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Economic data signal potential hike rates in the next meeting

February 24, 2023

US stocks advanced higher on Thursday, regaining upside momentum, and rose in a jittery session after US indexes trimmed part of their losses ahead of the close. The impressive rebound witnessed in huge companies like Microsoft Corp. and Apple Inc has underpinned the Nasdaq 100 despite the hawkish FOMC Meeting Minutes and mixed United States figures.

On Thursday, the US Q4 GDP report showed that the annualized pace of growth in the country was downwardly revised to 2.7% from 2.9% in the last quarter of 2022. Meanwhile, the Personal Consumption Expenditure Prices rose by 3.7% QoQ, which indicated that inflationary pressures in the same period were higher than previously estimated.

The economic data further fueled speculation the US Federal Reserve will continue to hike rates in the upcoming meetings. Market players are now waiting for the US January Personal Consumption Expenditures Price Index, which is the Fed’s preferred price gauge, is expected to show acceleration.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Thursday as the S&P 500 came back up after erasing a rally of almost 1% with a series of twists and turns on Wall Street. The S&P 500 was up 0.5% daily and the Dow Jones Industrial Average meanwhile climbed higher with a 0.3% gain for the day. Seven out of eleven sectors in the S&P 500 stayed in positive territory as the Information Technology sector and the Energy sector are the best performing among all groups, rising 1.63% and 1.27%, respectively. The Nasdaq 100 meanwhile rose the most with a 0.9% gain on Thursday and the MSCI World index was up 0.3% for the day.

Main Pairs Movement

The US dollar edged higher on Thursday, preserving its upside strength but then retreated slightly back from a daily high above 104.70 level during the US trading session amid hawkish Fed bets. The Fed is expected to continue its policy tightening to achieve price stability as the upbeat labor market in the United States could underpin the Consumer Price Index (CPI) sooner. The USD Index is likely to remain volatile ahead of the release of the United States Core Personal Consumption Expenditure (PCE) Price Index data.

GBP/USD dropped lower on Thursday with a 0.27% loss after the cable extended its intraday slide and touched a daily low below the 1.2000 mark in the late US session ahead of US PCE Inflation. On the UK front, the BoE policymaker is worried about the extended persistence of inflation and sees the need for more tightening. Meanwhile, EUR/USD also witnessed some selling interest and touched a daily low around the 1.0580 mark. The pair was down almost 0.10% for the day.

Gold suffered from daily losses with a 0.17% loss for the day after witnessing further downside move and printed a fresh seven-week low below the $1820 level during the US trading session, as the US data fueled market concerns and weighed on the yellow metal. Meanwhile, WTI Oil rebounded sharply with a 1.95% gain for the day.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD extended its bearish tendency and was trading below the 1.0600 level as of writing, under pressure since the day started. The US Dollar continued to strengthen on the back of hawkish US Federal Reserve (Fed) prospects. The Federal Open Market Committee (FOMC) Meeting Minutes released on Wednesday is more hawkish than anticipated, which showed that a few members would have preferred a 50 bps hike and that participants believe the continued tight job market would contribute upward pressure to inflation. The news boosted demand for the US Dollar as stock markets turned south. In Eurozone, the final estimate of the January Harmonized Index of Consumer Price (HICP), was confirmed at 8.6% YoY. However, the core reading was upwardly revised to 5.3% from a preliminary estimate of 5.2%.

From the technical perspective, the four-hour scale RSI indicator hovered just above the oversold zone, suggesting the pair was pressured by heavy bearish traction. As for the Bollinger Bands, the pair was moving along with the lower, trying to find support in the lower band, but the size between the upper and lower bands get larger, showing the downside tendency has a high chance to persist shortly.

Resistance: 1.0788, 1.0929

Support: 1.0508, 1.0401

XAUUSD (4-Hour Chart)

Gold price maintains under bearish pressure on Thursday as risk aversion continued underpinning the US Dollar. Gold price keeps edging lower in the course of trading and hit the lowest $1,817.58 in the US session, while the US dollar advanced on the back of hawkish FOMC Meeting Minutes. On the other hand, inflationary pressures in the same period were higher than previously estimated. Personal Consumption Expenditure Prices rose by 3.7% QoQ, higher than the 3.2% expected, while the core reading came in at 4.3% higher than the 3.9% from the third quarter of 2022. The figures fueled speculation that the US Federal Reserve will hike rates further in the upcoming meetings.

For the technical aspect, RSI indicator 36 figures as of writing, maintaining in sell region as Gold price is still under a bearish trend. As for the Bollinger Bands, the price is moving down along with the lower band. This and the downward moving average signal some bearish potential. A continued downtrend could be expected. In conclusion, we think the market is in bearish mode as both indicators show bearish potential. We believe the downtrend would persist. For the downtrend scenario, the price is holding at $1,820. If the price close below the level, it may head to test the crucial support at the round-figure mark of $1,800.

Resistance: 1850, 1870, 1900

Support: 1820, 1800

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURGerman GDP (QoQ) (Q4)15:00-0.20%
USDCore PCE Price Index (MoM) (Jan)21:300.40%
USDNew Home Sales (Jan)23:00620K