The Fed’s hawkish stance after its 2 Nov rate hike has led the markets to turn risk-off

What You Need to Know

Fed’s Jerome Powell sent a message that the Fed will not always raise the rate as high as 75bp, but don’t expect the Fed will opt for a more dovish move until the inflation rate is satisfactory. Asian markets slumped, including China, South Korea and Australia after the Fed raised the rate of 75 bps for the 4th time in a row. Big rate hikes provide a headwind to the commodity markets, including crude oil, although a tighter supply and a stronger demand have pushed oil prices higher in November.

Look Out For

As for now, investors will continue to scrutinise the crucial Nonfarm Payroll data, which will be released on Friday (4/11), for further trading signals. The Bureau of Labour Statistics predicted that the employment data in the US might record another increase of 200K, versus the month’s preliminary reading of 263K.

Market Overview

Economic Calendar

Market Movements

DXY

The Dollar Index, which measures against a basket of six major currencies, surged significantly following the Federal Reserve increasing their interest rates by 75 bps for the fourth time in a row. Meanwhile, the Monetary Policy Committee (MPC) also vowed to achieve maximum employment and inflation at 2% over the long run. The Federal Reserve has mentioned that the future pace of rate hikes would be data-dependent. As the recent indicators point to modest growth in consumer spending while the US job markets remain solid, investors are likely to speculate that tightening monetary policy will continue to persist, insinuating greater demand for the US Dollar. 

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 59, suggesting the upside is more favoured as the RSI stands above the midline. 

Resistance level: 111.95, 113.45

Support level: 109.65, 107.75

XAU/USD

Gold prices dropped on Wednesday due to the Federal Reserve signalling that it could slow down the pace of its aggressive rate hike cycle. Prices edged down 0.7% to $1637 a troy ounce at press time. Moreover, higher yields this year have increased the likelihood of investors holding government bonds over gold, which doesn’t pay any interest. 

MACD is crossing down to zero line, which suggests its bullish momentum is diminishing. RSI is ranging near 40 which indicates bearish momentum in the near term. 

Resistance level  : 1650, 1681

Support level :  1615, 1569

EUR/USD

The strong US Dollar, supported by the Fed’s hawkish tone to curb the spiking inflation rate in consequence of a potential US economic downturn has put pressure on other regional currencies on a relative basis. EUR/USD received further selloff yesterday after the Fed announced the big rate hike. On the economic data front, the Euro extended its losses following the release of downbeat economic data. According to Markit Economics, Germany’s Manufacturing Purchasing Managers Index (PMI) notched down from the previous reading of 47.8 to 45.1, missing the market forecast at 45.7. 

From the technical viewpoint, EUR/USD is trading lower following the prior breakout below the previous support level. MACD which illustrated increasing bearish momentum, while RSI is at 38, suggesting the pair extended its losses toward the support level at 0.9760.

Resistance level: 0.9875, 1.0075

Support level: 0.9760, 0.9665

BTC/USD

BTC was affected by the fed rate hike decision last night and fell below its support line at 20400. However, its bearish momentum seems weak, especially with the Fed signalling that they will opt for a smaller rate hike in the coming days. 

Perhaps due to a lack of direction, the cryptocurrency market traded in a low-volume manner in the past week. While the MACD lines have crossed below the zero line, the gap in between the two moving averages is narrow, suggesting that BTC might be consolidating with a bearish bias. On the other hand, RSI dropped to 44 as of writing, a signal that there are more sellers than buyers for the BTC. 

Resistance level: 20400, 21000

Support level: 18460

DJ30

The Dow Jones was coming under renewed selling pressure as speculation of a Fed pivot towards a dovish stance faded. Besides, the US stock index was modestly trading lower even before the policy announcement. The crucial ADP National Employment data indicated the US private payrolls improved more than expected in October, raising the probability for the Federal Reserve to continue an aggressive path of tightening policy on a longer-term basis. 

The DJ30 is trading lower following a prior retracement from the crucial resistance level. MACD has illustrated bearish bias, while RSI is at 59, suggesting that the bears are in control as the RSI retreats sharply from its overbought territory. 

Resistance level: 33065, 34320

Support level: 31045, 29805

GBP/USD

The pound dropped 0.98% to 1.14 after the Fed raised interest rates by 75 basis points on Wednesday, as expected. Therefore, investors are awaiting the Bank of England to deliver its biggest hike since 1989 and raise interest rates by 75 basis points on Thursday. 

Besides, MACD is crossing the zero line, which is crucial to determine a more precise direction as markets await the BoE’s policy decision. RSI is going down to 39, which suggests a bearish momentum is ongoing at press time. 

Resistance： 1.1624，1.1779

Support： 1.1168, 1.0973

USD/JPY

USD/JPY rebounded sharply from its support level following the Federal Reserve unleashing their hawkish policy yesterday, which widened the monetary policy divergence between the Federal Reserve and the Bank of Japan (BoJ). As for now, investors will continue to beware of the currency intervention decision from the Bank of Japan (BoJ) to receive further trading signals for the Japanese Yen. 

USD/JPY is trading sideways. The gap between MACD indicators has narrowed while RSI is currently near the midline, suggesting a sign that the pairs will continue to wander in a range between the level of 148.40 and 145.85.

Resistance level: 148.40, 150.00

Support level: 145.85, 144.70

Crude oil

Oil prices still uphold near its resistance at 90 despite other risk assets’ price dropping after the Fed announced a 75 bps rate hike for the 4th straight time. Tighter supply after the OPEC+ oil cut and decline in the U.S. oil inventories shows that the oil demand is picking up, which would allow oil prices to stay strong. 

A stronger USD would put pressure on oil prices, but a strong demand, especially in the winter season, would strengthen the oil prices. MACD lines are moving uptrend, and the RSI staying near 60 suggests that the oil prices remains bullish. 

Resistance level: 90, 93.15

Support level: 85.6, 82