The US Dollar is testing new lows as markets expect a relatively dovish fed at upcoming rate decisions

What You Need to Know

The US Dollar traded flat around the support level as investors are waiting for the first FOMC meeting of the year in early February to determine whether the Fed will raise their rates by 25 basis points (bps) or 50 basis points (bps) as it did in December. Oil prices experienced second straight weekly gains, buoyed by the joyous prospect of China’s economy. The Japanese Yen retreated after the Bank of Japan (BoJ) Governor Haruhiko Kuroda claimed that the central bank would continue its current “extremely accommodative” monetary policy to boost the economic momentum. The gold market edged higher, with investors bracing for a string of pessimistic economic data.

Look Out For

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

25 bps (99.8%) VS 50 bps (0.2%)  

Market Overview

Prices as of 04:00 EET

Economic Calendar

Market Movements

DXY

The Dollar Index traded flat around the support level as investors are waiting for the first FOMC meeting of the year in early February to determine whether the Fed will raise their rates by 25 basis points (bps) or 50 basis points (bps) as it did in December. The Monetary Policy Committee (MPC) will discuss the labour, consumer spending and inflation situation in the United States during the FOMC meeting before pausing the rate hikes in future. The overall trend for the US Dollar remained in negative territory over the backdrop against a string of disinflationary data in recent days. 

The Dollar Index is trading lower while currently testing the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 32, suggesting the index is entering oversold territory.  

Resistance level: 105.20, 108.35

Support level: 101.30, 99.45

XAU/USD

The gold market edged higher, with investors bracing for a more dovish tone from the Federal Reserve following the United States releasing a string of pessimistic economic data. Last week, the US Retail Sales dropped by 1%, industrial production declined for the past three months while the housing data has posted six straight monthly declines. Meanwhile, the Gross Domestic Product (GDP) could be expected to continue to provide negative readings in the coming quarters as the global central banks’ restrictive monetary policy continues to hit market demand.

Gold prices are trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 72, suggesting the commodity is entering overbought territory.  

Resistance level: 1980.00, 2050.00

Support level: 1920.00, 1870.00

EUR/USD

The Euro surged as the recent inflationary pressure in the European Union spurred expectations of future more restrictive monetary policy from the European Central Bank. The International Energy Agency warned that European companies might face higher costs when purchasing commodities such as natural gas and crude oil, as China’s decision to reopen its economy will likely increase energy consumption, adding to ongoing inflationary pressures. Previously, the European Central Bank (ECB) raised their interest rates four times throughout 2022 while vowing to maintain their restrictive monetary policy further in 2023 to tame sky-high inflation.

EUR/USD is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 68, suggesting the pair is entering the overbought territory. 

Resistance level: 1.1140, 1.1455

Support level: 1.0760, 1.0385

BTC/USD

Bitcoin has extended its gains over the weekend ahead of celebrations for the Lunar New Year, surging to over $23,000 psychological level while gaining as much as 10% compared to the earlier day. The global risk-on sentiment following the Chinese authorities easing the Covid-19 restrictions and more minor rate-hike decisions from the Federal Reserve continue insinuating market demand for cryptocurrencies. Recently, fresh economic data released by the United States continues to indicate a cooldown in inflation. The annual inflation rate fell to 6.5% in December, compared to the previous reading of 7.10%. A lower inflation outlook is usually viewed as bullish for risky assets such as crypto, as it will reduce pressure for the Fed to increase their interest rates aggressively.

BTCUSD is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 66, suggesting the BTC/USD might trade lower as the RSI retreated sharply from the overbought territory. 

Resistance level: 23160, 25055

Support level: 20900, 18275

DOW JONES

The Dow surged as investors dip-buying, led by strong gains in the technology sector. Nonetheless, the overall trend for the US equity market remained bearish amid investors dissecting economic data and corporate earnings reports, clouding their perspective of the health of the US economy. Financial statements in the coming week will test the recent bounce in the US equity market as the US economy shows possible signs of recession. The tech giants such as Alphabet and Amazon claimed that they would cut more than 10,000 jobs, spurring further uncertainty in the US corporate environment.

The Dow is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 49, suggesting the index might trade lower as the RSI stays below the midline.  

Resistance level: 34390.00, 36810.00

Support level: 31370.00, 28760.00

GBP/USD 

The Pound Sterling retreated over the backdrop against downbeat retail sales data. According to the Office for National Statistics, UK Retail Sales for last month declined significantly from the previous reading of -0.50% to -1.0%, missing the market forecast of 0.50%, finishing the worst year on record as rising inflation and borrowing costs continue to weigh on consumer spending. Nonetheless, the overall bearish momentum experienced by the GBP/USD was still limited by the weakening US Dollar. The Greenback continues to hover near a 7-month low as heightening concerns of a US economic slowdown could trigger a dovish stance from the Federal Reserves.

GBP/USD is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 70, suggesting the pair is entering the overbought territory. 

Resistance level:1.2430, 1.2670

Support level: 1.1935, 1.1650

USDJPY

The Japanese Yen retreated last Friday after the Bank of Japan (BoJ) Governor Haruhiko Kuroda claimed that the central bank would continue its current “extremely accommodative” monetary policy to boost the economic momentum while achieving its 2% inflation target. However, the Japanese Yen still experienced its largest weekly gain from a seven-month low as speculators bet the BoJ would slowly shift its policy to tighter stances. Meanwhile, in December, Japan’s Core Consumer Prices rose by 4.0% from a year earlier, double the BoJ’s target. 

USDJPY is trading lower following the prior retracement from the resistance level as technical correction. MACD has illustrated diminishing bullish momentum, while RSI is at 50, suggesting the pair might trade lower as the RSI retreated sharply from the overbought territory.  

Resistance level: 131.60, 135.20

Support level: 127.15, 123.70

CL OIL

Oil prices experienced second straight weekly gains, buoyed by the joyous prospect of China’s economy, boosting expectations for this black commodity. Earlier, the International Energy Agency (IEA) and OPEC predicted that China’s lifting of Covid-19 restrictions could bring global demand to a record high in 2023. Besides that, oil was also supported by expectations that the Fed would slow down its interest rate hikes, which could brighten the US economic outlook. The disinflationary data in recent data has prompted investors to speculate that the Fed will end its restrictive cycle after increases of 25 basis points during the next two policy meetings and should hold interest rates unchanged for at least the rest of the year. On the supply side, Baker Hughes Co said that the US oil rig count dropped by 10 to 613, its lowest level since November, indicating the supply of oil might reduce in future.

Oil prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 60, suggesting the commodity might trade higher as the RSI stays above the midline. 

Resistance level: 81.55, 86.15

Support level: 77.10, 73.25