Euro and GBP Gain after Interest Rate Decision Unveils

The European Central Bank (ECB) and the Bank of England (BoE) have announced their interest rate decisions, leading to the appreciation of both the euro and the British pound last night. In contrast to the Federal Reserve, both the UK and Eurozone central banks are inclined to maintain elevated interest rates for a more extended period until the targeted inflation rate is achieved. Simultaneously, the U.S. dollar continues to exhibit weakness against its peers, contributing to higher gold prices as the precious metal benefits from the easing strength of the dollar. In addition, oil prices are poised to mark their first weekly gain in nearly two months, despite the ongoing challenge in the oil market characterised by ample supply amid a deteriorating outlook for oil demand.

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

Source: CME Fedwatch Tool

0 bps (86.0%) VS 25 bps (14%)  

Market Movements 

DOLLAR_INDX, H4

The US Dollar grapples with persistent declines, touching a two-week low as investors digest the dovish tone set by the Federal Reserve. Fed Chair Jerome Powell signalled the likely end of monetary policy tightening, with potential discussions of borrowing cost cuts in 2024. Projections suggest a 75-basis-point cut next year, marking a notable shift in the Fed's stance.

The Dollar Index is trading lower while currently testing the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 23, suggesting the index might enter oversold territory. 

Resistance level: 102.50, 103.40

Support level: 101.80, 101.25

XAU/USD, H4

Gold maintains its position above the $2,000 level, supported by the US Dollar's depreciation following the Federal Reserve's indication of a potential rate cut in 2024. The continued weakening of the US Dollar also acts as a tailwind for dollar-denominated gold. As major central banks, such as the ECB and the Bank of England, adopt a slightly hawkish tone in contrast to the Federal Reserve, investors pivot toward the Euro and Pound, diminishing the appeal of the Dollar and influencing the gold market.

Gold prices are trading flat while currently near the support level. MACD has illustrated diminishing bullish momentum, while RSI is at 69, suggesting the commodity might enter overbought territory. 

Resistance level: 2030.00, 2055.00

Support level: 2010.00, 1980.00

GBP/USD，H4

Pound Sterling extends its gains as the Bank of England takes a different stance as it emphasises a long journey before declaring victory on inflation, despite a deteriorating outlook. In stark contrast to the Federal Reserve, the Bank of England asserts the need for high-interest rates to restore inflation to the government's 2% target. While the UK's inflation rate stands at 4.6% in October, the central bank underscores the necessity of sustained restrictive monetary decisions

GBP/USD is trading higher following the prior breakout above the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 72, suggesting the pair might enter overbought territory. 

Resistance level: 1.2815, 1.2905

Support level: 1.2730, 1.2630

EUR/USD，H4

The Euro experienced a surge in response to the European Central Bank's (ECB) contrasting monetary stance compared to the Federal Reserve. In its recent announcement following the December policy meeting, the ECB opted to maintain key rates, with main refinancing operations, marginal lending facility, and deposit facility rates holding steady at 4.50%, 4.75%, and 4.00%, respectively. The ECB's cautious approach, as reflected in longer-term inflation expectations slightly above forecasts, underscores the commitment to sustained restrictive policies before considering any potential rate cuts.

EUR/USD is trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI isa t 78, suggesting the pair might enter overbought territory. 

Resistance level: 1.1005, 1.1080

Support level: 1.0975, 1.0850

USD/JPY，H4

The USD/JPY pair continues to retrace in anticipation of next week's Bank of Japan (BoJ) meeting. Concurrently, the Japanese private sector PMI indicates that the service sector in Japan is picking up, offering the Japanese authorities more room to contemplate a departure from their ultra-loose monetary policy. On the other hand, the U.S. dollar is experiencing a lack of momentum against its peers as the Federal Reserve maintains its dovish stance, as indicated in earlier speeches.

The USD/JPY continues to trade in its long-term bearish trend but currently has found short-term support at above 141.50. The RSI has been flowing near the oversold zone while the MACD continues sliding lower, suggesting the bearish momentum remains strong. 

Resistance level: 143.70, 145.35

Support level: 140.00, 137.70

Dow Jones, H4

U.S. equity markets display vibrancy and a strong risk-off sentiment following the dovish stance expressed in Jerome Powell's recent speech. The U.S. 10-year treasury yield continues to slide and is facing challenges in finding support below the 4% mark. Market sentiment is increasingly convinced that the Federal Reserve may initiate rate cuts as early as March next year. This conviction has propelled the Dow to trade at its all-time high, as investors respond to the perceived accommodative stance from the Fed.

The Dow is trading with an extremely bullish momentum while breaking its all-time high level. The RSI remains within the overbought zone while the MACD continues to flow at an elevated level above the zero line, suggesting the bullish momentum is strong. 

Resistance level: 37660.00, 39000.00

Support level: 36550.00, 35700.00

CL OIL, H4

Oil prices edged higher from a five-month low, propelled by an upbeat US Energy Information Administration (EIA) inventory report. The unexpected decline of 4.259 million barrels in US crude oil inventories, surpassing market expectations, contributed to the positive momentum. The Federal Reserve's dovish statement further supported oil prices, hinting at potential future expansionary monetary policies that could stimulate economic momentum and increase oil demand.

Oil prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 58, suggesting the commodity might extend its gains after breakout since the RSI stays above the midline. 

Resistance level: 72.15, 74.85

Support level: 69.25, 66.85