Wall Street’s rally has paused, with markets cautious right before central banks’ upcoming monetary policy decisions

What You Need to Know

The dollar gained slightly and U.S. equities took a hiatus from a solid tech rally in the past week. Markets are seeing mixed trading in risky assets before multiple central banks’ policy decisions are made, including the Fed and the ECB. Moreover, oil prices slumped to 3-week lows and dropped by more than 5% this week. Despite China opening up its border, the country seems slow in the economic recovery as shown in its economic indicators. Oil prices are also suppressed by the fear of recession and supply resilience from Russia. In addition, the IMF raised the global economic growth outlook for the 1st time in a year on confidence that resilient U.S. spending and China’s reopening has overshadowed recession risk.

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 rebounded on Monday ahead of the Fed’s two-day policy meeting, as investors began shifting their portfolios into safe-haven currencies to prevent market volatilities. The central bank is widely expected to increase its interest rates by a quarter percentage point on Wednesday, slowing its rate hikes pace for a second straight session. Despite that, Fed Chair Jerome Powell has continued to push back against investors anticipating rate cuts later this year, reiterating that he will maintain the tightening policy until inflation has eased meaningfully. Indeed, investors will be scrutinising the tone from the Monetary Policy Committee (MPC) to receive any new indications on how many more rate hikes are likely.

The Dollar Index is trading flat while currently hovering the support level. MACD has illustrated increasing bullish momentum, while RSI is at 40, suggesting the index might trade higher in short-term as the RSI rebound from the oversold territory.

Resistance level: 103.45, 105.70

Support level: 101.20, 97.70

XAU/USD

Gold prices extended their losses for a third day, testing at a crucial support level ahead of several key events this week, including the Federal Reserve, the European Central Bank, and the Bank of England monetary decisions. The US Dollar rebounded yesterday as investors are looking for some hawkish tones from the Federal Reserve. Keep an eye out for the results of the monetary decision from the Fed – which will give hints for the future direction for the US Dollar. 

Gold prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 44, suggesting the commodity might trade lower as the RSI stays below the midline.

Resistance level: 1960.50, 1998.35

Support level: 1917.70, 1870.40

EUR/USD 

The pair traded sideways, awaiting interest rate decisions from the Fed and the ECB  later this week. The Fed is likely to increase the interest by 25 bps, the lowest increment compared to last year’s rate hikes. The German quarterly GDP showed a negative reading released yesterday and is down from 0.5% from the previous quarter; this may serve as a glimpse of the economic condition in the Eurozone. Negative economic growth in the region will deter the ECB from a hawkish approach to tightening its monetary policy. Investors may gauge the performance of the Euro after the ECB press conference and the Fed interest rate decision which will be held tomorrow. 

EUR/USD has been trading sideways after it broke above its then-resistance level at 1.0778. The RSI showed a pessimistic sign where it crossed below the 50-level. The MACD also suggests a bearish bias where both the MACD line and signal line have crossed below the zero line for the first time in 3 weeks. 

Resistance level: 1.1048, 1.1238

Support level: 1.0785, 1.0615

BTC/USD

BTC took a setback after testing its recent high at nearly $24000 level. Along with the other risky assets like equities, all took a breather after some gain over the past week, are awaiting multiple central bank’s policy decisions, and are holding a “wait and see” manner before those announcements are made. However, the capital inflow to the crypto market has tripled as compared to early of the month, suggesting that investor risk appetite is increasing. 

BTC is climbing toward its psychological resistance level at $24000 at a slower pace. The RSI has fallen below the 50 level, suggesting that the buying power for bitcoin has decreased. The MACD also depicts a bearish signal where the MACD line crosses the zero line. 

Resistance level: 23765, 24878

Support level: 22529, 21767

DOW JONES

The Dow retreated yesterday as diminishing risk appetite ahead of the FOMC meeting had stoked a shift in sentiment toward other risk-free assets, dragging down the appeal for the US equity market. The Federal Reserve is widely expected to raise their interest rates by an additional 25 basis points later this week, while investors will continue monitoring the Fed’s monetary policy statement for further trading signals. Meanwhile, investors are waiting for another US jobs data and a string of earnings reports from several major corporations, including Alphabet and Meta Platform Inc, later this week.  

The Dow is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 51, suggesting the index might extend its losses as the RSI retreated sharply from the overbought territory. 

Resistance level: 34390.00, 35640.00

Support level: 32730.00, 30945.00

GBP/USD 

Pound Sterling seesawed ahead of several significant events, including Bank of England (BoE) and the Federal Reserve interest rate decisions. Earlier, the Bank of England signalled another 50 basis points rate hike, while investors will focus on the monetary vote during the February meeting. On the US Dollar front, market participants speculate on less aggressive rate hikes from the Federal Reserve based on slowing inflationary pressures. Meanwhile, the labour market in the United States, which has been extremely resilient, will be closely monitored later this week via the Non-farm Payrolls (NFP) data.

GBP/USD is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 60, suggesting the pair might trade lower as the RSI retreated sharply from the overbought territory. 

Resistance level:1.2420, 1.2835

Support level: 1.2005, 1.1485

HK50

The Hong Kong equity index did not perform well after the Lunar New year holiday. The index dropped by more than 3% or 730 points as of writing this week, perhaps following the sentiment in the U.S.global stock and other risky assets like cryptocurrency held yesterday as investors positioned themselves for interest rate policy decisions made by multiple central banks this week. Investors may gauge the Hong Kong stock market performance by referring to the Caixin Manufacturing PMI index. A reading above 50 indicates an expansion in the country’s manufacturing sector, showing China’s economic recovery is on track.       

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 suggests a drastic drop in buying power for HSI after dropping from the overbought zone to 53 as of writing. The MACD stays flat on above of the zero line suggesting the bullish momentum is still intact. 

Resistance level: 22387, 23323

Support level: 21355, 20787

CL OIL

Oil prices slumped more than 2% on Monday as looming tightening monetary policy from the major central banks weighed on demand for this black commodity. Investors expect the US Federal Reserve to increase their rate by 25 basis points on Wednesday, followed by another 50 basis points rate hike decision from the Bank of England and European Central Bank, respectively. On the supply side, oil prices received further bearish momentum from indications of strong Russian supply despite the implementation of sanctions from the European Union. According to Reuters, President Vladimir Putin’s administration allows Russian oil companies to sell their oil at whatever price they can get. The headlines on Russia came ahead of Wednesday’s meeting of OPEC+. Investors are advised to continue monitoring the OPEC+ meeting, due on Wednesday, for further trading signals.

Oil prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 36, suggesting the commodity might trade lower as the RSI stays below the midline.  

Resistance level: 80.00, 82.25

Support level: 78.00, 76.35