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The Fed stated that it will reduce its bond purchases by $30 billion per month in January, which is twice the $15 billion per month announced in November

16 December 2021, 02:58
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Market Focus

After the Federal Reserve announced that it will accelerate the reduction of monthly asset purchases in the context of rising inflation, three indices hit theirs best gain in a week on Wednesday. The Fed stated that it will reduce its bond purchases by $30 billion per month in January, which is twice the $15 billion per month announced in November. The timetable for raising interest rates is advanced. It is expected that the interest rate will be raised up to three times next year, and then three more in 2023, bringing the Fed’s benchmark interest rate to 1.6%. The risk sentiment has improved after the statement was announced. Before the Fed meeting, the sentiment of monetary policy tightening was tense, and the previous increase has been basically digested. At the end of the market, the Dow Jones Industrial Average rose 1.1% to 35,927.44 points, the S&P 500 index rose 1.63% to 4,709.85 and the Nasdaq Composite Index added 2.1%.

In the S&P 500 sector, the only loser is the energy sector. The main reason is that people still worry about the oversupply as well as Omicron’s threat to travel and energy demand, making energy still under pressure and oil prices still falling. Devon Energy, Occidental Petroleum and Diamondback Energy fell more than 2%. Undoubtedly, the biggest winner of the index sector is the technology sector after the Fed’s announcement on the interest rates. With interest rates unchanged, the technology sector led to a rocket up. Nvidia and AMD lead the technology sector, followed by Alphabet, Microsoft, Facebook and Apple, contributing to the index’s performance.

Main Pairs Movement

Before the Fed’s monetary policy decision was released, market participants expected that monetary policy would be tightened and accompanied by nervousness. This caused the DXY to soar to almost annual highs, but then interest rates remained unchanged, and the only news is that they will speed up the reduction in bond purchases starting in January 2022, dollar index closed at 96.33.

EUR/USD closed near to the 1.1300 level, but it was still below the level before the European Central Bank meeting, which will be held on Thursday. The ECB will announce its monetary policy decision, but the market is generally expected to maintain the current policy, this means that euro is hard to get an extra impetus.

GBP/USD closed at 1.32582, also staying at recent levels without any breakthrough. The UK will announce its PMI later on Thursday, which may provide some strength for the pound.

Gold hit a new low to $1,752 in several months and then rebounded to around $1,778 per ounce. Crude oil prices have risen with the stock market, and WTI is currently trading at approximately $71.50 per barrel.

Technical Analysis

XAUUSD (4- Hour Chart)

Gold price struggles to rebound, hovering below $1770, as focus shifts to FOMC meeting. Gold price is undermined since the market expects the hawkish Fed will pace its tapering and the interest rates. From the technical analysis, at the time of writing, gold bears now target the descending wedge around $1765. Gold will re-confirm a bearish outlook if the wedge is breached downwardly. Alternatively, the recovery now needs to face stiff resistance at $1770, followed by $1789, in order to turn a bearish-to-bullish trend on the 4-hour chart. However, it looks like bears are still in control as the RSI indicator has not reached the oversold territory, suggesting a continuation of selling pressures. The next relevant support is at $1761.

Resistance: 1770, 1789, 1805

Support: 1761

GBPUSD (4- Hour Chart)

GBPUSD declined toward 1.3200 after the soaring UK inflation report, resulting in a renewal of the US dollar demand. From the technical perspective, the outlook of the currency pair becomes bearish on the 4-hour char as it trades below its 20 and 50 SMAs, indicating a bearish condition in the near term. Since the RSI has not yet reached the oversold condition, sellers are still in control; thus, GBPUSD is expected to head toward its immediate support at 1.3163. Furthermore, the MACD is also turning negative at the time of writing, meaning that the pair has essentially turned from buying to selling. On the upside, GBPUSD’s bulls need to climb above the static level at 1.3321 to reclaim a positive move. More price action will eye on today’s FOMC meeting and tomorrow’s ECB meeting.

Resistance: 1.3321, 1.3419, 1.3499

Support: 1.3163

EURUSD (4- Hour Chart)

EURUSD declines, merely trading at 1.1250 as the US dollar’s momentum picks up. From the technical aspect, EURUSD looks to test its immediate support at 1.1233, followed by 1.1186. The outlook remains neutral in the near term as the technical indicator, RSI, lacks directional strength, steadily holding slightly below the 50th mark. The support level at 1.1233 could be breached with the US Fed’s announcement later; if that is the case, EURUSD will become bearish in the near term. On the upside, the currency pair needs to extend further north above the acceptance level at 1.1357 in order to turn upside.

Resistance: 1.1357, 1.1462, 1.1548

Support: 1.1233, 1.1186

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