Dollar plunges on reinforced Fed dovish stance

The U.S. dollar lost steam, with the dollar index retracing more than 0.3% yesterday. The dovish tone was reinforced by the Richmond Fed president, in contrast to his colleague's stance from days earlier. Additionally, the lacklustre U.S. long-term treasury yield, flowing at below 4%, exerted pressure on the dollar's strength. In contrast, the Euro faced challenges as its Consumer Price Index (CPI) reading, unveiled yesterday, fell short. This suggests that the inflationary risk in the Eurozone is mitigated, potentially softening the strength of the Euro. Furthermore, the Japanese Yen weakened significantly yesterday as the Bank of Japan (BoJ) governor provided a dovish stance in his statement following the interest rate decision announcement.

Market overview

Prices as of 03:00 EET 

Economic calendar

(MT4 System Time)

Source: MQL5 

Market movements

Dollar Index, H4

The US Dollar managed a modest rebound against the yen. However, analysts warn of the dollar's bearish long-term outlook. Anticipation is rife among market participants that the Federal Reserve might embark on rate cuts in the coming year, potentially eroding the greenback's allure. For clarity on the dollar's trajectory, investors keenly await the release of the core Personal Consumption Expenditures (PCE) price index this week. Simultaneously, insights from US GDP data will be pivotal, offering cues on whether inflation has steadied sufficiently for potential Fed policy adjustments.

The Dollar Index is trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 37, suggesting the index might extend its losses toward support level since the RSI stays below the midline.

Resistance level: 102.60, 103.50.

Support level: 101.80, 101.30.

XAU/USD, H4

Gold prices exhibited resilience, maintaining a stable trajectory as investors braced for key economic indicators from the US. Amid declining US Treasury yields and dollar softness, buoyed by expectations of an expanded Federal Reserve monetary policy, gold priced in dollars continued to enjoy bullish sentiment.

Gold prices are trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 63, suggesting the commodity might extend its gains toward resistance level since the RSI stays above the midline.

Resistance level: 2055.00, 2085.00.

Support level: 2010.00, 1980.00.

GBP/USD, H4

The GBP/USD pair rebounded yesterday, propelled by a softening U.S. dollar. The dollar lost steam as the dovish stance of the Federal Reserve was reinforced, mainly when the Richmond Fed president gave a dovish statement yesterday. Market participants are now focused on the UK's Consumer Price Index (CPI) data, scheduled for later today, to assess the potential impact on the price movement of the Cable.

GBP/USD rebounded yesterday but has yet to reach its recent high with a lack of bullish momentum. The RSI has been flowing near the overbought zone while the MACD is declining, suggesting the bullish momentum has eased.

Resistance level: 1.2729, 1.2815.

Support level: 1.2630, 1.2528.

EUR/USD, H4

The Euro rebounded as the U.S. dollar experienced a decline yesterday. The dovish stance reinforced by the Federal Reserve hindered the dollar from making a significant rebound. Despite the Euro's Consumer Price Index (CPI) reading falling short, indicating that inflationary pressures in the Eurozone have been mitigated, the Euro managed to gain strength on the back of the weakened dollar.

The EUR/USD Pair has rebounded yesterday, suggesting the pair is still trading in a bullish momentum. The RSI flowing closely to the overbought zone while the MACD hovering above the zero line suggests the bullish momentum remains intact with the pair.

Resistance level: 1.1040, 1.1140.

Support level: 1.0866, 1.0775.

USD/JPY, H4

The Bank of Japan (BOJ) affirmed its commitment to maintain its ultra-accommodative stance, keeping interest rates unchanged at a record low of -0.10%. Additionally, the central bank reiterated its yield curve control, pegging the 10-year Japanese government bond yield at a 1% upper limit. This decision effectively curtailed the yen's recent rally, with Governor Kazuo Ueda indicating that a thorough assessment is essential before considering any monetary tightening measures.

USD/JPY is trading lower following the prior retracement level. MACD has illustrated diminishing bullish momentum, while RSI is at 54, suggesting the index might extend its losses since the RSI retreated sharply from overbought territory.

Resistance level: 144.60, 146.30.

Support level: 143.20, 141.55.

AUD/USD, H4

The Australian dollar has broken above its ascending triangle price pattern, signalling a bullish bias for the AUD/USD pair. The divergence in monetary policy between the two central banks has contributed to the upward movement in the pair. The dovish stance reinforced by the Federal Reserve yesterday, combined with the Reserve Bank of Australia's (RBA) meeting minutes disclosed yesterday, indicating that there is still a chance for the RBA to raise rates further in the future, has supported the Australian dollar.

AUD/USD has broken above from its ascending triangle price pattern to serve as a solid bullish signal for the pair. The RSI flowing closely to the overbought zone while the MACD has been hovering at an elevated level suggests the bullish momentum remains strong.

Resistance level: 0.6800, 0.6876.

Support level: 0.6740, 0.667.

Dow Jones, H4

The US equity market has sustained its bullish trajectory, notably with the Dow leading the chart and gaining more than 200 points yesterday. The index has already achieved a significant gain of nearly 4.5% in December. The dovish stance from the Federal Reserve has acted as a catalyst for the equity market to trade higher. Additionally, the lacklustre performance of the US treasury yield has contributed to a heightened risk-on sentiment in the market.

The Dow is trading with an extremely strong bullish momentum. The RSI has been flowing in the overbought zone while the MACD continues to gain above the zero line, suggesting the bullish momentum remains strong.

Resistance level: 37650.00, 39000.00.

Support level: 36570.00, 35730.00.

CL Oil, H4

Crude oil prices surged, building on prior gains, propelled by geopolitical tensions. Yemen's Iran-aligned Houthi insurgents' attacks on vessels in the Red Sea heightened supply disruption fears, underpinning oil's upward momentum. Concurrently, forward-looking statements from major central banks, notably the Federal Reserve and BOJ, signalling expansionary monetary strategies for the upcoming year, are poised to catalyse global economic activity, potentially amplifying oil demand.

Oil prices are trading higher following the prior breakout above the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 65, suggesting the commodity might enter overbought territory.

Resistance level: 74.85, 78.30.

Support level: 72.15, 69.25.