Dollar’s Rebound Pauses, Awaiting Direction from ISM Manufacturing and FOMC Minutes

Dollar softens mildly in quiet Asian session today. The greenback’s rebound stalled ahead of near term resistance levels, as general market sentiment stabilized in US session overnight. Investors and analysts are now turning their attention ISM Manufacturing PMI and FOMC minutes, seeking guidance on the future on the next move of the greenback.

In the December meeting, Fed officials projected three rate cuts for the current year, as reflected in the dot plot. The market is particularly keen to understand the discussions surrounding this policy loosening. The timing of the first rate cut is a subject of high interest among investors and analysts. While it is expected that Fed will maintain its stance on data dependence, any indications of a dovish tilt in the policy could potentially trigger another downturn for Dollar.

Technically, focuses remains on some Dollar pairs to gauge the chance of more sustainable rebound. Levels to watch include 1.0929 minor support in EUR/USD, 1.2611 minor support in GBP/USD, and 142.84 minor resistance in USD/JPY. Simultaneous break of these level is needed to confirm the underlying momentum of the greenback.

In Asia, at the time of writing, Hong Kong HSI is down -1.08%. China Shanghai SSE is down -0.26%. Singapore Strait Times is down -0.81. Japan is still on holiday. Overnight, DOW rose 0.07%. S&P 500 fell -0.57%. NASDAQ fell -1.63%. 10-year yield rose 0.080 to 3.946.

IMF’s Georgieva: US on track for soft landing

In a CNN interview aired overnight, Kristalina Georgieva, Managing Director of IMF, provided an optimistic outlook for the US economy. She firmly stated that US is on track for “soft landing,” suggesting a scenario where the economy will experience slowdown without slipping into recession.

Georgieva attributed this positive forecast to Fed’s “decisiveness” in tightening monetary policy, which, according to her, has successfully started to mitigate inflationary pressures while avoiding a full-blown economic downturn.

In her message, Georgieva conveyed a sense of optimism for the general public, encouraging them to view the current economic scenario positively. She said, “You have a job, and interest rates are going to moderate this year because inflation is going down. Cheer up. It is a new year, people.”

WTI oil heading back to 67.79 after initial volatility

Oil market experienced significant volatility on the first trading day of the year. Initially, oil prices saw an uptick, fueled by concerns over supply disruptions linked to escalating tensions in the Red Sea region, a vital gateway to the Suez Canal.

This surge was triggered by an incident where US helicopters thwarted an attack by Iran-backed Houthi forces on a vessel operated by Danish shipper Maersk in the Red Sea. Adding to the geopolitical complexities, an Iranian warship’s entry into the Red Sea, reported by the semi-official Tasnim news agency, further heightened market anxieties.

However, as the day progressed, the oil markets reassessed the situation and concluded that direct engagement between the Iranian warship and American forces was unlikely. This reassessment led to a subsiding of initial fears regarding supply disruptions, causing oil prices to reverse their earlier gains and close lower.

From a technical analysis standpoint, WTI’s rebound from 67.79 short term bottom should have completed at 76.02. Rejection below 55 D EMA keeps near term outlook bearish. Further fall is expected as long as 73.52 minor resistance holds, to retest 67.79 low. Firm break there will resume larger decline from 95.50 (2023 high) to retest 63.67 (2023 low).

Nevertheless, break of 73.52 will extend the corrective pattern from 67.79 with another leg through 76.02 instead.

Looking ahead

Swiss PMI manufacturing and Germany unemployment data will be released in European session. But main focuses will be on US ISM manufacturing and FOMC minutes to be released later in the day.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2567; (P) 1.2663; (R1) 1.2716; More…

Intraday bias in GBP/USD stays neutral for the moment, as 1.2611 support remains intact. On break of 1.2826 will resume whole rally from 1.2036. However, break of 1.2611 will indicate short term topping, and turn bias back to the downside for 1.2499 support.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to rise from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg that’s in progress. Upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2499 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Economic Indicators Update