Analytics

The US dollar stays on the defensive these days after a failure to challenge the 104.00 barrier earlier in the week. The greenback is pressured by the Fed outlook as the central bank nears the end of its tightening cycle and traders price in rate cuts by the end of the year despite a strong US jobs report last week.

The greenback failed to extend the recent rally as Powell was not hawkish this week. The Fed governor said interest rates might need to move higher than expected if the US economy remains strong, but reiterated he felt a process of disinflation is underway.

Of note, the buck struggles to attract demand even as risk-off tone dominates global financial markets ahead of the weekend. After initial gains, US stocks finished lower Thursday despite upbeat quarterly earnings. In Asia, equities saw a bearish session to register the second weekly loss in a row, while European stock markets opened in negative territory on Friday.

Focus shifts to economic data

The USD index is oscillating around the 103.00 figure today after a brief dip towards the 102.65 support zone on Thursday. Still, the US currency could register modest weekly gains if the prices manage to hold above 103.00. Now, traders await the University of Michigan's preliminary February Consumer Confidence Index from the US.

Next week, markets will focus on the US inflation report that will set the tone for USD pairs. A stronger CPI report for January could bring an end to the run of three softer reports at the end of last year amid a rise in used car prices at the start of this year. A stronger release would push the US dollar higher across the board.

Gold prices finished just slightly higher on Tuesday as the precious metal failed to attract more robust demand amid Fed-induced volatility. Stock markets advanced after the Federal Reserve Chair said inflation is starting to ease. At that, investors shrugged off the fact that Powell cautioned that interest rates could rise more than markets anticipate if the economic data doesn’t cooperate.

The XAUUSD pair stays below the $1,900 figure following last week’s plunge from multi-month highs registered around $1,960. Now, the bullion needs to hold above the $1,860 zone in order to avoid a deeper retreat in the near term. Depending on the dollar’s further dynamics, gold may retarget $1,900 or derail the mentioned support in the days to come.

The USD index briefly peaked around 104.00 before losing the upside momentum. The dollar struggles to resume the ascent on Wednesday, but holds above the 103.00 mark that represents the immediate support.

$1,900 in focus

As the dollar rally has faltered, gold prices stay positive for the third session in a row. On the other hand, positive risk sentiment caps the upside potential for the precious metal. Stock markets remain buoyed so far, but the optimism still looks fragile, suggesting risk aversion could reemerge at any point amid Fed-related uncertainty and persisting recess ion risks.

In the near term, the XAUUSD pair needs to overcome the $1,885 zone in order to retarget the $1,900 barrier, followed by a major threshold represented by the 20-DMA, today at $1,913. In a wider picture, the outlook for the precious metal remains relatively upbeat. Still, much depends on the Fed’s policy as a “higher for longer” scenario could lift the dollar, thus pressuring the bullion this year.

Oil prices have been trending lower this week, with futures approaching the $80 psychological level last seen three weeks ago. Brent crude refreshed local lows around $81.25 on Thursday, staying under pressure today as oil traders stay skeptical of oil’s ability to stage a solid bounce in the near term.

One of the reasons behind the current retreat in oil prices is a stronger dollar. The USD index reversed its post-FOMC losses to come off fresh multi-month lows as the euro and the pound were unimpressed by the ECB and the Bank of England meetings on Thursday.

Also, Brent crude is pressured lower by concerns over the economy as orders for industrial equipment and other machinery fell in the United States in December, highlighting more slowing in the economy.

On the other hand, the downside momentum in the oil market has been capped by a European Union ban on Russian refined products set to take effect on February 5. The step could dealing a blow to global supply, thus supporting oil prices.

Prices should stay above $80 a barrel

Elsewhere, an OPEC+ panel endorsed the producer group’s current output policy at a meeting earlier this week, leaving production cuts agreed last year unchanged. The OPEC+ Joint Ministerial Monitoring Committee will next meet on April 3.

As for other industry news, the U.S. Energy Information Administration reported a crude oil inventory build of 4.1 million barrels for the week to January 27 after a modest inventory increase of half a million barrels for the previous week. A bearish report added to a downbeat tone in the market this week.

Technically, Brent crude may derail the $81 figure in the near term if the dollar continues to recover. However, traders could refrain from challenging $80 as the looming European Union ban on Russian refined products could help limit the pressure next week.

The price of bitcoin plunged at the start of the week as traders opted to take some profit after the recent rally towards fresh August highs registered just below the $24,000 figure over the weekend. In the process, the largest cryptocurrency by market capitalization retreated to $22,500 before bouncing slightly on Tuesday.

Of note, the coin edged lower along with stocks, suggesting the correlation between cryptos and traditional financial markets remains in place. Wall Street markets edged lower on Monday after six sessions of gains as investors got nervous ahead of the Fed’s two-day policy meeting that kicks off today. The central bank is expected to hike rates by one-quarter of a percentage point. On Thursday, the Bank of England and European Central Bank are largely expected to hike by 50 bps each. As such, volatility is likely to persist during the busy week.

$23,000 in focus

Crypto traders are eyeing Wednesday’s rate decision from the Fed. The central bank meeting would be the next major catalyst both for stocks and digital assets. As BTC moves in sync with risk-sensitive assets, rising interest rates could dampen demand for the digital currency. However, the pressure could be limited if the Federal Reserve delivers a less hawkish tone than expected.

In the near term, BTCUSD needs to regain the $23,000 figure in order to stay afloat and continue to refresh multi-month highs. Otherwise, the pair may challenge the $22,500 mentioned support, followed by the $22,300 zone that helped cap the selling pressure last week. On the upside, the key target now arrives at $24,000. This week’s close above this barrier would pave the way towards the $24,600-$24,800 intermediate resistance.

The greenback suffered solid losses on Wednesday before steadying somehow today. The USD index found support around 101.50 to refresh multi-month lows earlier in the day. The dollar has bounced since then but still stayed close to the lower end of the extended trading range as the overall tone surrounding the US currency remained downbeat. The buck struggles to attract more robust demand amid positive risk sentiment across the financial markets.

As such, EURUSD briefly rallied towards 1.0929 for the first time since April before losing the upside momentum. The pair retreated back to the flat-line, still looking bullish both in the short- and longer-term charts. The European currency is likely to retain a bullish bias as the USD struggles to shrug off the pressure at this stage.

The pair derives support from a combination of drivers including a weaker dollar. Also, the shared currency capitalizes from the ECB stance as the central bank is widely expected to raise rates by 50 basis points at the upcoming meeting. Meanwhile, the Fed continues to strike a less hawkish tone, thus pressuring the buck. In other words, monetary policy divergence now plays into the euro’s hands.

1.1000 in focus

Furthermore, EURUSD remains bid due to positive risk sentiment that dominates global financial markets. Overnight, US equities clawed back from steep losses to close mixed as investors digested mixed quarterly earnings from major companies. Asian stock markets were mostly positive on Thursday to refresh seven-month highs.

Technically, the euro looks ready to extend the ascent in the near term, with the immediate resistance arriving at 1.0930, followed by the 1.1000 psychological level las seen in April. On the downside, the nearest support is expected at 1.0900 and the 1.0860 zone. A daily close above 1.0900 would mark further improvement in the near-term outlook for the European currency.

The selling pressure surrounding the US dollar persists, albeit the downside momentum has slowed somehow recently. The USD index sits below the 102.00 figure on Monday as the overall risk mood is holding up, building in part on the late gains from Wall Street at the end of last week.

Asian stocks were mostly higher today, although most markets were closed for the Lunar New Year holiday. European markets opened higher to start the session, suggesting risk demand could persist in the near term, making the safe-haven dollar struggle to recover.

The technical picture shows that the greenback on the brink of a further technical breakdown, especially after Fed's Waller endorsed a 25-bps rate hike for next week. Other Fed speakers including George and Harker also pointed toward the central bank being less hawkish with future rate hikes. The DXY now threatens the 101.70 zone, followed by May lows registered last week around 101.50.

DXY may target 101.00

As the slowing in rate hikes from the Federal Reserve is becoming apparent, the medium-term outlook for the buck remains bearish, with near-term downside risks could be exacerbated by relatively thin trading conditions. Should the mentioned multi-month lows give up, the dollar will target the 101.30 support zone. A failure to hold above this area would pave the way towards the 101.00 mark.

As for the EURUSD pair, the prices jumped to fresh mid-April highs around 1.0925 earlier in the day before retreating marginally. The shares currency is likely to extend gains in the near term, with the 1.1000 mark coming into the market focus as the buck keeps bleeding across the board. On the downside, the nearest support now arrives at 1.0900.

Gold prices keep advancing north and look set for fifth consecutive weekly gains. The precious metal extended gains to mid-April highs around $1,937 on Friday before retreating downwards marginally. It looks like buyers could take a pause after a rally seen in the previous session.

The XAUUSD pair regained the upside momentum after a negative start to the week as investors continue to bet on the safe haven amid uncertainty over the US Fed policy. The rise in gold prices is also attributed to a weakening dollar. The USD index is headed for a second consecutive weekly decline, oscillating marginally above 102.00 ahead of the weekend. As the greenback stays close to multi-month lows, downside risks continue to persist at this stage, adding to the bullish potential surrounding the yellow metal.

As the Federal Reserve is expected to slow down the pace of interest rate hikes, gold is likely to benefit from a less hawkish policy this year, while the dollar should stay pressured. Since gold is a non-yielding asset, lower rates tend to be beneficial for the precious metal as they reduce the opportunity cost of holding the asset. As such, the bullion is expected to rise towards record highs above $2,000 an ounce in the medium term.

Bulls dominate the market

Now, XAUUSD needs to hold above $1,900 in order to stay bullish and extend the ascent in the short term. Should the selling pressure hit the gold market in the days/weeks to come, the ascending 20-DMA at $1,863 will come back into the market focus for the first time since December. This moving average had helped cap losses on several occasions last month and could once again act as support zone.

However, the downside potential looks limited for the time being, with bullish risks persisting as long as the US dollar remains on the defensive. So, the path of least resistance is to the upside for now. The nearest barrier arrives in the $1,940-$1,950 zone, followed by the $1,980 major hurdle on the way towards the $2,000 psychological level.

Oil prices peaked around $85.60 a barrel at the start of the week before losing the upside momentum as traders opted to take some profit after a solid rally from local lows below $78. On Tuesday, however, the bullish bias reemerged, with the overall sentiment in the oil market staying upbeat.

Earlier, Brent crude was driven north by optimism over China's reopening and prospects of a fuel demand recovery in top oil importer. China abandoned what remained of its zero-COVID policy by reopening its borders on January 8. As the data showed, China's crude imports rose 4% year-on-year in December.

The recent ascent was capped by recession fears triggered by a bearish survey released at the Davos summit as two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year. As a reminder, the World Bank last week slashed its 2023 growth forecasts to levels close to recession for many countries, citing the impact of central bank rate hikes.

Also, a rise in the dollar off fresh seven-month lows dragged on oil prices. The USD index slipped to 101.77 before bouncing into positive territory on Monday. Today, the greenback struggles for direction, oscillating around the 102.50 zone. The overall tone surrounding the US currency has improved somehow as risk sentiment turned tentative following the release of China’s growth numbers. The country’s GDP expanded by 2.9% in the fourth quarter (the second-slowest pace since the 1970s), slowing from the 3.9% pace in the third quarter.

All eyes on OPEC and the IEA

Next, the market focus would shift towards monthly reports from the OPEC and the International Energy Agency. The events will be watched closely for indications on the outlook for global demand and supply.

On the upside, Brent needs to regain the $85 handle in order to resume the ascent towards this month’s highs around $87 a barrel. Should the futures struggle to regain the upside bias in the near term, the intermediate support in the $82.70 area could come into play.

The price of bitcoin keeps rallying these days, staying in the green for the fifth session in a row. On Thursday, the BTCUSD pair exceeded the $18,000 mark for the first time since mid-December to notch one-month highs around $18,300. The coin has retreated from fresh local peaks since then, but continued to hold onto solid intraday gains.

Cryptocurrencies rally along with Wall Street indexes ahead of the CPI report. Traditional stock markets rise as investors continue to bet on the upcoming inflation report that should show disinflation trends remain in place. The data is expected to show consumer prices cooled by 0.1% in December, down to 6.5% from 7.1% in November, thus signaling less hawkish steps from the Fed down the road.

Of note, the session brought the first four-day rally for the Nasdaq since September. The BTCUSD pair has been trending north since late-December when the price found support around $16,300. As such, the largest cryptocurrency by market capitalization seems to be exiting its consolidation phase that persisted since mid-November.

BTC could retarget $20,000

Should expectations in traditional financial markets continue to shift towards a less hawkish Fed in the coming weeks, the crypto space may rise further along with stocks. In a bullish scenario, the price of bitcoin could retarget the $20,000 psychological level for the first time in more than two months.

In the immediate term, however, bitcoin needs to hold above $18,000 on a daily and weekly closing basis in order to preserve the upside bias and extend the ascent. On the downside, the nearest support now arrives at $17,800, followed by the $17,400-17,300 zone and the $17,000 level last seen on Sunday.

The euro keeps trending higher, capitalizing on US dollar weakness these days. The greenback remains on the defensive as traders continue to bet on a softer stance by the Federal Reserve this year. As traders anticipate easing inflation, the need for more interest rate hikes wanes.

The dollar also feels downward pressure from lower bond yields and higher stocks ahead of this week's US consumer price data. US 10-year Treasury bond yields retreat to 3.58% after rising to 3.61% a day earlier. The headline United States CPI is expected to drop to 6.5% from 7.1% in November. The core CPI might slip to 5.7% from 6.0% reported earlier.

At the same time, investors look cautious amid the downbeat economic forecasts from the World Bank. The WB expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast. The institute also raised fears of global recession by citing the scale of recent slowdowns.

EUR lacks the momentum

EURUSD advanced to fresh seven-month highs this week, holding above 1.0700 as the buying pressure persists. As the upside momentum has slowed, the shared currency refrains from a breakout of the 1.0750 critical resistance at this stage, suggesting the pair needs an extra impetus to overcome this local barrier while the USD index itself is now showing a lack of trading activity.

In a wider picture, the euro is expected to advance further as the greenback is expected to continue its retreat in the weeks and months to come. EURUSD could retarget 1.1000 for the first time since April amid rising expectations that the interest-rate differential between the US and Europe could continue to narrow.