Dollar Start the Year with Strong Momentum

Market Summary

The U.S. dollar delivered a strong performance in 2024, with the dollar index gaining approximately 7%, and it started 2025 on a positive note, hovering near its recent highs. The dollar remains supported by the Fed‘s cautious approach to monetary policy, with hawkish expectations weighing on equities. Wall Street is anticipated to face strong downside pressure as the year begins. In Asia, Hong Kong’s Hang Seng Index plunged over 200 points after resuming trading post-New Year holiday, reflecting investor concerns over potential tariff risks.

In commodities, gold surged more than 27% in 2024 and remains steady above the $2630 mark, buoyed by global geopolitical tensions driving safe-haven demand. Meanwhile, oil prices climbed, with WTI touching $72.00 for the first time since last November. U.S. crude stockpiles continue to decline, while disruptions in Russian gas supplies to Europe via Ukraine after the transit deal expired added to supply concerns.

In forex markets, traders are advised to monitor the UK PMI reading and U.S. job data, which could directly influence the Pound Sterling and U.S. dollar performance.

Current rate hike bets on 29th January Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (90.4%) VS -25 bps (9.6%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index extended its annual gains as traders reassessed the Federal Reserve‘s potential pace of monetary easing in 2025. Recent comments by Fed Chair Jerome Powell suggested caution in reducing borrowing costs due to persistent inflation concerns. Higher interest rates and rising Treasury yields continue to bolster the dollar's strength. Investors are now focused on upcoming economic data, including jobless claims and manufacturing reports, for further insights into the Fed’s policy trajectory.

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 67, suggesting the index might extend its gains after breakout since the RSI stays above the midline.

Resistance level: 108.60, 109.50

Support level: 107.60, 106.75

XAU/USD, H4

Gold prices climbed amid heightened market uncertainties following a suspected terrorist attack in the U.S. During New Year‘s celebrations in New Orleans, a deliberate act of violence resulted in multiple casualties and injuries, sparking risk-off sentiment. Additionally, the explosion of a Tesla Cybertruck outside a Trump-owned hotel in Las Vegas further fueled fears. The heightened geopolitical risks and safe-haven demand supported gold’s upward momentum in early Asian trading.

Gold prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 71, suggesting the commodity might enter overbought territory.

Resistance level: 2635.00, 2656.00

Support level: 2612.00, 2588.00

CL OIL, H4

Oil prices broke through key resistance levels, buoyed by optimism over China's fiscal stimulus plans. The Chinese government‘s approval of 3 trillion yuan in special treasury bonds for 2025 aims to revive economic growth and boost domestic demand. As the world’s largest oil importer, Chinas fiscal expansion is expected to significantly increase global oil demand, further supporting price gains.

Oil prices are trading higher while currently near the resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 70, suggesting the commodity might enter overbought territory.

Resistance level: 72.35, 74.40

Support level: 71.45, 70.50

USD/JPY

The USD/JPY pair remained capped below the 158.00 mark and retreated following a period of price consolidation. Despite a brief technical rebound, the pair has yet to surpass its previous high, indicating it continues to trade within a bearish trajectory. The Japanese yen has regained footing from its recent lacklustre performance, supported by growing expectations of a Bank of Japan rate hike in January, which has bolstered optimism and strengthened the yen.

The pair is currently hovering in a wide range at its recent high levels. The pair has formed a double bottom at the 156.00 mark. Should the pair break below such a level, it may be seen as a bearish signal for the pair. The RSI has been seesawing lately, while the MACD is sliding toward the zero line, suggesting that the bullish momentum is vanishing.

Resistance level: 158.60, 159.80

Support level: 156.00, 154.70