Analytics

The USD index failed to extend the ascent on Wednesday as traders were deterred by the 105.00 mark. The greenback finished lower but off intraday lows seen below 104.00. Today, the DXY tries to regain the upside momentum that still looks too modest to bet on more decisive gains in the near term.

The FOMC meeting Minutes showed on Wednesday that the Committee members agreed on the need to push the monetary policy further into the restrictive stance, thus underscoring how the central bank remains determined to keep rates high to crush inflation.

The minutes failed to inspire USD bulls, however, as buyers remained cautious amid a rally in stocks following a government report showing that job openings increased more than expected in November. Later in the day, the government will release its weekly unemployment report, while a closely watched monthly employment report for December is due on Friday.

USD outlook still hinges on Fed

The US currency looks set to finish the week on positive note after three bearish weeks in a row. The DXY keeps challenging the 104.00 mark that should be broken on a weekly closing basis for further improvement in the near-term technical picture at this stage.

On the downside, the immediate support now arrives around 104.00, followed by the 103.80 intermediate zone on the way towards June lows seen last week around 103.40. A failure to hold above 103.00 could trigger more intense selling pressure and bring the 100.00 mark into the market focus for the first time since April.

The overall tone surrounding the dollar will continue to depend on the rhetoric from the Federal Reserve officials in the coming weeks and months. As inflation recedes but remains elevated, the central bank is expected to continue tightening, albeit at a slower pace. As such, restrictive monetary policy should keep the buck afloat in case the US economy avoids recession this year.

Gold prices have been rallying at the start of 2023, refreshing June highs despite the dominating upside bias in stock markets. The XAUUSD pair exceeded the $1,850 intermediate barrier to register fresh multi-month highs around $1,865 on Wednesday. The bullion keeps trending north for the fourth session in a row after deriving support from the ascending 20-DMA.

The buying pressure surrounding the precious metal intensified as investors awaited minutes from the Federal Reserve's December policy meeting that could offer hints on the US central bank's tightening path. Market participants hope minutes might show policymakers are reducing planned rate hikes due to signs economic activity is slowing. If so, this would be positive for gold prices. As a reminder, the Federal Reserve had raised rates by 50 basis points in December after four straight hikes of 75 bps each.

Focus on Fed

Adding to gold’s upside momentum, the data showed that China's factory activity shrank at a sharper pace last month as rising COVID-19 cases disrupted production and weighed on demand. Worries about the outlook for the economy helped push the safe-haven metal higher.

In the near term, XAUUSD needs to confirm the recent break above $1,850 in order to stay elevated and extend the ascent in the days to come. Otherwise, the yellow metal could witness some profit-taking. Should the Fed express a more hawkish tone than expected, gold will come under selling pressure while the dollar may rally across the board.

Of note, the US dollar rallied on Tuesday to settle around 104.50 after a failure to challenge the 105.00 handle. The upside momentum has wanes since then, with the USD index trading lower today as market participants turned more cautious ahead of the Fed’s meeting minutes release. The greenback fell back below the 104.00 figure, adding to upbeat tone surrounding gold.

Bitcoin has been stuck in a relatively tight trading range for 1.5 months already. The BTCUSD pair is holding above $16,000 this month, struggling for direction since its rejection from December highs around $18,400. The largest cryptocurrency by market capitalization is little changed on Thursday after a two-day slide from local peaks seen just below the $17,000 handle earlier in the week.

In a wider picture, bitcoin lost over 2/3 of its value this year, dropping below $16,000 from an all-time high of $69,000 registered last November. BTC is currently down around 60% year-to-date, while it has lost 76% versus the mentioned all-time high.

The digital space faced a number of bearish drivers that pushed traditional financial markets lower as well. In particular, stocks and cryptocurrencies were hit by rising inflation, geopolitical tensions globally, rising interest rates, etc. Digital assets were also pressured by the recent nasty collapse of FTX exchange that ruined investor confidence.

Breakout looks unlikely in the near term

Forecasts for 2023 differ. Some experts expect the coin to reach new record highs in the $100,000 area, while others think the price will plunge below $10,000. Obviously, the situation both in the cryptocurrency space and in global financial markets remains highly uncertain, especially as recession risks keep rising.

In the short term, BTC needs to validate the new uptrend by breaking the $18,400 resistance. Once above, further dynamics will depend on the coin’s ability to challenge the $20,000 mark last seen in early-November. However, bitcoin is unlikely to make a breakout any time soon as the overall tone among investors remains cautious, with traditional stock markets staying pressured as well.

Oil prices bottomed out earlier this month and have been trending mostly higher since then. Over the last couple of weeks, Brent crude rebounded from one-year lows seen below $76 a barrel towards $85. The short-term technical outlook has improved since last week’s bounce above $80, but downside risks continue to persist at this stage.

The recent ascent in oil prices was due to fresh news out of China where authorities announced major easing of its Covid travel quarantine rules. In particular, as of January 8 inbound travelers to China would no longer be subject to mandatory travel quarantine. Against this backdrop, oil traders have reflected some optimism in recent days.

Worries about a possible oil production cut by Russia are also providing price support. The country might cut output up to 7% in January in response to price caps introduced by the EU.

Buying pressure eases in thin trading

Adding to a more upbeat tone in the market, Winter Storm Elliott knocked offline around 1.5 million barrels per day of refinery capacity in the US Gulf Coast. The huge storm brought freezing temperatures, snow, and icy conditions, thus triggering a solid decline in refining capacity. However, the US weather is expected to improve these days, suggesting the rally in oil prices could wane.

By the way, the buying pressure surrounding oil futures has eased already. After peaking above $86 on Tuesday, Brent crude retreated to settle below $85, with trading volumes contracting further as many traders are out of the game already ahead of the New Year holiday.

In a wider picture, Brent crude remains supported by a weaker dollar. The US currency keeps bleeding across the board as investors shift their monetary policy expectations, betting on a rate cut at some point in 2023. The greenback is holding just slightly above June lows seen below 103.50 earlier this month, struggling to attract demand amid the dominant upbeat tone in the financial markets ahead of the New Year holiday.

The dollar is back on the defensive after modest recovery attempts, targeting June lows registered last week around 103.50. During the recent bounce, the USD index failed to hold above the 104.00 handle, losing further ground amid positive risk sentiment ahead of the holidays next week.

After making some gains on Wednesday, the greenback keeps bleeding today, with risk sentiment staying upbeat across the financial markets. Treasury yields have steadied after a rise earlier in the week in the wake of the Bank of Japan’s announcement on yield curve control.

The safe-haven buck struggles as Wall Street stocks rallied overnight, buoyed by unexpectedly strong economic data out of the United States. The Conference Board’s consumer confidence index rose to 108.3 in December from 101.4 previously. While the November’s figure was the lowest since July, this month the index jumped to the highest level since April. The report helped ease worries about a possible recession and this pressured the USD through risk-on sentiment among investors.

Technicals point to more downside risk

The technical picture suggests the US currency could stay under pressure in the near term, with bearish signals persisting in the charts. The index broke below a one-week-old ascending support line that turned into resistance around 103.90, paving the way towards the six-month low registered last week. A sustained weakness below 103.45 will shift traders’ focus to the 103.00 round figure, followed by the May 2022 low near 101.30.

On the upside, the initial target now arrives at 104.00, followed by the 104.20 zone that capped yesterday’s recovery. Should the dollar overcome these immediate barriers, market participants may target the 105.00 figure. However, the path of least resistance remains to the downside at this stage, especially as stocks turned positive ahead of Christmas holidays.

While currency and stock markets look fairly volatile these days, gold prices hold relatively steady, holding in a modest trading range after last week’s brief rally towards late-June highs around $1,825. The precious metal has retreated back below the $1,800 psychological level since then, oscillating around a slightly descending 200-DMA these days. The key short-term support is still represented by the 20-DMA, today at $1,779.

It looks like investors are in a so-called wait-and-see mode, refraining from betting on further gains in the gold market. The US dollar remains weak while risk aversion dominates global financial markets, thus supporting the bullion and preventing prices from a deeper retreat after the recent profit-taking.

Recent highs could come back in focus

On the other hand, the upside potential is capped by the Fed’s hawkish message as the central bank said last week it will deliver more interest rate hikes next year to curb inflation. By the way, other major central banks have also highlighted the same. Besides, a potential recession in 2023 makes investors pivot into Treasury yields, also denting gold’s bullish attempts.

Now, the yellow metal needs to find fresh buyers after having defended the 200-DMA, today at $1,785. As the bullion eyes $1,800 again, the mentioned multi-month highs could come back into the market focus. A sustained break above the psychological level would pave the way towards the $1,810 intermediate resistance.

On the downside, a break below the mentioned 200-DMA on a daily closing basis will reopen the door towards the 20-DMA. A failure to hold above this line of defense could fuel a fresh sell-off to the $1,750 critical level. In a wider picture, gold is yet to confirm its recovery that continues since last month.

Following three days of solid gains, oil prices fell on Thursday to lose nearly 2% on the day, with bearish slope persisting ahead of the weekend. Earlier in the week, Brent crude bounced from one-year lows seen just above $75 a barrel. The subsequent recovery was capped by the $83.20 zone to push the prices back below $81.

Brent failed to extend the bounce as the dollar rallied across the market on Thursday amid the overall risk-off tone in the global markets as major central banks (the Fed, the ECB and the Bank of England) delivered another strong round of tightening during the December meetings, dashing hopes the rate-hike cycle would end anytime soon.

Hawkish guidance from central banks sparked renewed concerns about economic growth and the fuel demand outlook, pushing commodity prices lower. Adding to economic worries, fresh data showed that China’s factory output slowed while retail sales declined in November amid widespread virus curbs.

Bearish risks persist

Elsewhere, the Energy Information Administration report showed that US crude oil inventories rose unexpectedly by more than 10 million barrels last week, against expectations for a draw of 3.6 million barrels. Gasoline inventories rose by 4.5 million barrels while distillate stockpiles added nearly 1.4 million barrels, less than expected.

Oil prices are likely to stay volatile in the near term, with bullish potential limited amid persisting economic worries, demand concerns and recession risks. As Brent crude has settled marginally above one-year lows, the $80 mark remains in the market focus at this stage. Another failure to hold above this level would bring more pain, with the $75 figure acting as the key support zone for the time being. On the upside, the nearest resistance now arrives at $83, followed by the $85.50 zone.

The price of bitcoin rallied amid the report that showed the US CPI came in at 7.1% versus 7.3% expected. Following some consolidation in a tight trading range, the BTCUSD pair jumped to the $18,000 figure for the first time in more than a month. The coin was buoyed along with other risky assets amid signs of slower inflation in the United States, suggesting the Fed might give up hiking rates earlier than expected.

The US dollar was pressured strongly by the release, adding to a more bullish tone surrounding bitcoin. Now that the largest digital currency by market capitalization came off the $17,000 consolidation zone, the ascent may continue in the near term if the $18,000 barrier gives up. Next, traders will shift focus towards the $20,000 psychological level last seen during a massive sell-off that took place on November 8.

Cryptos continue to take cues from traditional financial assets and could witness a so-called Santa Claus rally if risk demand persists in the coming weeks. However, investors may refrain from decisive and large bets due to persisting uncertainty in the crypto space.

Indusrty developments stay negative

On the negative side, Binance, the world's biggest crypto exchange, temporarily paused withdrawals of the major stablecoin USDC on Tuesday after facing a huge run of client withdrawals. Investors withdrew as much as $3 billion from the exchange in the last 24 hours amid a report about an ongoing investigation by the US Justice Department into the company. In particular, US prosecutors were considering wrapping up a money laundering investigation into Binance.

Elsewhere, Sam Bankman-Fried, the founder of FTX, was arrested in the Bahamas this week after US prosecutors filed criminal charges against him. As a reminder, Bankman-Fried’s crypto exchange declared bankruptcy about a month ago.

In the immediate term, BTC needs to cling to the $18,000 mark in order to stay afloat. Otherwise, the coin could get back into a $16,900-$17,300 range. The key support arrives at $16,700, followed by the $16,000 level.

The Japanese yen struggles for direction these days as the dollar has steadied somewhat after a rout. The USDJPY pair is now stuck between the 20- and 200-DMAs, holding around 137.00 on Thursday. Yesterday, the greenback failed to challenge the 138.00 mark to lose some ground on a daily basis. However, the downside potential looks limited as well at the moment. Suggesting the pair could see further consolidation in the near term before deciding on further direction.

The overall tone in the global financial markets looks choppy amid a lack of significant drivers and economic data. As such, investors stay on the sidelines ahead of next week’s major events including key central bank meetings. After negative close on Wednesday, US stock index futures were slightly bullish in early pre-market trade today, suggesting investor sentiment remains mixed and indecisive due to many uncertainties from the outlook for the global economy to Fed’s policy.

USD faces downside risks from Fed

USDJPY has been on the defensive since October when the US dollar came under selling pressure across the board on signs of less aggressive hikes by the Federal Reserve down the road as inflation started to abate. At the start of the week, the greenback dipped to June lows around the 104.00 figure before bouncing marginally. The index has been relatively steady since then, but downside risks continue to persist.

The pair now needs to regain the mentioned 20-DMA, today at 138.57, in order to see a more sustained recovery from four-month lows registered around 133.60 earlier in this month. A daily/weekly close above this moving average would signal bullish extension in the near term, towards the 140.00 psychological level that capped recovery in late-November. However, the dollar could attract renewed downside pressure on rallies if the Fed continues to sound more dovish when speaking on the outlook for its monetary policy.

Gold prices briefly rallied to five-month highs around $1,810 at the start of the week before losing the upside momentum as investors opted to take some profit after the latest ascent. In the process, the XAUUSD pair derailed the $1800 psychological level, but failed to confirm the breakout eventually. Since then, the bullion has retreated towards $1,770 zone while also holding above the ascending 20-DMA that has been acting as support for over a month already.

The key reason behind the recent jump in gold prices was a weaker dollar along with decline in US treasury yields and partial relaxations in Covid-19 restrictions by China. The greenback fell despite stronger-than-expected US jobs data indicated more potential interest rate hikes by the Federal Reserve.

However, the US currency managed to attract some demand around the 104.00 figure last seen in June. The USD index thus bounced this week, holding firmly above 105.00 on Wednesday. The overall tone surrounding the dollar remains bearish and cautious, but the short-term technical picture has improved over the last days, pressuring the yellow metal.

$1,800 in focus

XAUUSD now needs to hold above the mentioned moving average in order to stay afloat and resume the ascent after a pause. The immediate upside target arrives at $1,780, followed by the 200-DMA, today at $1,793. Should the prices regain the $1,800 level on a more sustained basis, the July high of $1,814 will come into the market focus.

Gold prices retain a slightly positive bias on Wednesday as investors prefer to flock away from risky assets. The S&P 500 had dropped for a fourth straight session overnight while Asian equities traded mostly lower today as investors curbed their enthusiasm about China's reopening. However, the price of gold stays range-bound since Tuesday as market players continue to look to the US Fed for further hints regarding the rate hikes.