Dollar Surges Amid Upbeat ISM Data

* The U.S. dollar continues to climb on the back of strong economic data.

* Downbeat Japan’s Household Spending, putting pressure on the Yen.

* The Australian dollar slid to its lowest level since last November on disappointing Retail Sales data.

Fundamental Overview

In global financial markets, the US dollar’s strength persists, fueled by robust economic data, including higher-than-expected ISM PMI figures, underscoring the resilience of the US economy despite elevated borrowing costs. However, the Federal Reserve’s shifting monetary policy outlook has created headwinds for US equity markets, sparking speculation about prolonged monetary tightening. 

Meanwhile, Japan faces challenges with lower-than-expected Household Spending figures, complicating potential shifts in monetary policy, while Australia’s disappointing December Retail Sales raise doubts about potential interest rate changes by the Reserve Bank of Australia (RBA). These dynamics highlight the complexities investors and businesses must navigate amidst evolving global economic landscapes and central bank policies

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Current rate hike bets on 20th March Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (65%) VS -25 bps (35%)  

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Economic Calendar

(MT4 System Time)

N/A

Source: MQL5  

Market Movements

DOLLAR_INDX, H4

The Dollar Index hits an 11-week high as traders reduce expectations for aggressive Federal Reserve rate cuts, fueled by positive economic data like the US ISM Non-Manufacturing PMI. US Treasury yields surge, reflecting growing confidence in the economy. Fed funds futures indicate a diminished expectation of 115 basis points of easing for the year, down from 150 bps at the previous year’s close. The likelihood of a March rate cut has significantly decreased, signalling a notable shift in market sentiment, per the CME Group FedWatch Tool. 

While the Dollar Index tests resistance, caution is warranted. The MACD indicates fading bullish momentum, and an RSI of 69 suggests the index may be nearing overbought territory.

Resistance level: 104.60, 105.65

Support level: 103.85, 103.05

GOLD，H4

Gold prices initially faced a significant decline amid a strengthening US Dollar and positive economic indicators, diminishing the appeal of the safe-haven asset. However, a strategic shift occurred after breaching a crucial support level, leading investors to engage in bargain buying, citing uncertainties in Middle East tensions as a driving factor for this move. 

Subsequently, gold prices have rebounded and are currently on an upward trajectory. The MACD indicates a waning bearish momentum, and with the RSI at 45, there’s a suggestion that the commodity might continue its upward movement since the RSI rebounded sharply from oversold territory.

Resistance level: 2055.00, 2080.00

Support level: 2030.00,  2015.00

USD/JPY, H4

The USD/JPY pair is persisting in its upward trend, encountering formidable resistance around the 148.67 level. The recently released Japan Household Spending data fell below expectations, indicating a potential economic contraction. This has created a quandary for the Bank of Japan (BoJ), which had initially planned a monetary policy shift in the first quarter of 2024 but now faces a pause due to lacklustre economic performance. 

Currently, the pair is consolidating at the resistance level of 148.67, with a potential break above signalling a robust bullish signal. The RSI remains elevated, and the MACD, on an upward trajectory with divergence, indicates a strong bullish momentum for the pair

Resistance level: 148.67, 151.75

Support level: 146.75, 145.21