Dollar Slump on Rate Cut Speculation

Dollar Slump on Rate Cut SpeculationInvestors strategically position themselves for an anticipated Federal Reserve interest rate cut in the coming year, evident in the robust market demand observed during recent auctions for U.S. short-term treasuries. The heightened appetite for U.S. Treasury securities reflect a deliberate move by investors to secure attractive yields ahead of potential rate reductions. The U.S. 10-year Treasury yield has experienced a decline, currently resting at 3.80%, exerting pressure on the strength of the U.S. dollar. Concurrently, gold prices continue to advance, propelled by the weakening dollar, as traders vigilantly monitor developments in Middle East tensions for potential market implications. Despite efforts by OPEC+ to curtail supply, oil prices face challenges defending levels above $75. The dim outlook for demand in the upcoming year and the anticipated expansion of oil supply contribute to a complex landscape for oil prices, underscoring the delicate balance between global supply dynamics and market demand.

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

Source: CME Fedwatch Tool

0 bps (82.4%) VS -25 bps (17.6%)  

Market Movements 

DOLLAR_INDX, H4

The US Dollar index is in a downward trajectory as traders eagerly anticipate the release of US job data scheduled for later today. Market participants closely watch this economic indicator for additional evidence to support the speculation of a Federal Reserve rate cut next year. If the job data comes in line with or softer than the previous reading, it could suggest a loosening job market and potentially easing inflationary pressures in the country.

The dollar index continues to slide and has broken below another hurdle at the $101 level, suggesting a bearish bias for the dollar. The RSI has broken into the oversold zone while the MACD continues to flow below the zero line, suggesting the dollar is trading with a strong bearish momentum. 

Resistance level: 102.60, 103.50

Support level: 100.90, 99.67

XAU/USD, H4

Gold prices saw an uptick yesterday as the US dollar, trading at its lowest level in five months after failing to defend the $101 level, continued to weaken. The precious metal gained nearly 0.5% as investors sought safe-haven assets amid escalating tensions in the Middle East.

Gold prices remain trading in their uptrend trajectory and are heading to their near-resistance level at $2088 level. The bullish momentum remains strong as the RSI flows closely to the overbought zone while the MACD is moving upward. 

Resistance level: 2088.00, 2117.10

Support level:  2069.35,  2052.10

GBP/USD，H4

The GBP/USD pair posted a gain of over 0.5% yesterday, breaking above its short-term downtrend resistance level and indicating a bullish bias for the pair. The surge comes in contrast to the speculation of a Fed rate cut, which has softened the strength of the US dollar. The UK government remains focused on addressing inflationary pressures, with its inflation rate still distant from their targeted 2% rate.

The GBP/USD broke above its resistance level, suggesting a bullish bias for the pair. The RSI is on the brink of breaking into the overbought zone, while the MACD has rebounded strongly from above the zero line, suggesting the bullish momentum remains strong with the pair. 

Resistance level: 1.2815, 1.2906

 Support level: 1.2728, 1.2631

EUR/USD，H4

The EUR/USD pair has demonstrated notable strength, counteracting the weakening U.S. dollar amidst fervent speculation surrounding potential Federal Reserve rate cuts. While inflationary pressures in the European region appear to alleviate, the European Central Bank (ECB) maintains a steadfastly hawkish stance, refraining from discussions on altering its existing monetary policy. This unwavering commitment to the current policy framework contributes to the resilience and strength exhibited by the euro in the currency markets.

The EUR/USD remains trading with its uptrend trajectory and gained more than 0.5% yesterday, suggesting a bullish bias for the pair. The MACD is picking up from above the zero line while the RSI has broken into the overbought zone, suggesting the pair is trading in a strong bullish momentum. 

Resistance level: 1.1140, 1.1225

Support level: 1.1041, 1.0954

USD/JPY，H4

The Japanese Yen remains robust in its performance against the U.S. dollar, primarily attributed to the diminishing strength of the U.S. currency. This trend persists alongside encouraging data from Japan's retail sector, where recent figures surpassed both market expectations and the previous reading, registering a notable 5.3% increase. This positive outcome underscores the favourable economic conditions within the country, further contributing to the sustained strength of the Japanese Yen.

USD/JPY edged lower yesterday and is on the brink of breaking below its support level at 141.60. The RSI is breaking into the oversold zone while the MACD flowing below the zero line suggests that the pair is trading with bearish momentum. 

Resistance level: 143.80, 145.30

Support level: 138.88, 137.70

NZD/USD, H4

The New Zealand Dollar has maintained a consistent upward trajectory within a steady uptrend channel since mid-December, a trend attributed to the diminishing strength of the U.S. dollar. The prevailing market speculation surrounding a potential Federal Reserve rate cut in the upcoming year is the primary catalyst for the gradual softening of the dollar. As market participants closely monitor developments, particular attention is directed towards forthcoming U.S. job data and housing statistics. The anticipation is for these key indicators to provide additional evidence supporting the prevalent speculation regarding an impending Fed rate cut.

The NZD/USD pair has been trading steadily in its uptrend channel and at its highest level since Mid-July. The RSI has broken into the overbought zone while the MACD is moving upward, suggesting the bullish momentum is strong. 

Resistance level: 0.6422, 0.6488

Support level: 0.6305, 0.6256

CL OIL, H4

Oil prices experienced a 2% decline, failing to sustain their position at the previous resistance level of $75. The dim outlook for demand, coupled with rising expectations for increased supply in the coming year, has contributed to the first annual decline in oil prices in three years.

Oil prices are finding support at $73.80 after a 2% plunge yesterday. The RSI remains flowing at above 50-level while the MACD hovering above the zero line suggests the bullish momentum remains intact with the oil prices. 

Resistance level: 77.25, 81.00

Support level: 73.80, 68.50