Dollar Surge on High PPI Reading

●       The dollar index rose to a new high after the U.S. PPI reading exceeded the market consensus. 

●       The SNB and ECB both cut interest rates yesterday and weighed on both currencies. 

●       The market is awaiting the outcome of the China Central Economic Conference and its implication on the Chinese-proxy currencies. 

Market Summary

The dollar index (DXY) climbed to a two-week high, reaching the 107.00 mark, following the release of U.S. economic data. While initial unemployment claims rose to 242,000, concerns over a rebounding PPI reading have fueled speculation that the Fed may adopt a more hawkish stance ahead of next week’s monetary policy decision. The dollar also gained strength as the Swiss National Bank surprises markets with a larger-than-expected rate cut, and the ECB followed with a 25 bps rate cut, as anticipated.

Wall Street mirrored these hawkish expectations, with the Nasdaq leading declines, shedding over 0.6% in the last session due to its sensitivity to higher borrowing costs. In Asia, attention has turned to China's two-day Central Economic Work Conference, where reports suggest the government is preparing its largest economic stimulus package in a decade. This development has bolstered sentiment for Chinese equities, likely fueling rallies in the China A50 and Hang Seng Index. Additionally, traders of the Australian and New Zealand dollars may analyze the potential impact of China's economic policies on these Chinese-proxy currencies.

 Current rate hike bets on 18th December Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (18%) VS -25 bps (82%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index extended gains, driven by stronger-than-expected US Producer Price Index (PPI) data. The US PPI rose by 0.40%, exceeding the forecast of 0.20%, signaling potential inflationary pressures and bolstering the USD. However, the upside was limited by an increase in Initial Jobless Claims, which rose to 242K from the prior 225K, missing market expectations of 221K.

The Dollar Index is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 70, suggesting the index might enter overbought territory. 

Resistance level: 107.60, 108.60

Support level: 106.75, 105.70

XAU/USD, H4

Gold prices slumped following stronger-than-expected US PPI data, which supported the dollar and weighed on the dollar-denominated gold. Central bank actions also added to the pressure, with the SNB and European Central Bank cutting rates aggressively, boosting yields and strengthening the dollar. Despite these developments, weak risk appetite in the market kept gold’s downside in check. Investors remain cautious, monitoring potential US policy shifts for further direction.

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 52, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory. 

Resistance level: 2720.00, 2755.00

Support level: 2655.00, 2615.00

GBP/USD，H4

The GBP/USD pair fell over 0.6% as the dollar strengthened following higher-than-expected U.S. inflation data. The pair has broken below its uptrend channel and a key support level at the 1.2720 mark, signaling a bearish outlook. Pound Sterling traders will closely watch today's GDP and production data releases to assess the UK's economic health and their potential impact on the currency.

GBP/USD has shown a trend reversal signal after the pair dropped below its critical support level at the 1.2720 mark. The RSI is close to the oversold zone, while the MACD is on the brink of breaking below the zero line, suggesting that the bearish momentum is gaining. 

Resistance level: 1.2700, 1.2790

Support level:1.2620, 1.2505

EUR/USD，H4

The EUR/USD pair continues to trade within its downtrend channel, maintaining a bearish bias. The euro remains under pressure as the European Central Bank's dovish monetary stance persists. Yesterday, the ECB cut interest rates by 25 basis points, as anticipated, adding to the euro's weakness. Meanwhile, the dollar strengthened following the release of U.S. economic data, which bolstered expectations of a more hawkish approach from the Federal Reserve.

The EUR/USD continues to trade in its downtrend channel, suggesting a bearish bias for the pair. The RSI continues to slide while the MACD breaks below the zero line, suggesting that the bearish momentum is gaining. 

Resistance level: 1.0525, 1.0607

Support level: 1.0440, 1.0324

USD/CHF, H4

The USD/CHF pair surged to a two-week high near 0.8900 after the Swiss Franc (CHF) tumbled. The Swiss National Bank (SNB) delivered an unexpected 50 basis point rate cut, reducing its key rate to 0.5%. This marked the fourth consecutive rate cut but the first larger-than-expected reduction. The surprise move triggered significant CHF selling, providing robust support for the USD/CHF pair.

USD/CHF is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 74, suggesting the pair might enter overbought territory. 

Resistance level: 0.8925, 0.9040

Support level: 0.8815, 0.8725

USD/JPY, H4

The USD/JPY pair continues to climb after consolidating near its two-week highs. The Japanese yen remains under pressure as market expectations for a December BoJ rate hike have diminished ahead of next week's decision. Meanwhile, the U.S. dollar's strength persists, driven by recent U.S. economic indicators pointing to a potential hawkish stance from the Federal Reserve, further propelling the pair higher.

The pair push to a new high after the pair has been consolidating for 2 sessions. The RSI remain elevated while the MACD is edging higher, suggesting that the pair remain trading with bullish momentum. 

Resistance level: 154.75, 157.55

Support level:  151.75, 149.35

AUD/USD H4:

The Australian dollar is trading within a lower-high price pattern and remains confined to a downtrend channel, signaling a bearish bias for the pair. A decisive break below the critical support level at 0.6345 would confirm a solid bearish outlook. As a Chinese-proxy currency, the Australian dollar is likely to be influenced by the outcome of China's Central Economic Work Conference, where stimulus measures could impact market sentiment.

The AUD/USD pair is heading to the recent low levels, trading with excessive downside pressure. The RSI is flowing below 50 level while the MACD continues to edge lower, suggesting that the pair remains trading with bearish momentum. 

Resistance level: 0.6420, 0.6495

Support level: 0.6345, 0.6275

CL OIL, H4

Oil prices declined on Wednesday as concerns over weaker demand overshadowed market sentiment. The International Energy Agency (IEA) projected a global oil supply increase of 630,000 barrels per day (bpd) in 2024 and 1.9 million bpd in 2025, outpacing expected demand growth. The IEA's report followed OPEC’s revised forecast, which downgraded oil demand growth expectations, further pressuring prices.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 60, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory. 

Resistance level: 70.35, 71.20

Support level: 68.15, 66.95