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Daily market analysis

Fed raise interest rates by 50 bps

December 15, 2022

US stocks turned lower after the Federal Reserve released the raise of rates by half a percentage point. However, while the Fed has downshifted the pace of tightening, the message given to the financial markets is that they’re not done yet.

While the Fed has signalled its plans to keep lifting rates next year to combat high inflation Fed chair Jerome Powell was speaking and his comments seemed to have given mixed messages to the market. In US Treasury yields, the flips with the 10-year falling back from a high of 3.5610% to print 3.477% currently and on the way towards the day’s low of 3.46%.

Though the raise is 50bps this time, its economic projections see higher rates for a more extended period. the data comes in hotter than expected, but the investors projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023, as well as a rise in unemployment and a near-stalling of economic growth.

The Dow Jones Industrial Average has dropped 0.42% to close at 33966.35. The S&P 500 dropped 0.61% to close at 3995.32. The tech-heavy Nasdaq Composite dropped 0.76% to close at 11170.89. Despite the Fed statement, U.S. Treasury yields were slightly lower after initially jumping in the wake of the announcement, and the strategy of aggressive interest rate increases by major central banks around the world this year has increased worries the global economy could be pushed into a recession and weighed heavily on riskier assets such as equities this year. Further, the US Treasury bond yields go up and down. U.S. 10-year treasury yield sits at around 3.503%. The policy-sensitive 2-year treasury yield sits at 4.247%.

Main Pairs Movement

The US Dollar is tailing off from the highs that were made on what was perceived to be a hawkish rate hike of 50 basis points by the United States Federal Reserve. The US Dollar is back on its backside following a mixed reaction to the Fed event. While the Fed has signalled its plans to keep lifting rates next year to combat high inflation, and this is a sign of two-way price action in asset classes, including the US Dollar and bonds.

The Gold price had fallen back to $1806, and still can’t break the resistance at $1810, though there were volatile moves over the interest rate decision and policy guidance by the Federal Reserve. The precious metal displayed wild gyrations in the $1.796-1,814 range and has now turned extremely quiet 4 hours after the speech.

The EURUSD is aiming at breaking 1.0700, as per the investors’ estimated, EUR/USD soars as US CPI comes in below expectations, 1.0700 is a key level where a measured move of -0.272% of the potential correction’s range to support meets the prior mid-summer resistance looking left, the next level is 1.0790.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD traded 0.47% higher throughout yesterday’s trading. The 50 basis points interest rate hike by the Fed FOMC sent the Greenback higher, initially, but tides quickly turned after Fed Chair Jerome Powell began his speech. The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, saw a whiplash of more than 1% during Chair Powell’s speech, and the index eventually headed south after his speech concluded. Market participants will now turn their attention to the ECB’s monetary policy statements and interest rate decisions that are scheduled to be released during the late European trading session. ECB president Christine Lagarde is also scheduled to speak during today’s trading day.

On the technical side, EURUSD continues to trade just below our previously estimated resistance level of 1.0785. The retreating Dollar has put the Euro on a steady upward trend over the past week. A hawkish ECB during today’s interest rate decision could spark another leg up for the Euro. RSI for the pair sits at 67.53, as of writing. On the four-hour chart, EURUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.0785

Support: 1.046,1.031

GBPUSD (4-Hour Chart)

Cable has successfully extended its winning streak into the sixth straight trading day after a turbulent American trading session on the 14th. The Dollar’s volatile price movements on the 14th eventually ended with the Dollar heading lower as market participants interpreted the latest interest rate hike as a dovish signal from the Fed. During Fed Chair Jerome Powell’s speech, he reiterated the central bank’s determination to bring price levels back to normal standards and cautioned market participants about the duration of tightening, which could be longer than many estimated but is highly dependent on future economic data releases. The Bank of England is scheduled to release its interest rate decision during today’s late European trading session with MPC meeting minutes released simultaneously. Markets are widely pricing in a 50 basis point interest rate hike by the BoE at today’s interest rate announcement.

On the technical side, GBPUSD edged close to our previously estimated resistance level of 1.26 but is still trading below that price region. Today’s BoE interest rate decision could spell great volatility for the British Pound as the nation faces hard a hard economic outlook for 2023. RSI for the pair sits at 69.39, as of writing. On the four-hour chart, GBPUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.2666, 1.3000

Support:1.2290, 1.2100, 1.1900

XAUUSD (4-Hour Chart)

Gold traded slightly lower throughout Wednesday’s trading. The yellow metal recovered most of its intraday losses due to the volatile price movements of the Greenback. The initial interest rate release sent the Dollar soaring and the Dollar-denominated Gold falling; however, as Fed Chair Jerome Powell began his speech, the Dollar began retreating and sent Gold upwards. Geopolitical tensions around the globe and recessionary fears continue to anchor Gold prices at around the $1800 per ounce price region. U.S. 2-year treasury yields dropped 0.015 to 4.214%, while the U.S. 10-year treasury yield dropped 0.024 to 3.479%. The benchmark U.S. 10-year treasury yield falling below the psychological barrier level of 3.5% could explain the Dollar’s late session fall. On the economic docket, the ECB and the BoE will both announce their respective interest rate decisions during today’s late European trading session.

On the technical side, Gold currently hovers around the $1800 per ounce price region. Our previously estimated resistance level of $1810 per ounce is now within arms reach from current levels. Short-term support levels for Gold remain at $1795 per ounce and $1775 per ounce. RSI for Gold sits at 49.07, as of writing. On the four-hour chart, XAUUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1810, 1830

Support: 1800, 1795, 1775

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDFOMC Interest Rate Decision03:004.5%
USDFOMC Press Conference03:30
NZDGDP (Q3)05:450.9%
AUDEmployment Change (Nov)08:3019K
CNYIndustrial Production (Nov)10:003.6%
CHFSNB Interest Rate Decision (Q4)16:301%
CHFSNB Press Conference17:00
EUREU Leaders Summit18:00
GBPBoE Interest Rate Decision (Dec)20:003.5%
EURECB Interest Rate Decision (Dec)21:15
USDCore Retail Sales (Nov)21:300.2%
USDInitial Jobless Claims21:30230K
USDPhilidelphia Fed Manufacturing Index (Dec)21:30-10
USDRetail Sales (Nov)21:30-0.1%
EURECB Press Conference21:45
EURECB President Lagarde Speaks23:15