Equity markets have sunk on hawkish guidance from the Fed despite softer CPI readings and a slower pace of hikes

What You Need To Know

The dollar index dipped briefly as Powell announced a 50 bps rate hike in line with market expectations. However, a somewhat Hawkish statement from the Fed Chair signalled that interest rates would continue to climb until inflation is brought down to 2%, encumbering the equities markets. Oil prices surged above $77 to hit its highest this month as OPEC forecasted an optimistic oil demand outlook for 2023, a view supported by the relaxation of China’s covid restrictions.  Meanwhile, the BoE has said it is likely to slow the pace of rate hikes to balance the risk between inflation and recession before the rate decision announcement later today. 

Look Out For

The ECB and BoE’s rate hike decision later on Thursday. 

Market Overview

Economic Calendar

Market Movements

DXY

The US Dollar edged lower despite the Federal Reserve claiming that it would continue to increase interest rates, with investors bracing for an easing inflation outlook. The Federal Reserve decided to raise its benchmark interest rate by 50 basis points to a 4.25% to 4.5% target range, with a projection rate of 5.1% by the end of next year – a slightly higher level than previously indicated. In addition, Fed Chairman Jerome Powell reiterated that the Fed is still not close to ending its anti-inflation campaign of rate hikes while signalling that the borrowing costs will head higher next year. The Fed focused on implementing a policy that would stabilise the inflation rate to 2% over time.

The Dollar Index is trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 33, suggesting the index is going into oversold territory. 

Resistance level: 105.70, 109.05

Support level: 101.20, 97.70

XAU/USD

With investors bracing for an easing inflation outlook, the weak US Dollar continued to underpin the dollar-denominated gold. Besides that, heightened volatility across the board following economists’ warning of a potential recession outlook had put pressure on the risky assets on a relative basis, insinuating further demand for safe-haven gold.

The gold market is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 63, suggesting the commodity is entering the overbought territory.

Resistance level: 1810.00, 1870.00

Support level: 1725.00, 1675.00

EUR/USD

The Fed has announced a 50 bps rate hike instead of 75 bps like the previous rate hike has dragged the DXY index to trade below $104, the lowest since June this year. The ECB is going to announce its rate decision later today and a 50 bps is expected by the market and expecting the cost of borrowing to increase to 2.5% by March 2023. If the rate increment is higher than the market expects, we could expect the pair to continue its bullish momentum. 

On the technical front, the pair has broken through the resistance level at 1.0604 after it consolidated below the level for the past 2 weeks indicates a bullish signal. The bullish momentum is still intact as the RSI has remained above the 60-level suggesting the gaining power is still strong. The MACD has depicted a rebound from the zero line which signals that the bullish momentum is also strong. 

Resistance level: 1.0819, 1.1052

Support level: 1.0604, 1.0355

BTC/USD

BTC was tapping on the advantage of a weaker dollar, surged to its monthly high, and broke its month-long consolidation price range. However, the Hawkish statement made by the Fed’s chair has eased the bullish momentum for BTC. BTC dropped by more than 4% after it hit its monthly high at 18366, as the crypto’s fear and greed index remained high. A gloomy economic outlook and the hawkish statement from the Fed, potentially strengthening the dollar, will pressure BTC prices to increase. 

On the technical front, the bullish momentum has eased after BTC hit its monthly high at 18366. The RSI is not able to stay above the overbought zone for long and has dropped to 56-level as of writing. The MACD line has also crossed with the signal line suggesting the bullish momentum is diminishing. 

Resistance level: 18326, 19134

Support level: 17060, 16200

DJ30

The Dow traded lower on Wednesday following the Federal Reserve increasing the interest rates by an expected 50 basis points. At the same time, the Monetary Policy Committee (MPC) forecasted a higher rate for a more extended period. With steep increases in interest rates from the major central banks adding to the headwinds, volatilities in the financial market continue to increase, which weighed heavily on riskier assets this year. Movements in the equity market will remain volatile ahead of monetary policy announcements from other central banks, such as the ECB and Bank of England. Investors are advised to continue monitoring policy updates for further signals.

The Dow is trading flat while testing the resistance level. However, MACD has illustrated increasing bearish momentum, while RSI is at 56, suggesting the index might trade lower in short-term as the RSI retreated sharply from the overbought territory. 

Resistance level: 34390.00, 36810.00

Support level: 31370.00, 28760.00

GBP/USD

The pound edged higher 0.24% against the weakened dollar to $1.2395 on Wednesday as the Federal Reserve raised interest rate by 50 basis points. Besides, data showed that consumer prices rose by less than the BoE had expected. With the pound strengthened over the last month, the country’s inflation problem is being added by an acute shortage of workers to fill vacancies, giving BoE pressure on a tricky balancing act. Investors could focus on the upcoming BoE’s rate hike decision, which will be released later Thursday. 

The MACD line is moving upward steadily, indicating bullish momentum ahead. By looking at the technical chart, the pair’s movement might remain steady and positive. At the same time, RSI is trading at 61, suggesting a bullish momentum ahead. 

Resistance level：1.2664， 1.3057

Support level： 1.2343，1.1950

NAS100

Nasdaq dropped by (-0.76%) or -85.93 points to 11,170 on Wednesday after the Federal Reserve raised interest rate by an expected 50 basis points, but its economic projections see higher rates in future. The index encumbrance by Tesla Inc (TSLA.O) and Charter Communications Inc (CHTR.O) dropped -2.58% and -16.38%, respectively. Stocks market dropped after the Fed Chair Jerome Powell said it was too soon to discuss cutting rates as the focus is on making the central bank’s policy stance restrictive enough to push inflation down to the target of 2%.  

The MACD is crossing down the zero line, suggesting a neutral-bearish momentum ahead. The RSI is trading at 52, which also indicates a neutral-bearish momentum. 

Resistance level: 11997, 12647

Support level: 11445，10469

CL OIL

Oil prices skyrocketed on Wednesday following OPEC and the International Energy Agency (IEA) forecasting a rebound in demand for next year. According to Reuters, the IEA, seeing Chinese oil demand recovering by next year after a 400,000-BPD contraction in 2022, raised its expectations of oil demand growth in 2023 to an estimated 1.7 million BPD for a total of 101.6 million BPD in China. Meanwhile, oil prices have been supported by a leak and outage of TC Energy Corp’s Keystone pipeline, which supplies more than 620,000 barrels daily to the United States. On the other hand, oil prices received further bullish momentum as investors still expect the rate hike decision from the Fed to ease further alongside slowing inflation. The US Dollar continued to edge lower yesterday, despite some hawkish tone from Fed Chairman Jerome Powell.

Crude oil prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 66, suggesting the commodity is entering into overbought territory.  

Resistance level: 77.50, 83.00

Support level: 70.95, 65.70