Markets await the Bank of Japan Monetary Policy Statement

January 18, 2023

U.S. equities were mixed over the course of yesterday’s trading. The Dow Jones Industrial Average lost 1.14% to close at 33910.85. The S&P 500 dropped 0.2% to close at 3990.97. The tech-heavy Nasdaq Composite gained 0.14% to close at 11095.11.

Equities were mixed heading into Thursday as market participants awaits monetary policy statement releases from the Bank of Japan, which shocked markets when it loosened its yield curve control during December of last year.

The benchmark U.S. 10-year treasury yield posted modest gains over the course of yesterday’s trading, and yields are currently sitting at 3.546%. The short-term 2-year treasury yield climbed 8 basis points and currently sits at 4.2%.

Goldman Sachs Group Inc. shares fell more than 6% after the financial services provider reported a drop in investment banking fees in the fourth quarter. Morgan Stanley, which also reported on Tuesday, delivered better earnings due to revenues from its assets and wealth management division. Morgan Stanley shares closed 5.91% higher over the course of Tuesday’s trading.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, traded mostly sideways over the course of Tuesday’s trading. The Greenback steadied after falling to its lowest point in more than 6 months. Recent inflation gauges have all signalled lowering price pressures, thus market participants have been rotating out of the Dollar and into equities.

EURUSD dropped 0.31% over the course of yesterday’s trading. The Euro has reached its short-term resistance level at around the 1.09 price region and is regressing back towards the 1.07 price region.

GBPUSD gained 0.78% over the course of yesterday’s trading. U.K. job reports indicated a strong labour market and rising wages, both making a case for more interest rate hikes by the BoE.

XAUUSD lost 0.38% over the course of yesterday’s trading. The Dollar denominated Gold weakened as the Dollar steadied around the 102 regions. The safe haven asset has enjoyed a smooth run to above the $1900 per ounce price level, but it remains to be seen whether the yellow metal can maintain its strong upward momentum.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Tuesday, losing its upside strength and dropping sharply towards the 1.0800 mark amid the souring market mood. The pair is now trading at 1.0806, posting a 0.15% loss on a daily basis. EUR/USD stays in the negative territory amid the recovery witnessed in the US Dollar, as the goodish intraday pickup in the US Treasury bond yields and a generally weaker tone around the equity markets keep providing support to the safe-haven buck. On the economic data front, investors did not react to mixed German data as the December Harmonized Index of Consumer Prices (HICP)  came at 8.6% YoY. The US Producer Price Index and monthly Retail Sales figures will be looked upon to determine the near-term trajectory for the EUR/USD pair. In the Eurozone, the comments from European Central Bank (ECB) chief economist Philip Lane have exerted bearish pressure to the Euro as he said that the central bank tightening will need to halt to get interest rates back to their target levels.

For the technical aspect, the RSI indicator is 50 figures as of writing, suggesting that the pair could witness some downside movements as the RSI is falling sharply lower. As for the Bollinger Bands, the price failed to preserve the upside traction and dropped towards the lower band, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0794 support level. Technical indicators also suggest that near-term selling is picking pace.

Resistance:  1.0868, 1.0921

Support: 1.0794, 1.0722, 1.0624

GBPUSD (4-Hour Chart)

GBP/USD advances higher on Tuesday following the UK jobs report. The UK Office for National Statistics (ONS) reported that Pay excluding bonuses rose by an annual 6.4% in the September-to-November period. In addition, the number of people claiming unemployment-related benefits fell to 19.7K in December from 30.5K previous and the jobless rate held steady at 3.7%, close to its lowest level in almost 50 years. Stronger wage growth and firmer employment might force the BoE to raise interest rates further and therefore lift GBP/USD. At the time of writing, the GBP/USD is trading at 1.2262. The next key event risk will be the UK consumer inflation figure on Wednesday. For more price action, eye on tier 1 economic figures.

For the technical aspect, RSI indicator 62 figures as of writing,  suggesting that the uptrend should persist as the RSI indicator is moving higher above the mid-line. As for the Bolling  Bands, the price advanced higher from the upward average, signalling the upside traction in neat-term. In conclusion, we think GBP/USD is in a bullish mode based on the technical analysis. For the uptrend scenario, the pair is now testing the resistance at 1.2271. The price needs a decisive breakthrough to trigger the follow-through buy interest. For the downtrend scenario, if the price drop below the support at 1.2168, it may change the current trend and head to test the next support at 1.2106.

Resistance: 1.2271, 1.2334, 1.2426

Support: 1.2168, 1.2106, 1.2013

XAUUSD (4-Hour Chart)

Gold price edges lower for the second consecutive day this week, moving further away from its highest level since last April. Gold price witnessed some selling pressure despite better-than-expected China’s Gross Domestic Product (GDP), Retail Sales and Industrial Production data in the reported period on Tuesday. At the time of writing, the gold price is trading at $1,906.43, slightly above the $1,900 round figure mark.

For the technical aspect, RSI indicator 54 figures as of writing, sliding all the way from the overbought region, suggesting that the uptrend momentum weakened and the price is staging a downside correction. For the Bollinger Bands, the price retreated from the upper band and is now holding around the upward average. Since the moving average keeps slightly upward, the pair maintains its bullish potential. In conclusion, we think the market is in a modest bullish mode as technical analysis shows bullish potential. That said, the price is lack enough strength to stage a continued advance currently. For the uptrend scenario, the gold price needs a breakthrough above the current resistance at $1,924 to meet the bullish pattern of higher highs. For the downtrend scenario, the price is trying to defend the $1,900 area. If the price drop below $1,900, it may trigger fresh selling traction and head to test the next support at $1,893.

Resistance: 1924, 1952, 1962

Support: 1893, 1873, 1832

Economic Data