The potential surge of global covid cases has overshadowed optimism surrounding China’s economy reopening.

What You Need To Know

Oil prices closed below $79 on concerns that China opening its border will lead to a surge in Covid cases across the world; the optimism of China pushing oil demand higher with reopening its economy overshadowed by the fear of fresh Covid threat to the world. Meanwhile, the U.S. will require China travellers to show a negative Covid test before entering the country. The Italian authorities are imposing the same measures and urging the EU nations to do so. The fear of surging pandemic cases has also dragged U.S. and Asian equities lower. On the other side, Goldman Sachs CEO warns of a fresh round of job cuts and a weaker economic outlook ahead. A sluggish economic growth will see central banks including the Fed to slow down its monetary tightening policy.

Look Out For

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

25 bps (67.8%) VS 50 bps (32.2%)

Market Movements

DXY

The US Dollar edged higher on Wednesday, buoyed by rising US Treasury yields and risk-off sentiment in the global financial market following the market sell-off accelerating for the US equity market. US Treasury yields rose for a third straight day, reversing an earlier drop as investors bet on more aggressive rate hike decisions from the Federal Reserve following China’s reopening of their economy. Meanwhile, market sentiment turned risk-off as concerns ramped up over the virus’ spread. Several major countries, such as the United States and the EU region, claimed that they would consider a new Covid-19 precautious for people travelling from China.

The Dollar Index is trading flat while currently testing the resistance level at 105.05. MACD has illustrated increasing bullish momentum, while RSI is at 42, suggesting the index might trade higher in short-term 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 retreated from their key resistance level yesterday as rising US Treasury bond yields continue to boost market demand for the US Dollar, making the dollar-denominated commodity more expensive. Given the easing Covid-19 restrictions from China and a likely run-up in inflation continue to fuel the stagflation woes, the US Treasury bond yields refreshed a multi-day high and enabled the US Dollar to cap recent losses. Nonetheless, although the rising US treasury yields weigh on gold prices, a lack of major data and events could probe the metal’s volume during the holiday season; the overall trend for gold prices are still trading in a range of resistance level and support level.

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 51, suggesting the commodity might trade lower as the RSI retreats sharply from the overbought territory.

Resistance level: 1820.00, 1870.00

Support level: 1770.00, 1730.00

EUR/USD

The pair has continued to trade sideways and in the price range between 1.0578 to 1.0740 for the past 2 weeks. The volatility of the pair is extremely minimal and since the New Year celebration is around the corner, the trading volume is also expected to be thin. Goldman Sachs, one of the largest investment banks in the world, has warned of a fresh round of job cuts and has given a pessimistic economic outlook said by the bank’s CEO in his traditional year-end message. A sluggish economic growth in the country may lead to the Fed slowing down its monetary tightening policy and weakening the dollar. 

As of now, market participants are on holiday; the pair has been consolidating with a low trading volume. The RSI has been hovering around the 50-level, indicating a neutral signal for the pair. Meanwhile, the MACD stays flat and close to the zero line, indicating that the pair’s movement is minimum. 

Resistance level: 1.0743, 1.0988

Support level: 1.0495, 1.0277

BTC/USD

BTC has stayed extremely sideways and is consolidating in the price range between 16206 to 17030 for the past 2 trading weeks. Entering the festive season when the market enjoys the Christmas and New Year holiday will see the trading volume be very thin and the minimum price fluctuation. The disgraced former CEO of the collapsed FTX is extradited to the U.S. to face his criminal charges. More details have been revealed including the misuse of customers’ deposits. Investors’ confidence may restore after the FTX scandal comes to an end. 

Following the low trading volume during the year-end holiday season, the pair’s movement remains low fluctuation. The RSI has been flowing near to the oversold zone suggesting that the selling power is strong. The MACD failed to break through the zero line from below suggesting that the bullish momentum is weak. 

Resistance level: 17640, 18397

Support level: 16166, 15448

DJ30

The Dow received bearish momentum yesterday as an ongoing selloff in the technology sector after the rising US Treasury yields continued to diminish risk appetite in the global financial market. Meanwhile, yesterday’s decline in oil prices also prompted the energy sector to continue to weigh on the Dow Jones Index. On the other hand, the 10-year US Treasury yield extended its gains on Wednesday as investors re-assessed the monetary policy decision from the Federal Reserve. As for now, investors will continue to scrutinise potential pressures related to a recession, persistent inflation, and the Federal Reserve policy for further trading signals in 2023.

The Dow is trading within the range while currently testing the support level of 32620. However, MACD has illustrated a bearish momentum. While RSI is trading at 45, it indicates the index might remain in the sideways trend over the year’s end. 

Resistance level: 34110, 35320

Support level: 32620, 31165

GBP/USD

The Pound Sterling slumped to the near-crucial support level in the early Asian session. At the same time, it is expected to remain volatile amid the overall risk-off sentiment. Yesterday, the US Dollar edged higher as the dipping in the US equity market stoked a shift in sentiment toward the safe-haven Dollar, putting pressure on other regional currencies, such as GBP/USD, on a relative basis.

GBP/USD is trading lower while currently testing the support level. MACD has illustrated diminishing bullish momentum, while RSI is at 46, suggesting the pair might trade lower in short-term as the RSI stayed below the midline. 

Resistance level: 1.2345, 1.2670

Support level: 1.1935,1.1650

USD/JPY

The Japanese Yen retreated following the Bank of Japan (BoJ) Governor Haruhiko Kuroda ruling out the chance of a near-term exit from ultra-loose monetary policy, though warning that intensifying labour shortages will lead to higher inflation in future. Despite the earlier Bank of Japan (BoJ) decision to widen the allowance band around its yield target, Kuroda claimed that the policy was aimed at enhancing the effectiveness of its ultra-easy policy rather than a first step toward withdrawing its massive stimulus program.

USD/JPY is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 41, suggesting the pair might trade higher in short-term as the RSI rebound sharply from the oversold territory. 

Resistance level: 138.25, 142.55

Support level: 131.30, 126.40

CL OIL

Oil prices slumped on Wednesday, weighed by the heightened concerns over a significant surge in Covid-19 cases in China, the world’s top oil importer. As for now, China is experiencing the world’s largest Covid-19 outbreak, raising concerns among public-health officials worldwide. According to Bloomberg, almost 37 million people may have been infected with the virus last week. Several major countries have tightened their Covid-19 precautious plans for people travelling from China. The United States requires all travellers from China to indicate a negative Covid-19 result before flying to the country as China’s rapid easing of Covid-19 restrictions leads to a surge in cases.

Crude oil prices are trading lower while currently testing the support level. MCD has illustrated increasing bearish momentum, while RSI is at 48, suggesting the commodity might extend its losses after it successfully breakout below the support level as the RSI retreats sharply from the overbought territory.  

Resistance level: 81.55, 86.15 

Support level: 77.45, 73.70