Analytics

In part, the bounce was due to a weaker dollar as the USD index turned slightly negative on Wednesday after peaking at one-week highs around 95.83. It looks like the greenback proceeded to a short-term downside correction after the recent recovery while the broader bullish trend remains intact. Furthermore, the index could resume the ascent ahead of the Fed meeting due next week as traders expect the US central bank to signal a March rate hike.

CPI lifts the odds for a BoE rate hike

Also, the cable was underpinned by the latest economic data out of the UK. In particular, the annualized inflation figure for December came in at 5.4%, exceeding expectations, while the core CPI rose to 4.2% from a prior reading of 4.0%. Furthermore, the CPIH rose by 4.8%. As the 12-month inflation rate was the highest since September 2008, the report has lifted the odds for a Bank of England rate hike at its meeting in February.

In the immediate term, the pound needs to hold above the 1.3600 figure in order to stay afloat and make more robust bullish attempts. Otherwise, the pair may slip back towards local lows and threaten the 1.3550 zone where the 20- and 100-DMAs converge. On the upside, the nearest resistance arrives at 1.3630, followed by 1.3670 while the key barrier arrives at 1.3730 where the 200-DMA lies. Considering a fairly modest reaction to the inflation report, it looks like GBPUSD could struggle to see more robust gains in the near term, with downside risks persisting despite the bullish bias on the intraday charts.

In Individual stocks, Netflix shares fell more than 20% after the bell, to the lowest levels since June 2020, after the company reported a slower subscriber growth and offered a weaker-than-expected forecast for early 2022.

Bitcoin is back at mid-2021 lows

BTCUSD had been on the defensive for the most part of the week, extending the retreat from all-time peaks seen around $69,000 in November. The sell-off accelerated ahead of the weekend after another failed attempt to overcome the descending 20-DMA.

In part, the bitcoin price struggled amid a stronger dollar that was mostly higher during the week due to persisting risk aversion in financial markets. The greenback was well supported by rising US Treasury yields amid the Fed’s increasingly hawkish tone.

The largest cryptocurrency by market capitalization derailed the $40,000 psychological figure and plunged to late-July lows around $34,000 to finish the week marginally above the $35,000 handle. As such, the prices bounced slightly but were still trading below the $39,000 region that now represents the immediate significant upside barrier.

The fact that the coin has broken below $40,000 for the first time in nearly two weeks suggests the digital currency could see deeper losses in the days to come before finding a bottom. Should the pressure persist, BTCUSD would target the $33,000 figure next. On the upside, a strong bounce above $40,000 would somehow improve the short-term technical picture.

At the same time, he confirmed that the Fed's tightening plans include higher interest rates to ensure high inflation did not become "entrenched." Against this backdrop, the Dow Jones Industrial Average rose 0.51%, the S&P 500 gained 0.92%, and the Nasdaq Composite added 1.41%.

Asian equities followed Wall Street higher, aided by the persisting bullish bias in the oil market. The Shanghai Composite index gained 0.84% and the Nikkei 225 in Tokyo rose 1.9%. The Hang Seng in Hong Kong rallied 2.79% while the Kospi in Seoul added 1.54%. Of note, regional stocks edged higher even as the World Bank has cut its forecast for global economic growth this year to 4.1% from 4.3%, citing supply chain disruptions.

USD bulls disappointed

As risk sentiment has improved, the safe-haven dollar slipped nearly across the board after Powell’s speech. The USD index failed to regain the 96.00 figure and slipped back to the 95.60 area that capped losses last week. So if the prices struggle to hold above this critical support, the index could slip towards late-November lows around 95.60.

Should the greenback fail to derive some support from the US CPI report later in the day, the prices could see even deeper losses in the short term. If the mentioned lows give up, the market focus would shift back towards the 95.00 mark which may cap the potential sell-off ahead of the weekend.

Elsewhere, gold prices jumped to the $1,823 area as dollar demand waned, pushing the commodity to one-week highs. Today, the precious metal seems to be losing the upside momentum but still holds above $1,810 during the European hours. Should the greenback regain the upside bias, the XAUUSD pair may retarget the $1,800 psychological level in the near term. On the upside, the key barrier arrives at $1,830.

The monthly pace of price growth, as well as the core CPI, came in higher than expected, making the market put the chances of the Fed raising short-term rates by at least 0.25% in March at around 75%.

Rate hike prospects cap gains in the metal

Following four days of gains, gold prices saw one-week around $1,828 on Thursday before turning negative as traders proceeded to profit-taking after a solid rally triggered by a weaker dollar. The greenback plunged across the board to notch two-month lows despite jot US inflation figures, with Treasury yields falling as well.

The precious metal peaked just shy of the $1,830 critical resistance to enter a bullish consolidation phase, oscillating in a narrow trading range, as market players continued to digest another surge in the US consumer prices.

Ahead of the weekend, the XAUUSD pair failed to hold above the $1,820 region but derived support from the $1,815 zone. Technically, the bullion could extend the ascent in the coming days or weeks after bouncing from the 100-DMA around $1,790.

In a wider picture, the prospects for an eventual Fed rate hike in March will hold back traders from placing more aggressive bullish bets around the yellow metal.

The ISM manufacturing PMI came in at 58.7, a decrease from 61.1 in the previous month. On the positive side, the employment index arrived at 54.2 versus 53.5 expected. At the close of trade, the S&P500 was down less than 0.1%, the Dow Jones gained 0.59%, and the Nasdaq declined 1.33%.

USD index clings to 96.00

Meanwhile, the USD index peaked just below the 96.50 area before retreating to the 96.25 zone. Today, the index turned slightly negative but still holds above the 96.00 figure ahead of the ADP employment report and the FOMC meeting minutes due later in the day. EURUSD bounced marginally on Wednesday, treading water around the 1.1300 figure during the European hours.

Should the jobs data exceed expectations and the FOMC meeting minutes show a more hawkish tone than expected, the greenback may stage a rally across the market ahead of Friday’s key employment report due on Friday.

In this scenario, the dollar index could challenge this week’s lows around 96.45. On the negative side, if the NFP report surprises to the downside, the prices will see a solid retreat ahead of the weekend.

As such, EURUSD may either slip back below the 1.1300 figure or regain the 1.1345-1.1360 region, but a decisive break above 1.1400 looks unlikely in the coming days even in case of a sell-off surrounding the greenback. In a wider picture, the path of least resistance for the common currency remains to the downside due to a more hawkish Federal Reserve.

Later in the week, however, major equity indexes failed to preserve the upside momentum and corrected lower from all-time tops amid profit-taking. As a result, the S&P 500 ended the week with a loss of nearly 2%, while the tech-heavy Nasdaq Composite plunged 4.5%, its worst week since February.

Dollar unsettled despite hawkish Fed

Following a rally at the start of the week, the dollar index has steadied above the 96.00 figure, struggling for direction, but also deriving some support from rising US Treasury yields. The greenback rallied after the FOMC meeting minutes suggested that the Fed could raise rates more than three times this year and the balance sheet normalization to start sooner after the first rate hike than last time.

Meanwhile, Friday’s key report showed that Nonfarm Payrolls rose by just 199K in December versus the median forecast for a 400K rise. As the growth rate came in twice slower than expected, the US currency erased post-FOMC gains to finish the week slightly off local lows seen around 95.60.

As such, EURUSD steadied following the initial sell-off to jump back above the 1.1300 figure ahead of the weekend. The pair finished unchanged around 1.1360. The common currency failed to extend gains from late-2021 and could need a weaker dollar to regain the 1.1400 mark last seen in mid-November. Also, the pair stays well below the descending 20-week SMA, currently at 1.1540, suggesting the path of least resistance for the euro could be to the downside in the coming days.