A lower-than-expected inflation has lent optimism to the markets

The latest U.S. inflation figures have provided the Federal Reserve with some respite on its upcoming rate hike decision. The data for April showed a slight drop in inflation to 4.9% from 5%, easing the Fed’s dilemma. As a result, the dollar weakened while equity markets saw a modest gain. Investors are now keeping a close eye on the U.S. debt ceiling issue, with the country’s President eagerly working to prevent a debt default. Meanwhile, despite the weaker dollar, oil prices saw a pause in their bullish trend; the China CPI data also failed to convince investors of a strong economic recovery which suppressed the oil prices. Additionally, the Bank of England is expected to announce its interest rate decision with a quarter-point rate hike expectation later today.

---

Current rate hike bets on 14th June Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (93.8%) VS 25 bps (6.2%) 

---

Market Overview

---

Economic Calendar

Market Movements

DOLLAR_INDX, H1

The US Dollar retreated over the backdrop against downbeat inflation data. The latest US inflation showed signs of moderation in April, prompting expectations of a pause in the Federal Reserve’s interest rate hikes. The Consumer Price Index rose by 4.90% from a year earlier, slightly below market expectations. Investors are now anticipating that the Federal Reserve will signal a halt to its tightening campaign at the upcoming June meeting.

The Dollar Index is trading flat while currently testing the resistance level. However, MACD has illustrated increasing bearish momentum, while RSI is at 56, suggesting the index might trade lower as technical correction since the RSI retreated sharply from overbought territory.   

Resistance level: 101.75, 102.25

Support level: 101.05, 100.40

XAU/USD, H4

Despite initially surging in response to the inflation report, gold subsequently retreated from its recent high. This reversal can be attributed to investors engaging in profit-taking, capitalizing on the earlier gains made because of the expectation of a Fed interest rate pause. The pullback in gold highlights the dynamic nature of market sentiment and the propensity for investors to seize opportunities for short-term gains.

Gold prices are trading flat while currently near the resistance level. MACD has illustrated diminishing bearish momentum. RSI is at 54, suggesting the commodity might extend its gains after successfully breakout since the RSI stays above the midline.  

Resistance level: 2045.00, 2080.00

Support level: 1980.00, 1940.00

EUR/USD，H4

The euro recorded a modest gain against the dollar after the U.S. CPI showed that the country’s inflation has slowed. The euro had hit above the 1.1000 level before it slid down despite a weakening dollar. On the other hand, the ECB’S chair, as well as other officials, have been giving hawkish statements on its monetary policy; however, it failed to strengthen the euro. In contrast, the German CPI showed signs of cooling down at 7.2%, perhaps suppressing the euro to trade higher. 

The euro is trading stagnantly below 1.1000 and has fallen out of the uptrend channel and started to consolidate. The RSI is given a neutral signal where it hovers near the 50-level while the MACD moves flat below the zero line. 

Resistance level: 1.1126, 1.1225

Support level: 1.0871, 1.0762

Nasdaq，H4

On Wednesday, the Nasdaq Composite rose by 1.04% to 12,306.44 points,  driven by positive investor sentiment regarding inflation data and advancements in artificial intelligence by Alphabet Inc. The April inflation data, showing a slightly lower-than-expected increase of 4.9% compared to predictions of 5%, raised hopes that the Federal Reserve’s interest rate hikes may be nearing an end. It was viewed as a positive development by the markets. Additionally, in response to competition from Microsoft, Alphabet’s rollout of enhanced artificial intelligence features for its search product contributed to the Nasdaq’s surge. Major tech stocks like Apple Inc. and Microsoft also saw notable gains during this period.

The Nasdaq has successfully broken its 8-month high, suggesting a strong momentum in the market. This breakthrough indicates a potential continuation of the upward trend. Furthermore, both technical indicators and market sentiment support this bullish momentum. 

Resistance level: 12536, 13151

Support level: 12264, 11961

GBP/USD, H4

The British pound surged to a new high of 1.2680 against the dollar on Wednesday as traders anticipate that the Bank of England’s upcoming rate hike won’t be the last. Despite lackluster economic performance, the pound has been supported by better-than-expected results and a decrease in the dollar due to cooling U.S. inflation. Expectations of further rate hikes by the Bank of England to combat persistent inflation have also contributed to the pound’s strength. Furthermore, derivatives markets indicate traders foresee rates peaking at over 4.8% by September. In addition, investment banks have grown more optimistic about the pound recently, reflecting its rally in the markets.

The pound is currently trading near its previous high, continuing its strong trend. Technical indicators such as the RSI and MACD suggest bullish momentum prevails in the market. 

Resistance level: 1.2774, 1.2973

Support level: 1.2542, 1.2371

Dow Jones, H4

Investors’ concerns regarding US debt talks weighed on the Dow, resulting in a flat trading session. Analysts cautioned of severe long-term consequences if the US government fails to raise its debt ceiling, highlighting the potential for unthinkable damage from a default. Meanwhile, the recent report indicating a slight moderation in US inflation during April provided some hope for investors. This development led investors to speculate about a possible pause in interest rate hikes at the upcoming June meeting. In April, US consumer prices rose by 0.40%, while the headline Consumer Price Index (CPI) recorded a 4.90% increase on a year-on-year basis, slightly below market expectations of 5.00%. 

The Dow is trading lower while currently near the support level. MACD has illustrated increasing bearish momentum, while RSI is at 49, suggesting the index might trade lower as the RSI stays below the midline. 

Resistance level: 34205.00, 35450.00

Support level: 32950.00, 31660.00

CL OIL, H4

Oil prices find themselves in a consolidation phase amidst mixed market sentiment. One positive factor contributing to this dynamic is the depreciation of the US Dollar following the release of weaker-than-expected inflation reports. The decline in the value of the US Dollar has made oil prices more affordable for global investors on a relative basis, bolstering bullish momentum in the oil market. However, the latest data from the Energy Information Administration (EIA) reveals a notable increase in US crude oil inventories. The previous reading of -1.280 million barrels surged to 2.951 million barrels, significantly exceeding market expectations.

Oil prices are consolidating within a range. MACD has illustrated diminishing bullish momentum, while RSI is at 55, suggesting the commodity might trade lower as the RSI retreated sharply from overbought territory.

Resistance level: 74.05, 76.60

Support level: 71.35, 67.95