to gauge the Cable future price movement. 

On the technical front, Cable is trading in a bearish bias. The RSI is moving toward the oversold zone, suggesting higher selling power while the MACD stays flat but is crossing the zero line, suggesting that the bullish momentum for the Cable has vanished.

Resistance level:1.2437, 1.2599

Support level: 1.2184, 1.2016

HK50

The Hong Kong equity index did not perform well after the Lunar New year holiday. The index stayed flat moving seesawed within 250 points after it tumbled yesterday. The China’s Caixin PMI index for January did not surpass the forecasted number and came at 49.2, indicating that China’s economic recovery is still not ideal. However, given that the risk appetite for investors has been gaining over the month; perhaps it is a technical retracement for the Hang Seng index as it is still trading above its bullish trend line. 

The technical chart suggests a technical retracement of the HSI index; it is still a bullish bias if the index is able to hold above 21400. The RSI has rebounded just above the 50 level suggesting the buying power is still intact meanwhile, the MACD stays flat above the zero line given a neutral signal for the index.

Resistance level: 22519, 23590

Support level: 21309, 20015

CL OIL

Oil prices rebounded by more than 3% by taking advantage of a weakening dollar and market-perceived easing inflation risk in the U.S. However, mixed data led the oil price to be volatile in a range between 76 to 81. China’s PMI index shows that it is recovering after reopening its economy but at a slower pace. The oil demand from the largest crude oil importer in the world is overshadowed by the increase in oil supply from Russia. On the other hand, OPEC+ will be holding its meeting on the 1st of February and the market expects the oil cartel to keep the oil output unchanged. Investors may monitor the U.S. crude inventories to understand the oil demand in the U.S. to gauge future oil price movement. 

The RSI refuses to enter the oversold zone and rebound to 48 as of writing. The MACD has also shown a sign of rebound from below; both indicators suggest the bearish momentum is weakening. 

Resistance level:  81.8, 85.8

Support level: 76.27, 72.35