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Midweek Market Overview: 01 February 2023

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Central Banks are in focus this week as investors eye the FOMC as well as ECB and BoE meetings.

Dollar

Midway through the week and the Dollar continues to find support above the key 101.28 level, as bears snap a three-day uptrend ahead of the much-anticipated Fed interest rate decision later today. Factors driving this loss of momentum from the bulls, can be attributed to the “pre-Fed anxiety” creeping into the market, as well as the downbeat U.S data which weighed heavily on the Dollar on Tuesday. Looking ahead, investors have already priced in a 0.25% rate hike and anything above that will be considered a surprise, however, their attention will be on Fed Chair Jerome Powell, for some insights into the whether the hawkish narrative will be defended amid easing inflation and slower wages, or if a pause in rates is on the cards and a shift from the narrative of fighting inflation will ensue.

Technical Analysis (D1)

In terms of market structure, price continues to be supported above the key 101.15 area where the previous higher-low was formed in June 2022. The nuance to be noted however, is that price is approaching this area in a corrective nature in the form of a descending channel which could turn out to be a potential reversal pattern. If bulls can defend this area, the narrative could still remain bullish for the long term, however the opposite applies if the area is invalidated by sellers in an impulsive break of structure.

Euro

The Euro rolls into the middle of the week showing some signs of interest from the bulls as it breaks a 3-day downtrend driven by positive Euro GDP. Although the main event is undoubtedly the FED rate decision tonight, investors are also keeping one eye on inflation data coming from Europe, where a rise in the headline print is expected from 9.2% to 9.6%. Moreover, the ECB meeting scheduled for tomorrow is also on the backburner and adding to the reasons why Investors are approaching today’s trading session with a high degree of caution and restraint, as is the case ahead of high impact news. Looking ahead, the Euro’s direction will be influenced by Activity data from January as well as Mr Powell’s ability to defend his hawkish stance or lack thereof.

Technical Analysis (D1)

In terms of market structure, price has invalidated the longer-term downtrend formed from mid-May 2022 and has done so in an impulsive break of structure. Since then, the bulls have been driving price, creating higher-highs and higher-lows. Current price has bounced off a key level in the 1.092 area, and if defended by the bears, price could potentially reverse. Conversely if the bulls can sustain the pressure, price could break above the level and continue the uptrend if it invalidates the resistance area in an impulsive wave.

Pound

The Pound heads into the middle of the week still under pressure from the bears as price continues to trade lower for the fourth consecutive day at the time this article was written. This lack of enthusiasm from investors can be firmly linked to traders being reluctant to commit to directional bias ahead of the key central bank meetings scheduled for today and the remainder of the week. Even though the lack of interest from bulls persists, the Pound does remain cushioned from significant downside shocks because the balance of probability is in favour of the FED delivering an already priced in rate hike of 25 basis points amid signs of easing inflation. More significant than the rate hike itself will be the post-meeting press conference and the comments made by Mr Powell, as his outlook will greatly influence USD price dynamics and as a knock-on effect, the directional bias of the Pound. Looking ahead, investors will have one eye fixated on the BoE meeting on Thursday, where rising inflation will be the determining factor if the central bank continues to raise rates.

Technical Analysis (D1)

In terms of market structure, the downtrend has been broken and the bulls have been in control of the narrative since then, moving price to test the key 1.244 level which has since pulled back forming a potential bearish double-top. As price retests this peak formation again, two scenarios present themselves. Namely, If the area is defended by sellers it could result in the potential reversal pattern being validated; conversely, if buyers break above the area, price will continue to remain bullish in the near term.

Gold

Gold heads into the middle of the week continuing to pull back from the peak formation formed around the $1 949 area, as traders scale back their bets ahead of the all-important US Federal Reserve monetary policy decision later tonight. Gold price dynamics are firmly linked to the ebb and flow of US interest rates, because when rates are higher it negates the appeal of holding onto Gold given the increased competition from higher-yielding investments. As it stands investors are awaiting a 25 basis point rate hike, however, the possibility of a pivot or a pause could still be further down the road as Powell has previously expressed unwillingness to prematurely bring a halt to the current rate cycle.

Technical Analysis (D1)

In terms of market structure, Gold has broken out of the outer trendline on the downtrend, and since then, bulls have been in control of price. Currently price action has slightly breached a significant resistance at the $1 949 area creating a new high. If sellers can defend this area price could move back below the new High, however if buyers maintain their interest, price could break above and remain bullish towards the $1 998 level, which represents the previous lower-high.

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Ofentse Waisi

Financial Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

 

 

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