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Traders are trying to figure out if the Fed will start tightening in March. Today’s speech by Fed Chair Powell is therefore one of the events that could give us more clues on this and possibly create some additional volatility for day traders to exploit. At the same time, we have gold bulls pushing the price higher from a key support level and cryptos losing downside momentum which suggests that the dollar alternatives are still a consideration for many investors. The probability for a rate hike in March has gone down a bit and is currently at 76.4. The benchmark 10-year T-bond yield has once again ticked higher and is now at 1.78%. In this report we cover XAUUSD and ETHUSD in this report and update you on EURAUD that bounced higher from the support we identified yesterday.  By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.


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EURAUD 8h chart 01 11

EURAUD attracted buyers at the 1.5730 support and rallied approximately 100 pips before profit-taking started to soften the bids. The lower high at 1.5836 causes some slight concern but if the bulls still defend the 1.5730 support the pair remains bullish. If the level gets violated look for a retracement to the 1.5660 – 1.5690 range. Above the 1.5730 support, the market is bullish and likely to test the 1.5854 again.

ETHUSD 8h chart 01 11

ETHUSD is trying to break out of the downward-pointing trend channel and looks like it is losing downside momentum. The 20 and 50-period SMAs have started to converge and the and the market has moved outside a steeper channel. If the current breakout is successful the indication is that sellers are getting weaker (and buyers therefore stronger). A break above a confluence level created by the channel high, recent reactionary highs at 3222 and 3274 and the 23.8% Fibonacci retracement would be further confirmation that the green team is taking control of this market. This would open the way for a move to the 3550 – 3670 range. A failure to break above the confluence area would be likely to bring take the market to the 2647 – 2900 range.

Gold chart 8h 01 11

Gold bulls took the charge yesterday and pushed the price substantially higher. In yesterday’s report, we noted how it was time to test whether our hypothesis was supported by empirical evidence. Our view was that gold was bullish above 1784.82 but because the level was violated, we wanted to see the market breaking above 1798.64 to confirm the bullish view. The resistance was cleared and the price of gold rallied 0.6% from the level. Now there are now clear resistance levels before 1829.60. The 1784.82 remains as a key level and a break below it would indicate a move to the 1753 support would be likely.

Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed has started tapering and expects it to end in the summer of 2022. The central bank was forced to change its views on inflation being transitional inflation traders expect the first hike in June 2022 (the probability of a hike is 80.9% at the time of writing this).
StimulusThe US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US Congress has passed a $1.2 trillion infrastructure spending plan.
YieldsIn Q3 and Q4 2021 the benchmark 10-year US Treasury yield ranged between 1.1720% and 1.6830%. The hottest inflation readings since 1982 have pushed the 10 yr. yield higher as bonds have been selling off.
EmploymentThe December non-farm payrolls increased by 199K instead of 400K expected by the analyst consensus while the unemployment rate was a positive surprise at 3.9% (4.1% expected). Average hourly earnings came in at 0.6% (0.4% expected) moving the annual rate to 4.7% (4.2% expected).
InflationThe annual headline inflation reading for November at 6.8% (6.2% previous) is the highest CPI print in almost 40 years. The core CPI (all items less food and energy) moved to 4.9 per cent y/y (4.6% previous) This was in line with market expectations and was the biggest annual increase in core consumer prices since June 1991.

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 The Next Main Risk Events

  • USD – Fed Chair Powell Testifies
  • USD – CPI and Core CPI
  • USD – 10-yr treasury bond auction
  • USD – PPI and Core PPI
  • Unemployment claims

For more information and details see the TIOmarkets economic calendar here

 Market News & Facts 

  • US December non-farm payrolls 199K (400K expected)
  • Canada December employment change 54.7K (24.5K expected)
  • ADP Employment Change 807K (405K expected)
  • US unemployment claims 207 (199k expected)
  • Bitcoin lower on Khazakstan upheaval
  • US inventories weigh on oil
  • US ISM Manufacturing PMI 58.7 (60.0 expected)
  • US JOLTS Job Openings 10.56M (11.06 expected)
  • OPEC not expected to deviate from earlier output plans
  • Biden: US to act decisively if Russia attacks Ukraine
  • Trading in Evergrande shares halted in Hong Kong
  • US Durable Goods Orders m/m 2.5% (1.9% expected)
  • US Core PCE inflation 0.5% (0.4% expected)
  • US Final GDP 2.3% (2.1% expected)
  • US CB Consumer Confidence 115.8 (111.1)
  • Canadian Retail Sales m/m 1.6% (1.0% expected)
  • Canadian Core Retail Sales m/m 1.3% (1.6% expected)

Trade Safe!

Janne Muta
Chief Market Analyst

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