U.S. PCE Pressures Dollar To Trade Lower

* Dollar faces headwinds to trade lower as the latest PCE suggests the U.S. inflation is moderating.

* Oil prices trade to its highest level in 2024 as the Red Sea tension escalated

* Euro’s GDP due tomorrow while EUR/USD remains under pressure

Fundamental Overview

The US Dollar initially weakened following a lacklustre inflation report, with the Core PCE Price Index dropping to 2.90%, missing the 3.0% market expectation. Despite this, doubts about a March rate cut have risen as positive economic growth tempers expectations, reducing the probability from 80% to 47%. Eyes are on the upcoming Federal Reserve statements for monetary policy insights. 

The Euro hovers near 1.0840, awaiting catalysts for direction, particularly tomorrow’s Eurozone GDP release and the upcoming FOMC interest rate decision. These events will play a crucial role in determining the EUR/USD pair’s trajectory.

Crude oil prices rise on supply concerns after a Red Sea fuel tanker drone attack. Russian refined product exports are expected to decline due to post-drone attack refinery repairs. The OPEC meeting on February 1st is anticipated to be a significant catalyst for the oil market.

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Current rate hike bets on 31 January Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (98%) VS -25 bps (2%)  

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Economic Calendar

(MT4 System Time)

N/A

Source: MQL5  

Market Movements

DOLLAR_INDX, H4

Following a disappointing inflation report, the US Dollar initially retreated but staged a rebound as savvy investors engaged in bargain buying, finding support at key levels. There’s a prevailing sentiment that the Federal Reserve may defer its anticipated rate cut, prompting renewed confidence in the greenback. 

In the short term, market participants are advised to closely monitor the consolidated range between the resistance level of 103.90 and the support level of 103.15, as a breakout above or below this range could signal a more definitive trend for the US Dollar. The MACD signals increasing bullish momentum, aligning with an RSI of 54, indicating an overall bullish bias for the dollar index.

Resistance level: 103.90, 104.65

Support level: 103.15, 102.20

EUR/USD，H4

The Euro is currently positioned near its recent trough, residing around the 1.0840 level, as market participants await key catalysts to delineate a decisive path for the EUR/USD. The imminent unveiling of Eurozone GDP figures on January 30th is expected to yield a pronounced impact on the Euro’s resilience. Simultaneously, traders are meticulously scrutinising the impending Federal Open Market Committee (FOMC) interest rate decision, set to be disclosed on Thursday, recognizing these pivotal events as instrumental in charting the course for the EUR/USD pair. 

Despite exhibiting a lower high price pattern, the EUR/USD pair has discovered a foothold in the vicinity of the 1.0840 level. The downward trajectory of the RSI, coupled with the MACD hovering in proximity to the zero line, implies the emergence of a bearish momentum. These technical indicators underscore a nuanced market sentiment, introducing an element of uncertainty into the near-term outlook for the pair.

Resistance level: 1.0866, 1.0954

Support level: 1.0775, 1.0700

CL OIL, H4

Crude oil prices surge amid supply concerns post-drone attack on a Trafigura-operated fuel tanker in the Red Sea, with Russian refined product exports expected to decline for refinery repairs. The upcoming February 1st OPEC+ meeting looms as a crucial catalyst for the oil market’s direction. 

Currently testing resistance levels, oil prices show resilience, backed by an increasing bullish momentum indicated by the MACD. However, caution is advised as the RSI hits 77, suggesting a potential entry into overbought territory. This nuanced analysis underscores the intricate dynamics at play, aligning with Bloomberg’s comprehensive reporting style.

Resistance level: 78.65, 80.00

Support level: 75.20, 70.25