Markets are turning risk-off after a short-lived rally as watchers expect a less-than-dovish moves from the Fed

Wall Street dipped and treasury yield rose as the market started to digest the recent comments from Fed officials. Weak demand for U.S. long-term notes pushes the bond yield higher and U.S. equity weakened with lower-than-average trading volume awaiting next week’s CPI data to gauge the Fed’s next moves. In Australia, the RBA has uplifted its forecast for core inflation given the current tightness in the labour market; a foreseeable wage growth boosted Australia’s forecasted interest rate peak to 3.75% this year from 3.35%. In addition, oil prices eased for the second straight trading day after a surge of more than 7% in the early week. However, Saudi Arabia’s crude price increase, which signalled confidence in oil demand and oil supply shortage due to the Turkey earthquake, may sustain oil prices.

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 Look Out For

Current rate hike bets on 22nd March Fed interest rate decision: 

25 bps (90.8%) VS 50 bps (9.2%) 

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Market Overview

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Economic Calendar

Market Movements

DXY

The dollar index dipped to $103.255 due to weakened U.S. jobless claims data released on Thursday. Data showed an increase of 13,000 to 196,000, which is a higher-than-expected 190,000 figure in the latest week ended Feb. 4. Hence, investors might oscillate from yesterday’s sentiment as the Federal Reserve may slow down the interest rate hike due to the report suggesting labour market weakness that can help bring down inflation. Therefore, the latest economic data helped set aside concerns that interest rates will be higher for longer dragging down the dollar index. 

The dollar index is trading from 102.563 to 103.713 in the near term. However, MACD has illustrated a diminishing bullish momentum ahead. While RSI is at 55, indicating the index is hovering in a neutral momentum. Investors are still hesitating to go back into dollar shorts before the CPI report next week. There’s a lot of focus on CPI to see whether Powell’s disinflation story holds. 

Resistance level: 103.70, 104.85

Support level: 102.55, 101.80

XAU/USD

Gold prices dipped to $1864 amid pressure from rising two years treasury yield as the market participants reassessed their expectation that more rate hikes are needed to rein in inflation. Gold is sensitive to high rates, which increase the cost of holding non-yield bullion. Therefore, the higher cost is dragging down the appeal for gold. On the contrary, a potential U.S. recession is likely to benefit gold. Investors are suggested to trade cautiously in the near term as gold faces short-term headwinds from the rising interest rate.

Gold prices keep testing their support level of $1860 and keep monitoring for the breakout. MACD has illustrated a neutral-bearish momentum in the short term. While RSI is at 38, indicating a bearish momentum ahead. 

Resistance level: 1904, 1960

Support level: 1860, 1820

EUR/USD 

The risk-off sentiment is growing while investors start to digest the comment from the Fed officials. The U.S. treasury yield rose, and U.S. stock markets dropped last night, suggesting that investors may be shifting investment toward safe-haven assets. Last night, the dollar rose by less than 0.5% and hammered the EUR/USD pair before it broke above its near-resistance level at 1.0786. The U.S. core CPI data is set to release next Tuesday (14th Feb) along with U.S. core retail sales releasing the following day (15th Feb); investors may gauge the Fed’s next move by referring to the data and its impact on the euro. 

The pair is trading in minimal volatility this week and is trading above its long-term bullish support line, although it plunged for more than 3% last week. Both indicators gave a relatively neutral signal for the pair where the RSI hovers between the oversold zone and 50 while the MACD flows flat below the zero line. 

Resistance level: 1.0785, 1.0915

Support level: 1.0615, 1.0462

BTC/USD

BTC plunged by more than 4%, fell below its support level at 22500, and traded to its lowest in February. The risk-off sentiment resulting in a dip in Wall Street and a rise in treasury yield has a spilled over effect on the cryptocurrency market, where most of the commonly-traded cryptocurrencies traded lower last night. In addition, the U.S. SEC has taken action on a crypto exchange, Kraken, in connection with a staking program. This regulation will pass down to all U.S. registered companies and will damage the market worth billions of dollars. This is a rocking boat event amid growing risk-off sentiment in the market which sent BTC to trade to its lowest in the past 3 weeks. 

On the technical front, BTC prices plunged drastically, reflected in both indicators. The RSI has fallen into the oversold zone while the MACD is moving downward below the zero line depicting a bearish momentum is forming. 

Resistance level: 23765,  24878

Support level: 22530, 21767

DOW JONES

The Dow Jones edged lower yesterday following the US Treasury yield curve inversion reaching its deepest level since 1980, which stoked a shift in sentiment toward other safe-haven assets. Moreover, concerns about a recession heightened after releasing pessimistic jobless claims data. According to the Department of Labor, US Initial Jobless Claims notched from the previous reading of 183K to 196K, missing the market expectations of 190K. Some analysts suggest the recent surge in layoffs of major corporations will continue to weigh on the jobs market in the United States.

The Dow is trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 46, suggesting the index might extend its losses to the support level. 

Resistance level: 34390.00, 35640.00

Support level: 32730.00, 30945.00

GBP/USD 

The pound surged to $1.2192 after the U.S. jobless claim data shows a higher-than-expected reading on Thursday. But it retreated to $1.2103 after the U.S. inverted treasury yield occurred. It is a signal for a looming recession when the short term bond yield is higher than long term bond yield. Hence, the market sentiment turning into pessimism in the short term, lead to dollar increase, pound dips. Investors are suggest to focus on next week CPI data on whether the Fed’s disinflation story holds. 

The pound is dropping into another region from 1.1928 to 1.2104 as of writing. MACD has illustrated bearish momentum in the short term. While RSI is at 46, also indicating the pair is trading in a bearish momentum. 

Resistance level: 1.2105, 1.2426

Support level: 1.1928, 1.1731

USDJPY

Japanese Yen dipped as uncertainties remain after the Bank of Japan (BoJ) Haruhiko Kuroda in the twilight of his 10-year tenure. According to Reuters, Japanese Prime Minister Fumio Kishida claimed that the government is still selecting the successor to incumbent BoJ Governor Haruhiko Kuroda while noting that the decisions would significantly impact financial markets. Market participants are advised to focus closely on the appointment of the new BoJ governor for clues on the monetary policy decisions from the central bank.

USDJPY is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 59, suggesting the pair might trade lower as the RSI retreated from the overbought territory. 

Resistance level: 131.60, 132.85

Support level: 130.40, 129.10

CL OIL

Oil prices retreated after US Treasury yield curve inversion reached its most depressive level since 1980, which dialled down the market optimism toward the economic progression in the global financial market. Higher interest rate expectations continue to act as a headwind toward the oil demand. Moreover, oil prices extended losses on Thursday as the earthquake in Turkey, and Syria caused less severe damage to oil infrastructure. Earlier, the earthquake initially prompted oil prices higher on the speculation that the disaster would seriously jeopardise oil pipelines and other infrastructure from the global market for an extended period. Nonetheless, BP Azerbaijan claimed that oil continues to flow there via pipeline, and the supply disruption from the earthquake is still less than expected.

Oil prices are trading lower following the prior retracement from the resistance level. However, MACD has illustrated diminishing bearish momentum. The RSI is at 47, suggesting the commodity might trade lower in short-term as the RSI stays below the midline. 

Resistance level: 78.65, 80.40

Support level: 76.45, 74.95