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Fed officials eased concerns about aggressive policy moves

January 23, 2023

US stock erased some of the week’s losses on Friday, as a tech rally buoyed risk sentiment and comments by Federal Reserve officials dialled back fears of overly aggressive policy moves. The Fed Governor Christopher Waller said the policy looks pretty close to sufficiently restrictive, which led the equity market to a session high.

Moreover, Philadelphia Fed President Patrick Harker repeated his view for more incremental steps in a rate hike, while Kansas City Fed Chief Esther George said the economy could avoid a sharp downturn. Earnings have also been in focus. Of the 55 S&P500 companies that have reported results so far, two-thirds have beaten analysts’ estimates, compared with the 80% positive surprise seen over the past several quarters.

The benchmark, the S&P500 rose for the first time in four days, and the tech-heavy Nasdaq 100 pushed it into the green for the period. Google parent Alphabet Inc. gained after revealing a plan to cut 12,000 jobs, and Netflix Inc. surged after reporting stronger-than-expected subscriber numbers. All eleven sectors of the S&P500 stayed in the positive territory, and the communication service performed the best among all groups. The Dow Jones Industrial Average rose 0.9% for the day, and the MSCI world index rallied by 1.4% on Friday.

Main Pairs Movement

The US dollar extended its negative traction on Friday, as Fed policy makers’ dovish comments. The DXY index managed to rebound above 102.3 level during the European trading period but then dropped below 102.0 level after Fed Governor Christopher Waller said the policy looks pretty close to sufficiently restrictive.

The GBPUSD has little changed for the day, as a combination of depressed CPI data and the US Dollar’s lack of appeal. The pair dropped to the 1.2340 level in the first half of Friday and then managed to rebound above the 1.2390 level at the end of the day. Meanwhile, the EURUSD slid to around 1.0800 in the first half of the day, and end the day with a 0.21% gain on Friday.

The gold slid by 0.32% daily, as the bulls take a breather after a five-week uptrend, especially amid a lack of traders from China and the Federal Reserve’s silence period. The XAUUSD prints mild losses around the $1925 mark during the UK trading hour, and closed the week at $1926 with volatility.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged higher on Friday, retreating from a daily high above the 1.0850 mark but then rebounded slightly during the US trading session amid a positive market mood. The pair is now trading at 1.0835, posting a 0.04% gain daily. EUR/USD stays in the positive territory amid renewed US Dollar weakness, as the greenback retreated from a daily top around 102.50 level and provided some support to the EUR/USD pair. However, the hawkish Federal Reserve (Fed) officials might challenge the upside momentum of late. On the economic data front, the Producer Prices in Germany contracted 0.4% MoM in December and rose 21.6% over the last twelve months. In the Eurozone, European Central Bank (ECB) President Christine Lagarde spoke in a panel discussion, saying that ECB will stay the course with rate hikes and doesn’t target an exchange rate.

For the technical aspect, RSI indicator 52 figures as of writing, suggesting that the pair could witness some upside movements as the RSI is rising higher above the mid-line. As for the Bollinger Bands, the price regained upside traction and rebounded from the moving average, therefore some upside momentum can be expected. In conclusion, we think the market will be bullish as the pair might head to test the 1.0870 resistance level. On the downside, the intraday sellers should seek entry below the 1.0780 support level.

Resistance:  1.0870, 1.0921

Support: 1.0780, 1.0722, 1.0624

GBPUSD (4-Hour Chart)

The GBP/USD pair declined lower on Friday, refreshing its daily low below the 1.2340 mark but then recovered slightly after the release of disappointing UK Retail Sales data. At the time of writing, the cable stays in negative territory with a 0.08% loss for the day. The UK Retail Sales fall 1.0% MoM in December, while Retail Sales and Industrial Production reports both showed larger-than-expected declines for December, which is a big miss compared to the market’s expectations of a 0.5% increase. Therefore, the dismal United Kingdom macroeconomic data undermines demand for the GBP/USD pair despite the US Dollar’s lack of appeal. For the British pound, Bank of England (BoE) Governor Andrew Bailey noted on Thursday that they think there will be a recession while also stating that the recession will be shallow by historic standards.

For the technical aspect, RSI indicator 62 figures as of writing, suggesting that the upside traction could remain in the near-term technical outlook as the RSI is moving northward above the mid-line. As for the Bollinger Bands, the price regained upside traction and climbed towards the upper band, therefore a continuation of the upside traction can be expected. In conclusion, we think the market will be bullish as the pair is testing the 1.2395 resistance level. On the upside, a break above the abovementioned key resistance could open the door for additional gains and favour the bulls.

Resistance: 1.2395, 1.2426, 1.2489

Support: 1.2334, 1.2271, 1.2168

XAUUSD (4-Hour Chart)

After the US Dollar recovered some ground amid elevated US Treasury bond yields on Friday, the pair XAU/USD witnessed some selling and retreated from multi-month highs around the $1,936 area during the US trading session. XAU/USD is trading at 1923.77 at the time of writing, losing 0.43% daily. The US Dollar Index (DXY) consolidates the previous day’s losses, as Fed policymakers favour higher rates during their last public appearances before the 15-day silence period ahead of the February FOMC meeting. Fed speakers continued their hawkish rhetoric and said that rates need to be “slightly above” 5%. As for now, Investors are also resorting to repositioning heading into the Fed’s blackout period and China’s Lunar New Year holidays, which start next week.

For the technical aspect, RSI indicator 59 figures as of writing, suggesting the lack of short-term direction for the pair as the RSI remains flat near 60. As for the Bollinger Bands, the price witnessed some selling and retreated from the upper band, therefore some downside movements can be expected. In conclusion, we think the market will be slightly bearish as long as the $1,932 resistance line holds. On the upside, if buyers extend their control above the abovementioned key resistance, an upside move toward the $1,952 level cannot be ruled out.

Resistance: 1932, 1952, 1977

Support: 1898, 1873, 1832

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