Daily market analysis

Market awaits FOMC meeting and US Non-Farm data release

January 31, 2023

The Nasdaq 100, tumbled almost 2%. The S&P 500 and the Dow Jones slashed 1.30% and 0.77% of their value as traders prepared for the US Federal Reserve Open Market Committee (FOMC) decision on Wednesday. Hence, a busy US economic calendar was one of the main reasons for the US Dollar to appreciate against most G8 currencies.

Reflection of the aforementioned is US Treasury bond yields, precisely the US 10-year benchmark note rate, finished Monday with gains of three and a half basis points. Up at 3.542%, underpinned the greenback.

Tech stocks pulled the major indexes lower ahead of the Fed’s announcement. The central bank is expected to raise interest rates another quarter of a percentage point on Wednesday, and investors are hoping to get a hint of where the Fed is headed this year.

The Federal Reserve kicks off its two-day meeting on Tuesday, but with the prospect of a downshift to a 25-basis-point rate hike almost priced in for Wednesday, investors are expecting Fed chairman Jerome Powell to signal more hikes ahead and push back against expectations that the Fed could cut rates later this year. (Reference from Investing. com)

Main Pairs Movement

DXY a measure of the greenback’s value against a basket of six currencies continues to recover and prints gains for three straight days, finishing Monday’s session with gains of 0.31% amidst risk aversion. At the time of writing, the DXY exchanges hand at 102.242.

EUR/USD seesaws around 1.0850 as bears take a breather after breaking important support. With this, the major currency pair confirms its place on the seller’s radar even if it probes the three-day downtrend with its latest inaction. During Monday’s trading course, the closed price dropped 0.16% on the daily chart.

GBPUSD dropped around 0.3% throughout Monday’s trading, price closed at $1.2350. Cable holds lower grounds after a two-day downtrend, making rounds to 1.2350 during early Tuesday morning in Asia.

XAUUSD’s price lost 0.23% throughout Monday’s trading. The yellow metal has drifted lower for a third day and is testing structure as we head towards key events this week. The bull could emerge ahead of the Feds.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged higher on Monday, failing to preserve its upside momentum, and retreated towards the 1.0870 mark as the upbeat sentiment data from the Eurozone helps the Euro stay resilient against its rivals. The pair is now trading at 1.0870, posting a 0.04% gain daily. EUR/USD stays in the positive territory despite a stronger US Dollar across the board, as investors are preparing for the US Federal Reserve Open Market Committee (FOMC) meeting that will begin on Tuesday. The markets have been pricing in a greater chance of a 25 basis points (bps) rate hike amid signs of easing inflationary pressures in the US, which might weigh on the greenback and lend support to the EUR/USD pair. In the Eurozone, the Euro area Economic Sentiment Indicator improves at a stronger pace to 99.9 in January, which acted as a tailwind for the shared currency Euro. Meanwhile, the hopes of stronger rate hikes from the ECB remain amid receding hawkish bias from the Fed.

For the technical aspect, RSI indicator 47 figures as of writing, suggesting that the pair could witness heavy bearish momentum as the RSI is falling sharply below the mid-line. As for the Bollinger Bands, the price declined sharply and dropped below the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0858 support level. On the upside, the pair could gain bullish momentum once above the 1.0919 resistance.

Resistance:  1.0919, 1.1032

Support: 1.0858, 1.0807, 1.0779

GBPUSD (4-Hour Chart)

GBP/USD struggles to hold above 1.2400. In the second half of Monday, the pair witnessed some bearish traction and fell below 1.224. The market sentiment ahead of key events this week seems to support the US dollar index and therefore exert pressure on its rivals. The pair is now trading at 1.2368, posting a 0.22% loss daily. Meanwhile, the US dollar index holds above 102 level, now at 102.18, and the benchmark 10-year US Treasury bond yield rises 1% to above 3.5%, making it difficult for GBP/USD to gain upside traction.

For the technical aspect, RSI indicator 47  figures as of writing, failing to provide a directional clue as the RSI indicator maintains around mid-line without significant movement. As for the Bollinger Bands, the price is moving up and down around the horizontal moving average, signaling that the pair is lack main traction. In conclusion, we think the market is in consolidation mode until there is a decisive breakthrough to trigger follow-through buying or selling. For the uptrend scenario, the price needs a firm break above resistance at 1.2426 to show bullish impetus. For the downtrend scenario, if the price drop below the support at 1.2341, it may trigger some technical selling and drag the GBP/USD pair further toward the next support at 1.2292.

Resistance: 1.2426, 1.2493, 1.2593

Support: 1.2341, 1.2292, 1.2188

XAUUSD (4-Hour Chart)

The gold price has lost its upside traction and fell toward $1,920 after having advanced above $1,930 in the European trading session. The market sentiment ahead of key events this week seems to support the US dollar index. Meanwhile, the benchmark 10-year US Treasury bond yield rose 1% to above 3.5%, making it difficult for Gold prices to gain upside traction. At the time of writing, the Gold price is trading at $1,923, posting a 0.23% loss daily.

For the technical aspect, RSI indicator 44 figures as of writing, close to mid-line, failing to provide a directional clue as the RSI indicator keeps moving up and down around mid-line for a while. As for the Bollinger Bands, the price keeps edging below the horizontal moving average, signaling that the pair is turning weak from the latest uptrend. In conclusion, we think the market is in modest bearish mode since both indicators show the uncertainty of traction. Besides, we can see the price keeps edging lower and testing support at $1922. For the downtrend scenario, a convincing break below the support at $1922 may trigger some technical selling and drag the Gold price back toward the $1,900 round-figure mark. For the uptrend scenario, the pair should establish itself above the current support at $1922 first. To regather bullish strength, it should also recover the lost territory from the multi-month high around the $1,949 zone, which has become a strong barrier in the near term for bulls.

Resistance: 1947, 1957, 1963

Support: 1922, 1900, 1873

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CNYManufacturing PMI (Jan)09:3049.8
EURGerman Unemployment Change (Jan)16:555K
EURGerman CPI (YoY) (Jan)21:009.2%
CADGDP (MoM) (Nov)21:300.1%
USDCB Consumer Confidence (Jan)23:00109.0

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