FOMC minutes showed Fed would keep raising rates

January 5, 2023

The FOMC minutes reaffirmed multiple things that Chairman Jerome Powell attempted to communicate to market participants during his previous speech in December of 2022. The minutes reiterated the central bank’s determination to bring the inflation level down to the targeted 2%; furthermore, citing previous experiences with pre-mature rate cuts, the minutes dismissed any notions of a rate cut in 2023, even though the Fed has slowed its pace in December. Most importantly, the minutes indicated that the Fed would not cease hiking rates until the central bank sees ample evidence of inflation on a steady and convincing downward trajectory towards 2%.

U.S. equity markets experienced a turbulent trading session as major economic data releases peppered yesterday’s American trading session. All three major equity indices closed higher by the bell. The Dow Jones Industrial Average gained 0.4% to close at 33269.77. The S&P 500 climbed 0.75% to close at 3852.97. The tech-heavy Nasdaq Composite climbed 0.69% to close at 10458.76.

The JOLTs job openings for November came in at 10.458M positions, despite being lower than last month’s print, this figure exceeded market expectations of 10M. The BLS report continues to show that the labour market remains tight, while the labour participation rate has continued to decrease. The job data release foreshadowed the hawkish FOMC minutes, which were released during the latter part of the American trading session.

Main Pairs Movement

The Dollar Index went through a slight fluctuation trading day as the market news was released with US JOLTs JOB Openings (Nov.) & FOMC Meeting Minutes. The DXY sets back around 0.4% after the previous day’s hiking by over 1.10%. The price bounces off lows and regians 104.0 ahead of FOMC’s meeting minutes.  The US Dollar was little changed with the news, although US short-term interest-rate futures dropped.

EURUSD struggled to retain 1.0600 after the FOMC meeting minutes release. EUR/USD has lost its bullish momentum and pierced the 1.0600 thresholds following hawkish FOMC Meeting Minutes and tepid US data weighing on the market’s optimism. Bulls, however, are not yet done.

Cable gains 0.64% throughout Tuesday’s trading. A little changed every week. The negative real GDP of the UK recession undermind demand for the Pound.

Gold continues its bull momentum, raised 0.8% throughout Tuesday’s trading, with yields dropping post-FOMC minutes.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced higher on Wednesday, regaining some upside momentum and displayed back-and-forth moves around the 1.0600 mark amid an upbeat market sentiment ahead of FOMC minutes. The pair is now trading at 1.0611, posting a 0.61% gain daily. EUR/USD stays in the positive territory amid weaker US dollars across the board, as the sharp decline witnessed in government bond yields undermined the greenback and helped the EUR/USD pair to find strength. China’s planning to support the property market and the relaxation of its Covid zero-tolerance policy both provided support to the market mood. On the economic data front, the US ISM Manufacturing PMI declined modestly in December to 48.4, which came in below the market expectation of 48.5. The main spotlight would be the release of the FOMC December meeting minutes. In the Eurozone, the Eurozone Services PMI was confirmed at 49.8, indicating that price pressures remained elevated but retreated further from their recent peaks. The encouraging news also provided mild support to the EUR/USD pair.

For the technical aspect, RSI indicator 46 figures as of writing, suggesting the lack of directions for the pair as the RSI remains flat around the mid-line. As for the Bollinger Bands, the price failed to preserve its upside traction and retreated lower, therefore a downside movement can be expected. In conclusion, we think the market will be slightly bearish as the pair might head to test the 1.0580 support line. Technical indicators also remain within negative levels after correcting oversold conditions.

Resistance:  1.0661, 1.0710

Support: 1.0580, 1.0546, 1.0467

GBPUSD (4-Hour Chart)

GBP/USD climb back to 1.2088 after the decline on Tuesday, GBP/USD has regained its traction which erased the losses, however, the ISM will release the December Manufacturing PMI report. The headline PMI is forecast to decline to 48.5 from 49 in December. Market participants will also pay close attention to the Prices Paid component of the survey, which will offer fresh insight into input inflation in the manufacturing sector, the US Dollar could continue to weaken against its major rivals. On the other hand, an unexpected rebound above 50 in the headline PMI and an increase in the inflation component should have the opposite effect on the currency’s valuation and weigh on GBP/USD.

For the technical aspect, the RSI indicator is 55 figures as of writing, though it’s a mediocre indicator, however, the climbing RSI and Bollinger Bands show a bounce back, which suggests the bullish market and points to a renewed buyer’s interest. In the US, the lower-than-expected Manufacturing PMI could temporarily boost US Dollar, and investors are focusing on the release of the FOMC Meeting Minutes. In the UK, the falling appetite for corporate debt is raising red flags for economic prospects, and the expensive credit also resists the growth of the UK economy.

Resistance: 1.2095, 1.2215, 1.2337

Support: 1.1936, 1.1765

XAUUSD (4-Hour Chart)

Gold prices hit seven-month highs above $1,860 in the mid-European session as the US Treasury yields decline and the US dollar weakens on the risk-on mood. On the other hand, an upbeat market mood spurred by China’s news support gold prices. Chinese authorities planning to deliver additional support to property developers aimed to relax liquidity stress in some developers. Market participants now focus on the release of the Federal Open Market Committee (FOMC) December meeting minutes. The FOMC minutes will provide an explanation of December’s monetary policy decision and cues of future monetary policy action, which will directly influence the financial market.

For the technical aspect, RSI indicator 79 figures as of writing, suggesting strong momentum in the near term. On the other hand, the pair could stage some downside correction as the RSI is in the overbought zone. For the Bollinger Bands, the price keeps hovering around the upper bound signalling the upside traction maintained in the near term. In conclusion, we think the market is still in bullish mode as long as the price keeps rallying above the upward trend line. However, the gold price can stage a correction as technical analysis show that the gold price is at a short-term high. On the downside, if a price drops below the trend line, it may change its current uptrend and head to test the next support at $1,775.

Resistance: 1865

Support: 1775, 1735, 1700

Economic Data