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Daily market analysis

Fed members agreed to more hikes to achieve the inflation target

February 23, 2023

US stocks declined lower on Wednesday, witnessing some selling momentum, and failed to sustain their rebound after the Federal Reserve signaled that interest rates will continue moving higher amid ongoing inflation concerns. As per the latest Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes, all participants agreed more rate hikes are needed to achieve the inflation target as some believed there was an elevated risk of a recession in 2023.

On top of that, a few participants also favored a 50 basis point (bps) rate hike, which suggested that the Fed will be in no rush to cut rates and Swap markets now see June interest-rate hike as a near certainty. The hawkish Federal Reserve Minutes have underpinned the safe-haven greenback and weighed on the equity markets, which also suffered from geopolitical tensions throughout the day.

On the Eurozone front, European Central Bank (ECB) President Christine Lagarde said that inflation has begun to slow down but reiterated that they intend to raise the key rates by 50 basis points (bps) at the upcoming policy meeting.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Wednesday as the S&P 500 witnessed its fourth straight decline and the longest losing streak since December after a series of twists and turns. The S&P 500 was down 0.2% daily and the Dow Jones Industrial Average meanwhile retreated lower with a 0.3% loss for the day. Nine out of eleven sectors in the S&P 500 stayed in negative territory as the Real Estate sector and the Energy sector are the worst performing among all groups, losing 1.02% and 0.77%, respectively. The Nasdaq 100 meanwhile was little changed with a 0.4% gain on Wednesday and the MSCI World index was down 0.5% for the day.

Main Pairs Movement

The US dollar edged higher on Wednesday, extending its upside traction and accelerating its advance by the end of the US trading session following the Federal Open Market Committee (FOMC) Meeting Minutes. Fed chair Jerome Powell and his mates are still reiterating higher interest rates for a longer period to drag the inflation down. Moreover, geopolitical fears surrounding China and Russia escalated and favored the rush towards the risk-safety, which in turn propelled the US Dollar.

GBP/USD dropped lower on Wednesday with a 0.54% loss after the cable witnessed an intense sell-off in the late US session and touched a daily low below the 1.204 mark amid Fed’s hawkishness. On the UK front, the preliminary UK manufacturing activities remained upbeat at 49.2 but a figure below 50.0 is considered a contraction. Meanwhile, EUR/USD also witnessed some selling interest and touched a daily high above the 1.0690 mark. The pair was down almost 0.40% for the day.

Gold suffered from daily losses with a 0.53% loss for the day after sliding towards the $1824 area and surrendered most of its early gains during the US trading session, as the geopolitical fears and hawkish Federal Reserve Minutes both exerted bearish pressure on the Gold price. Meanwhile, WTI Oil declined sharply with a 3.16% loss for the day.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD was testing the 1.0620 support at the moment of writing, as investors wait for the Fed to release the minutes of the year’s first policy meeting, and the cautious market mood help the US Dollar hold its ground in the American session. Various signs showed that US inflation will take longer to reach the Federal Reserve’s 2% target, which means monetary tightening will continue longer than previously estimated. Apart from this, following Wall Street’s sharp decline on Tuesday, risk aversion keeps benefiting the safe-haven greenback, which weighed on the EURUSD pair. Moreover, geopolitical tensions continue to undermine the market mood as China escalated the bet, with a top local diplomat claiming they would deepen strategic cooperation with Russia.

From the technical perspective, the four-hour scale RSI indicator slid to 36 figures as of writing, suggesting that the pair was pressured by risk aversion flow. As for the Bollinger Bands, the pair was wandering in a narrow lower area and supported by the lower band, showing the pair was amid a bearish tendency in the near term.

Resistance: 1.0758, 1.0927

Support: 1.0619, 1.0508

XAUUSD (4-Hour Chart)

Gold price dropped towards $1,820 on Wednesday as the US Dollar maintained its hawkish bias. At the time of writing, Gold price is trading at $1824.61, posting a 0.56% loss daily, while the US Dollar Index rose 0.37% to 104.558. The US Dollar advance following the Federal Open Market Committee (FOMC) Meeting Minutes. The document showed that a few participants favored a 50 basis point (bps) rate hike, while some believed there was an elevated risk of a recession in 2023. Most importantly, all participants agreed more rate hikes are needed to achieve the inflation target, which benefits the US Dollar, weighing on dollar-denominated Gold.

For the technical aspect, the RSI indicator is 35 figures as of writing, edging lower as the Gold price stages a downside movement. As for the Bollinger Bands, the price slid through the moving average and lower band. As the price made a decisive breakthrough to the downside, a continued downtrend could be expected. In conclusion, we think the market is in bearish mode as both indicators show bearish potential. For the downtrend scenario, the next support level is 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
EURCPI (YoY) (Jan)18:008.6%
USDGDP (QoQ) (Q4)21:302.9%
USDInitial Jobless Claims21:30200K

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