Dollar Poise Ahead of Interest Rate Decision

• Gold and oil prices remain high amidst heightened tension in the Middle East.
• U.S. Equity markets rally ahead of mega-caps, including Microsoft, Apple and Amazon earning reports unveiled.
• All eye on Euro’s GDP scheduled to be released today

Market Summary

The U.S. dollar has been trading sideways recently, as market participants await the pivotal Federal Reserve interest rate decision, along with the release of the Federal Open Market Committee (FOMC) meeting minutes scheduled for Wednesday. The market is keenly anticipating these events to gain insights into the prospective monetary moves by the Federal Reserve, providing a key determinant for the strength of the dollar.

In other markets, both gold and oil prices are holding at elevated levels following a deadly attack on U.S. troops in Jordan. This geopolitical development has heightened tensions, impacting these commodities. Additionally, the upcoming release of Chinese Purchasing Managers' Index (PMI) data, scheduled for tomorrow, is expected to exert an influence on oil prices, with traders closely monitoring the economic indicators for potential market movements.

Current rate hike bets on 31 January Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (98%) VS -25 bps (2%)  

Market Movements 

DOLLAR_INDX, H4

The US Dollar's recent breakout above a resistance level has resulted in a flat trend as investors await the Federal Reserve's two-day meeting. Expectations of rate cuts have diminished with better-than-expected economic data, though uncertainties persist following a pessimistic inflation report that led to a retreat in US Treasury yields, impacting the Dollar's attractiveness. Traders are now anticipating a 48% chance of a rate cut in March, a notable decline from the previous month's 89%, according to the CME FedWatch Tool.

The Dollar Index is trading flat while consolidating in a range between resistance and support level. MACD has illustrated increasing bearish momentum, while RSI is at 49, suggesting the index might be traded lower as technical correction since the RSI stays below the midline. 

Resistance level: 103.90, 104.65

Support level: 103.15, 102.20

XAU/USD, H4

Gold prices experienced volatility, consolidating between resistance and support levels ahead of key macro events. Rising geopolitical tensions, fueled by a deadly drone attack in Jordan and attributed to Iran-backed groups, shifted sentiment toward safe-haven assets. The lack of a definitive US response adds an additional layer of uncertainty, prompting investors to closely monitor geopolitical developments for trading signals.

Gold prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 56, suggesting the commodity might extend its gains after breakout since the RSI stays above the midline. 

Resistance level: 2035.00, 2055.00

Support level: 2019.00,  1985.00

GBP/USD，H4

The GBP/USD pair has demonstrated a relatively sideways trend, with minimal price changes of less than 0.1% over the previous few sessions. This subdued movement is attributed to market anticipation of two pivotal events that are poised to have a direct impact on the pair's price dynamics. Traders are exercising caution as they await the crucial interest rate decisions from both central banks, recognizing the potential influence of these decisions on the GBP/USD pair.

GBPUSD is traded sideways and has a lower high price pattern, suggesting the bullish momentum is waning. The RSI has been flowing flat near the 50 level while the MACD is on the brink of breaking below the zero line, suggesting an easing in bullish momentum. 

Resistance level: 1.2785, 1.2815

 Support level: 1.2610, 1.2530

EUR/USD，H4

The EUR/USD pair experienced a break below its descending triangle price pattern recently, yet the losses were swiftly recovered as the U.S. dollar lacked momentum. Despite a hawkish tone from officials at the European Central Bank (ECB), emphasising a cautious approach to interest rate cuts, traders seem to be placing more weight on recent economic data indicating subpar economic performance. Meanwhile, the upcoming release of Eurozone GDP data later today is expected to have a discernible impact on the euro's strength.

The EUR/USD pair has broken below its descending triangle price pattern, suggesting a bearish bias for the pair. The RSI has been hovering in the lower region while the MACD is moving lower below the zero line, suggesting a bearish momentum is forming. 

Resistance level: 1.0866, 1.0954

Support level: 1.0775, 1.0700

  Dow Jones，H4

The Dow and S&P 500 rallied to record highs as investors bolstered bullish bets on tech stocks ahead of earnings reports from mega-cap tech companies. Downbeat inflation report, which led to a decline in US Treasury yields, prompting the equity market's appeal remains strong. The upcoming Federal Reserve policy-setting meeting and the monthly jobs report contribute to the ongoing market dynamics.

Dow Jones is trading higher following the prior breakout above the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 70, suggesting the index might extend its gains since the RSI stays above the midline.

Resistance level: 39280.00, 40000.00

Support level: 37815.00, 36600.00

USD/JPY, H4

The Japanese Yen has demonstrated strength against a weakening dollar in anticipation of key events. The market, ahead of the crucial Federal Reserve interest rate decision on Wednesday and the upcoming Nonfarm Payroll data scheduled for release on Friday, maintains high expectations for a dovish pivot from the Fed. This sentiment is exerting pressure on the dollar. Simultaneously, geopolitical uncertainty in the Middle East is further bolstering the appeal of the safe-haven currency, the Japanese Yen. These factors are contributing to the Yen's recent gains.

The pair is approaching a liquidity zone from above; a break below such a level may serve as a trend-reversal signal for the pair. The RSI has gradually moved lower while the MACD is on the brink of breaking below the zero line, suggesting a bearish momentum is forming. 

Resistance level: 148.67, 151.76

Support level: 146.76, 145.21

CL OIL, H4

Oil prices experienced a retreat, attributed to technical correction and profit-taking following a prolonged bullish run. Concerns about China's struggling property sector added to worries about demand, prompting a reassessment of the supply risk premium associated with Middle East tensions. Additionally, the possibility of major central banks adopting a slightly hawkish stance based on positive economic data contributes to the nuanced outlook for oil prices.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 59, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory. 

Resistance level: 78.65, 80.00

Support level: 75.20, 70.25