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Global Stocks and USD Rise, Bitcoin Falls

Following Fed Chair Jerome Powell’s decision to refrain from discussing interest rates, stocks ended the day with slight gains. Investors are still interested in Thursday’s inflation news despite the disappointment experienced by Bitcoin traders.

European markets were up as investors get ready for more inflation data this week, including the release on Thursday of the U.S. consumer pricing data for December.

The majority of industries and significant bourses reported advances, helping the pan-European Stoxx 600 index rise 0.5%. The highest increase was seen in mining equities, up 1.6%, while insurance witnessed the slightest decline, down 0.6%.

In anticipation of this week’s corporate profits and fresh inflation data, US markets also marginally increased on Tuesday. The Dow Jones Industrial Average was up 188 points, or 0.6%, at market closing. The S&P 500 and Nasdaq Composite both increased by 0.7% and 1%.

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While Global Stocks, US Dollar Edged Up, Bitcoin Disappoints As Powel Silent on Fed Policy Ahead of US CPI: AUD/USD Fails to Cheer Own CPI Forecast

Dow Jones Industrial Av. Index

Dow Jones Industrial Av. Index

US bond yields increased after falling at the beginning of the week. The benchmark 10-year note ended the day at 3.61%, up from an early reading of 3.53% yesterday. The yield in two years increased by 3 basis points to 4.24%.

The Dollar Index (DXY), a widely used indicator of the value of the US dollar relative to a basket of six international currencies, was up 0.24% to 102.93. (102.80). The Euro/USD exchange rate ended slightly changed at 1.0741. (1.0733).

USD Index

USD Index

Forex Market

The US dollar steadily increased against the Japanese yen (USD/JPY) from its opening day of 131.85 to its closing price of 132.20. The GBP/USD exchange rate fell to 1.2158. (1.2184).

The Kiwi (NZD/USD) closed unchanged at 0.6367, while the Australian Dollar (AUD/USD) fell to 0.6893 (0.6912). The US dollar slightly increased to 1.3423 from 1.3390 against the Canadian loonie.

The Dollar’s performance against the Asian and EMFX was erratic. The recent USD/THB exchange rate was 33.45, down from 33.47 yesterday. The Greenback’s closing rate against the Offshore Chinese Yuan (USD/CNH) was 6.7865. (6.7800).

Tuesday night, U.S. stock futures showed minimal movement, but Asian markets rose as traders anticipated U.S. consumer price index data. 

Fed Reserve, Powell Silent on Policy

On Tuesday, Federal Reserve Chairman Jerome Powell stressed the significance of the central bank’s independence from political influence as it deals with stubbornly high inflation.

Powell acknowledged that stabilizing prices necessitates making difficult decisions that can be politically unpalatable in a speech he gave to Sweden’s Riksbank.

“Price stability is the foundation of a strong economy and offers the general public great benefits over time. Although we raise interest rates to slow the economy, preserving price stability when inflation is excessive may necessitate measures that are unpopular in the short term.

We are able to take these critical actions without taking into account short-term political concerns since we are not directly under political authority, he continued.

Following Powell’s remarks, there was going to be a Q&A session to talk about central bank independence.

The Fed hiked interest rates seven times in 2022 for a total rise of 4.25 percentage points and has signaled that additional hikes are possible this year, but the speech offered no clear indications of where policy is headed in that regard.

The Powell Fed has seen vociferous resistance from both sides of the political spectrum, even though elected officials often criticize Fed decisions in calmer tones.

While progressive figures like Sen. Elizabeth Warren, D-Mass., have opposed the most recent round of rate hikes, former President Donald Trump slammed the central bank while it was raising rates during his term. 

While recognizing that it is essentially the central bank’s role to combat inflation, President Joe Biden has largely refrained from commenting on Fed actions.

Powell has frequently stated that politics have not influenced his decisions. 

BoC Governor Tiff Macklem & Powell on Climate Risks

Given the overall influence on economic patterns, Bank of Canada Governor Tiff Macklem earlier in the day emphasized climate risks as a critical issue for central bankers. 

Macklem focused on the effects that a more unstable environment will have on the domestic economy and suggested that a greater awareness of the risks involved might improve Canada’s stability.

Powell addressed calls from certain lawmakers for the Fed to utilize its regulatory authority to combat climate change in another section of his speech on Tuesday. 

According to Powell, the Fed should “stick to our knitting” and refrain from straying to seek out alleged societal advantages that are not closely related to our statutory objectives and authorities.

Powell said that the Fed should only ask large banks to assess their financial preparedness for catastrophic climate-related calamities like storms and floods.

The Fed will start a pilot program this year that requires the six largest banks in the country to participate in a “scenario analysis” designed to test the stability of institutions in the case of significant climatic catastrophes.

The simulation will be conducted separately from the so-called stress tests, which the Fed uses to evaluate how banks would do in fictitious economic downturns. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo are among the participating institutions. 

Will the US CPI Continue to Fall?

Although the markets have given up on an early Fed reversal, they remain unconvinced that rates will need to be raised excessively to enter the restrictive zone. 

The following crucial data point, the consumer price index for December, is due on Thursday and will either confirm or refute predictions of a more aggressive Fed and future rate rises.

The US is experiencing clearly declining inflation. The question at hand is how long it will take for it to return to inside the Fed’s 2% goal and whether there is a chance that it will start to creep back up before achieving the target.

US CPI

The CPI data for December will provide a clearer picture of this. The inflation rate in America may dip below 7% in December for the first time in 13 months after dropping to 7.1% in October. 

Although the month-over-month rate is anticipated to remain at a meager 0.1%, the core measure may accelerate somewhat from 0.2% to 0.3% m/m.

The U.S. consumer price index inflation data that will be released on Thursday is anticipated to be the next significant market catalyst, but as the reporting season for the fourth quarter of 2022 gets underway, corporate results are gaining more attention as they will officially get started on Friday with the big banks. 

AUD/USD Down Ahead of Australia Monthly CPI

November 2022’s Australian monthly CPI report is due today, January 11, 2023. In the twelve months leading up to November, the monthly CPI indicator increased by 7.3%. 

Given that China is Australia’s largest export market, any December numbers increase might support the Australian currency and the stock market.

Australia CPI

For the Aussie, the domestic CPI statistics released on Wednesday will also be important. 

Like in most other nations, Australia’s inflation appears to be at its high, but the Reserve Bank of Australia may have acted prematurely by switching to 25-bps hikes or even thinking about suspending soon.

Additionally, it is anticipated that Australia’s retail sales will increase to 0.6% from -0.2% last month. For the Australian Dollar to advance versus the US dollar, traders would need to see both data releases above market forecasts.

The Australian Dollar (AUD/USD) decreased little in value versus the US Dollar, closing at 0.6895 from its opening price of 0.6912. The Australian Dollar fell to a low overnight of 0.6860 before rising at the closing. 

Look for immediate support on the day at 0.6860 to halt any rash selling. At 0.6830, the following support level can be found. At 0.6920, there is the immediate resistance, then 0.6950.

For the Aussie, the domestic CPI statistics released on Wednesday will also be important. 

Like in most other nations, Australia’s inflation appears to be at its high, but the Reserve Bank of Australia may have acted prematurely by switching to 25-bps hikes or even thinking about suspending soon.

Additionally, it is anticipated that Australia’s retail sales will increase to 0.6% from -0.2% last month. For the Australian Dollar to advance versus the US dollar, traders would need to see both data releases above market forecasts.

The Australian Dollar (AUD/USD) decreased little in value versus the US Dollar, closing at 0.6895 from its opening price of 0.6912. The Australian Dollar fell to a low overnight of 0.6860 before rising at the closing. 

Look for immediate support on the day at 0.6860 to halt any rash selling. At 0.6830, the following support level can be found. At 0.6920, there is the immediate resistance, then 0.6950.

AUD/USD

The RBA may need to be more accurate with how tough it will be to get inflation all the way down to its goal range of 2-3%, given that it is currently 6.9%, which is far too high. 

Consequently, an unexpected upturn might support the Australian dollar even more, which has already gained 10% since its October lows.

Bitcoin 17K Lacks Fed Catalyst, Awaits CPI

According to data, BTC/USD reached fresh regional highs of $17,504 on Bitstamp. 

The pair demonstrated unusual upside momentum against a backdrop of some of the lowest volatility ever recorded throughout the holiday season, almost tying with the peak from Dec. 16.

BTC/USD 1-hour candle chart

BTC/USD 1-hour candle chart

Future macroeconomic data from the United States are expected to cause traders and analysts to react in an unpredictable manner.

The Consumer Price Index (CPI) print, which is due on January 12, is anticipated to support the idea that inflation is declining and present a potential window of opportunity for risk assets.

However, a lot of people advised caution because there are still no indications of fundamental price support.

Markets were underwhelmed by Jerome Powell’s remarks the day before, which avoided discussing potential policies or the status of the economy.

The cautious attitude of traders seemed indicative of the general apathy among market players on the day, with little hope for a long-lasting rally in BTC.

In recent weeks, low price forecasts have persisted, with some of the most well-known traders focusing on $12,000, $10,000, or even lower prices.

Meanwhile, a drop to as low as $14,000 remained conceivable should bearish tendencies reappear. Liquidity indicates that reaching 24k may be somewhat difficult.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.