Dollar Rebound on Fed’s Hawkish Tone

Market Summary

In yesterday’s market, the U.S. equity market took a breather after all three major indexes had risen more than 5% in May. All eyes are now on Nvidia’s earnings report due on Wednesday, which has the potential to spur the equity market further. In Asia, the Chinese stock markets also saw a retracement, with fresh data indicating that the property sector in China remains a significant concern. 

On the other hand, the dollar strengthened, bolstered by hawkish statements from various Federal Reserve officials suggesting that the U.S. central bank may scale down the size of expected rate cuts due to persistently high inflation. Meanwhile, the release of the Reserve Bank of Australia’s (RBA) meeting minutes today revealed that members had discussed interest rate hikes at its May policy meeting before deciding to maintain the current rate. Attention now turns to New Zealand, which is scheduled to announce its interest rate decision and release its monetary policy statement tomorrow. With inflation in New Zealand remaining at 4%, the central bank is expected to maintain its monetary tightening stance. 

In the commodity market, gold prices retraced by more than 1% after hitting all-time highs, driven by strong profit-taking sentiment. Oil prices also faced pressure due to a gloomy demand outlook. The upcoming OPEC+ meeting on June 1st, which will discuss crude supply, is anticipated to have a direct impact on oil prices.

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Current rate hike bets on 12nd June Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (91.1%) VS -25 bps (8.9%)

Market Overview

Economic Calendar

(MT4 System Time)

N/A

Source: MQL5 

Market Movements

DOLLAR_INDX, H4

The Dollar Index, which tracks the greenback against a basket of six major currencies, extended its gains, rebounding from a strong support level following several hawkish statements from Federal Reserve officials. Despite signs of cooling inflation, Fed officials have reiterated that the U.S. is not yet ready to declare victory over inflation. Atlanta Fed President Raphael Bostic stated that it will take more time for the Federal Reserve to be confident that inflation is on track to meet its 2% target, rather than having already achieved it.

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 49, suggesting the index might extend its gains after breakout since the RSI rebounded sharply from oversold territory. 

Resistance level: 104.65, 105.70

Support level: 103.90, 103.15

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XAU/USD, H4

Gold prices have risen amid escalating global geopolitical tensions, as investors seek safe-haven assets. The recent deaths of Iran’s former President Ebrahim Raisi and Foreign Minister Hossein Amir-Abdollahian in a helicopter crash in north-western Iran have heightened instability in the region, increasing fears of further conflict. However, the bullish momentum for gold is tempered by the Federal Reserve’s hawkish comments, which have introduced caution among investors.

Gold prices are trading flat while currently near the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 54, suggesting the commodity might trade higher as technical correction since the RSI stays above the midline. 

Resistance level: 2450.00, 2480.00

Support level: 2420.00, 2395.00

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GBP/USD，H4

The GBP/USD pair remained within its recent high territory, trading sideways in the last session as the market awaits the crucial CPI reading due tomorrow. The Sterling has offset the strengthened dollar, suggesting that the market anticipates the UK’s CPI may come in higher than expected. This could lead the Bank of England (BoE) to maintain a more hawkish stance on monetary policy.

GBP/USD traded sideways on the elevated levels, awaiting bullish momentum to push higher. The RSI has eased slightly, while the MACD has crossed and flowed flat, suggesting that bullish momentum has eased. 

Resistance level: 1.2760, 1.2850

Support level: 1.2660, 1.2600

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EUR/USD，H4

The EUR/USD pair faced a strong resistance level just below 1.0900, forming a double top price pattern. Hawkish statements from Federal Reserve officials suggest that the U.S. central bank may maintain high interest rates for longer. In contrast, discussions among European Central Bank (ECB) officials about a potential rate cut, possibly as soon as this summer, have put pressure on the euro. This divergence in monetary policy outlooks is contributing to the pair’s current challenges.

The pair is rejected at below 1.0900 level, while the bullish momentum seems easing. The MACD has crossed on the above and is edging lower while the RSI has declined to below the overbought zone. 

Resistance level:1.0950, 1.1040

Support level: 1.0775, 1.0700

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NZD/USD，H4

The NZD/USD pair is encountering strong resistance just below the 0.6150 level while currently hovering near its support level at 0.6100. The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its interest rate decision tomorrow (22nd May). With the backdrop of high inflation in the country, the RBNZ is expected to hold the interest rate unchanged, potentially fueling upward momentum for the pair. Traders are closely watching for any signals from the central bank that could impact the pair’s direction.

The pair was rejected at near 0.615 level and formed a double top price pattern, suggesting a potential trend reversal signal. The MACD has crossed on the above and is edging toward the zero line from above, while the RSI has declined to near the 50 level from the overbought zone, suggesting the bullish momentum has vanished. 

Resistance level: 0.6150, 0.6200

Support level: 0.6050, 0.6000

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Nasdaq (US100), H4

The Nasdaq has surged nearly 8% in May, breaking its all-time high and leading the U.S. equity market. The index, however, took a breather in the last session, hindered by hawkish statements from various Fed officials. Despite this, all eyes are on tomorrow’s Nvidia earnings report, which the market treats as a bellwether for the tech sector. A strong performance from Nvidia is expected to spur the equity market further. Investors are eagerly awaiting the results, hoping they will reignite the bullish momentum in tech stocks.

The index remains in a bullish trajectory and is currently hovering at its all-time high levels. The RSI remains in the overbought zone, while the MACD continues to edge higher, suggesting that the bullish momentum remains strong. 

Resistance level: 19125.00, 19690.00

Support level: 18430.00, 17850.00

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CL OIL, H4

Crude oil prices continue to consolidate within a range as mixed fundamentals leave investors seeking direction. On the positive side, recent strong economic performances from China and rising geopolitical tensions in the Middle East, with fears of supply disruptions, have sparked some bullish sentiment. However, gains in the oil market are limited by the Federal Reserve’s hawkish tone, which has strengthened the dollar and exerted downward pressure on dollar-denominated oil prices.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 51, suggesting the commodity might trade lower as technical correction since the RSI retreated sharply from overbought territory. 

Resistance level: 79.85, 81.35

Support level: 77.75, 76.90

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