Equity markets decline on Fed’s hawkish outlook

The U.S. dollar remains strong above the $105 mark following the Fed Chair's statement. U.S. long-term Treasury yields have surged, indicating sustained elevated interest rates into the next year.

U.S. equity markets, alongside their Asian counterparts, are grappling with headwinds following a challenging central bank week. The consistent hawkish tone from Fed officials, coupled with warnings of potential future rate hikes if inflation persists, has spurred investors to withdraw funds from the equity market at a rate not seen since December. Consequently, the dollar index has firmly consolidated at levels last witnessed in March, while gold prices remain locked in a struggle around the $1920 mark. In contrast, oil prices have staged a rebound, finding support above $90. Hedge funds have shown renewed bullishness toward WTI, encouraged by OPEC+ supply cuts and a more optimistic outlook for both the U.S. and China.

Market movements

Dollar Index

The US Dollar is presently entrenched in a consolidation phase at a six-month high, a testament to the discerning stance taken by investors in the wake of a hawkish Federal Reserve statement. The recent surge in US Treasury yields, reaching levels not seen since 2007 before retracing, has buoyed the Greenback. This rally was triggered by the Fed's projection of an additional quarter-percentage point increase by year-end, despite holding interest rates steady at its latest policy meeting last Wednesday. Such resolute market reactions underscore the Dollar's resilience in the face of evolving monetary policies.

The Dollar Index is trading flat while currently testing the support level. MACD has illustrated diminishing bullish momentum, while RSI is at 58, suggesting the index might be traded lower after its breakout below the support level since the RSI retreated from its overbought territory.

Resistance level: 106.25, 107.05.

Support level: 105.40, 104.25.

XAU/USD

Gold prices continue to consolidate within a range, as investors brace for the deluge of crucial economic data emanating from the United States. Investors are poised to direct their attention towards job market statistics and inflation figures as they seek guidance for their trading strategies.

Gold prices are trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 49, suggesting the commodity is experiencing technical correction since the RSI rebounded sharply from oversold territory. 

Resistance level: 1930.00, 1950.00.

Support level: 1900.00, 1885.00.

EUR/USD

The euro has endured a 10-week losing streak against the resurgent dollar. A surprise 25 basis points rate hike from the ECB last week did little to halt the euro's downward spiral, indicating a prevailing bearish sentiment. The dollar, buoyed by the persistent hawkish tone from the Fed, has continued to strengthen against other currencies, maintaining its position above the $105 mark.

EUR/USD is struggling to stay above its near support level at 1.0638; a bearish engulfing earlier and price consolidation at lower regions suggest a bearish signal for the pair. The MACD has been flowing below the zero line while the RSI hovers below the 50 level, suggesting the prevailing bearish momentum.

Resistance level:1.0700, 1.0760.

Support level: 1.0640, 1.0540.

GBP/USD

The GBP/USD pair continues its decline, primarily driven by the surprise rate pause from the Bank of England (BoE). This pause has weakened the sterling, while the U.S. dollar remains strong, propelled by the hawkish statement from the Federal Reserve and the relatively robust U.S. economy compared to the UK. The Cable saw a decline of more than 1% last week, leaving investors concerned about the state of the UK's economy. All eyes are now on the economic data scheduled for release on Friday, which will be closely watched to gauge the strength of the sterling.

GBP/USD is trading in a strong bearish momentum and has declined sharply after a bearish engulfing candlestick pattern is formed. The RSI is on the brink of dropping into the oversold zone while the MACD continues to move lower suggesting the bearish momentum is strong.

Resistance level: 1.2370, 1.2535.

Support level: 1.2200, 1.2110.

AUD/USD

The Australian dollar has managed to withstand the strength of the robust U.S. dollar and has been trading in a broad sideways pattern since mid-August. However, from a macroeconomic perspective, Australian authorities have expressed concerns about China's deteriorating economy, given that China is Australia's largest trading partner. It is widely believed that Australia's Retail Sales data will play a significant role in the Reserve Bank of Australia's (RBA) interest rate decision, which is scheduled to be announced the following Monday.

The AUD/USD pair has a lower high price pattern, adding a bearish engulfing candlestick pattern, suggesting a bearish trend for the pair. The RSI has dropped from the overbought zone while the MACD is on the brink of breaking below the zero line, suggesting the bullish momentum has vanished.

Resistance level: 0.6500, 0.6610.

Support level: 0.6370, 0.6280.

Dow Jones

The US equity market continues to grapple with the dual forces of rising US Treasury yields and the spectre of imminent rate hikes by the Federal Reserve. The persistent upward trajectory in yields, fueled by the central bank's forward guidance, exerts downward pressure on equities.

The Dow is trading lower following the prior breakout below the previous support level. MACD has illustrated increasing bearish momentum, while RSI is at 34, suggesting the index to extend its losses toward support level since the RSI stays below the midline.

Resistance level: 34355.00, 34900.00.

Support level: 33720.00, 32695.00.

USD/JPY

The Japanese Yen has faced significant headwinds following the Bank of Japan's dovish monetary decisions. The central bank's commitment to maintaining negative interest rates and its steadfast adherence to a large-scale stimulus program, even in the face of inflation modestly exceeding expectations, have contributed to the Yen's depreciation. Traders in Yen-denominated assets should exercise caution, given mounting speculations that Japanese authorities might intervene if the Yen's descent persists, particularly beyond the critical 150 benchmark.

USD/JPY is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 61, suggesting the pair will extend its gains after it breaks the resistance level since the RSI stays above the midline.

Resistance level: 148.50, 150.25.

Support level: 146.25, 144.70.

CL Oil

Oil prices have experienced a period of relative stability but have recently dipped due to profit-taking activities by investors. The earlier surge in oil prices was driven by mounting supply concerns, catalysed by Russia's ban on oil exports. Nevertheless, this uptrend is curtailed by the Federal Reserve's hawkish overtones, as the anticipation of rising interest rates threatens to dampen economic momentum, potentially impeding oil demand.

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 52, suggesting the commodity to extend its gains toward resistance level since the RSI stays above the midline. 

Resistance level: 92.45, 95.80.

Support level: 88.50, 84.45.