Dollar Hammers by Fed Governor’s Dovish Remark

• The U.S. dollar remains subdued as the Fed emitted dovish remarks in yesterday's session.

• Gold prices edge higher on the back of a soft dollar.

• XRP rallied to an all-time high, fueled by heightened optimism to launch an ETF.

Market Summary

Wall Street‘s rally paused after gaining momentum from Wednesday’s softer U.S. CPI data, as investors brace for increased volatility heading into the Q1 earnings season next week. In the forex market, dovish remarks from Fed Governor Christopher Waller, suggesting support for continued rate cuts, dampened the dollars strength. This sentiment was compounded by a retreat in U.S. long-term Treasury yields, further weighing on the greenback.

Traders today are focused on the UK‘s retail sales and the eurozone’s CPI data, which could significantly impact the Pound Sterling and euro, respectively. Meanwhile, gold prices continued their upward trajectory, supported by the weaker dollar, but faced resistance near the $2,720 level. A decisive break above this point could confirm a bullish outlook for the precious metal.

Oil prices, on the other hand, declined as risks of supply disruptions eased following the conclusion of a ceasefire deal in the Middle East. In the cryptocurrency market, while Bitcoin remains bullish, attention has shifted to XRP, which has reached new highs and recently became the third-largest cryptocurrency by market capitalization. XRPs rally is fueled by optimism over the potential launch of its ETF, following the success of Bitcoin and Ethereum ETFs.

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

Source: CME Fedwatch Tool

0 bps (97.9%) VS -25 bps (2.1%)

Market Movements

DOLLAR_INDX, H4

US economic reports continue to underperform expectations. Core Retail Sales grew by just 0.40%, below the anticipated 0.50%, while overall Retail Sales fell from 0.80% to 0.40%, missing the 0.60% forecast. Additionally, Initial Jobless Claims rose to 217K, higher than the expected 210K. These disappointing figures are increasing expectations that the Federal Reserve might maintain a more dovish stance on monetary policy, causing the Dollar Index to dip further.

The Dollar Index is trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 41, suggesting the index might extend its losses since the RSI stays below the midline.

Resistance level: 110.00, 111.75

Support level: 108.20, 106.80

XAU/USD, H4

Gold prices surged to a one-month high, driven by a drop in the dollar and Treasury yields, after softer inflation data fueled expectations of rate cuts. However, the rally was limited by easing Middle East tensions, with the Gaza ceasefire set to begin on Sunday. Despite some final negotiations, the ceasefire is seen as a positive development that has restrained further gold price gains.

Gold prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 69, suggesting the commodity might experience technical correction since the RSI entered overbought territory.

Resistance level: 2720.00, 2755.00

Support level: 2690.00, 2660.00

GBP/USD，H4

Sterling struggled as UK GDP growth slowed to just 0.1%, missing the forecast of 0.2%. This slower growth has intensified expectations that the Bank of England may need to cut rates multiple times in 2025. Investors are waiting for further UK economic data to determine the BoE's policy outlook.

GBP/USD is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 49, suggesting the pair might extend its losses since the RSI stays below the midline.

Resistance level: 1.2305, 1.2480

Support level: 1.2150, 1.2015

EUR/USD，H4

The EUR/USD pair has been trading within a narrow range recently, as both the dollar and the euro lacked significant catalysts. The U.S. dollar remained subdued following dovish remarks from a Fed governor, signaling a continued inclination toward rate cuts. This has weighed on the greenback's momentum. Conversely, the euro could see heightened volatility, with today's release of the eurozone CPI data expected to have a direct impact on its strength. Should the CPI reading exceed market expectations, it may provide a bullish boost to the euro and push the pair higher, while a softer reading could pressure the euro and support the dollar.

The pair edged slightly higher yesterday but will face a challenge when it approaches the 1.0340 mark. A break above such a level will be seen as a bullish signal for the pair. The RSI remains at the above 50 level, while the MACD is hovering close to the zero line, which suggests that the bullish momentum is minimal with the pair.

Resistance level: 1.0330, 1.0458

Support level: 1.0230, 1.0112