Dollar Strengthens On Sticky Inflation

* U.S. inflation gauge saw bolstering Dollar’s strength, and all eyes are on Friday’s U.S. PCE.

* Japanese Yen strengthened on potential Japanese authority intervention as Yen traded to its weakest level.

* Gold prices rebounded amid geopolitical uncertainties in Europe and the Middle East.

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Fundamental Overview

As the week begins, market participants are eagerly awaiting the release of the Federal Reserve’s preferred inflation gauge, the PCE index, scheduled for Friday, alongside remarks from Federal Reserve Chair Jerome Powell. The U.S. dollar is currently bolstered by persistent inflationary pressures in the country, prompting analysts to revise downward their expectations for rate cuts in 2024.

In contrast, the Japanese Yen has seen a modest appreciation against the dollar, despite the Bank of Japan’s decision to implement its first rate hike since 2007. Market speculation and warnings from Japanese officials regarding potential currency fluctuations have contributed to the Yen’s resilience, prompting investors to closely monitor any potential intervention by Japanese authorities.

In the commodities market, oil prices have remained relatively stable, with traders closely monitoring developments related to ceasefire talks in Gaza over the weekend and ongoing conflict in Europe. On the other hand, gold prices have found support around the $2160 level, benefitting from heightened geopolitical tensions and a slight easing in the strength of the U.S. dollar.

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Current rate hike bets on 1st May Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (90%) VS -25 bps (10%)  

Market Overview

(MT4 System Time)

Source: MQL5 

Economic Calendar

(MT4 System Time)

Source: MQL5 

Market Movements

DOLLAR_INDX, H4

The Dollar Index maintained its upward trend for the second consecutive week, supported by strong economic performance in the US and increasing expectations of interest rate hikes. The widening yield gap between the US Dollar and other major currencies remained a key factor driving the dollar’s strength. Additionally, the Federal Reserve’s optimistic revisions to US economic growth forecasts instilled confidence in investors, bolstering positive sentiment toward the US economic outlook.

Currently, the Dollar Index is trading higher and approaching the resistance level. However, there are indications of diminishing bullish momentum according to the MACD indicator, while the RSI stands at 69, suggesting a potential entry into overbought territory.

Resistance level: 104.45, 104.95

Support level:104.00, 103.65

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XAU/USD, H4

Gold prices faced downward pressure as the resilient US Dollar continued to diminish the attractiveness of non-yielding assets like gold. The Dollar’s strength was further accentuated by indications from major central banks, including the Swiss National Bank, suggesting potential rate cuts in 2024. Despite some dovish sentiments expressed by certain Federal Reserve members regarding rate cuts, the recent robust performance of the US economy adds uncertainty to the outlook for gold prices.

Currently, gold prices are trading lower and testing the support level. The MACD indicator indicates increasing bearish momentum, while the RSI stands at 64, suggesting the possibility of a technical correction following a sharp retreat from overbought territory.

Resistance level: 2240.00, 2315.00

Support level: 2150.00, 2080.00

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CL OIL, H4

Crude oil prices experienced a modest decline amid growing optimism regarding potential ceasefire negotiations in the Middle East. Comments from US Secretary of State Antony Blinken indicating progress in talks held in Qatar aimed at reaching a ceasefire agreement for the region helped alleviate concerns over oil supply disruptions. This positive development, combined with expectations of reduced geopolitical tensions, contributed to a sense of relief in the oil market.

Currently, oil prices are trading lower and testing the support level. However, there are signs of diminishing bearish momentum according to the MACD indicator, while the RSI stands at 48, suggesting the possibility of technical corrections as the RSI rebounded sharply from oversold territory.

Resistance level: 82.85, 84.10

Support level: 80.20, 78.00

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