- US Markets
The SPX Index is down 0.6% today and is currently trading at $6,920.
From a fundamental stance, on the data front, the hawkish stance of the Fed continues to weigh on the SPX index. The Fed held its rate steady at 3.5%-3.75% after three rate cuts. Though the cut was in line with market expectations, there was a shift in the Fed’s outlook – Powell said that “Hiring’s been slow, but unemployment looks stable”, which is a shift as the Fed’s worried about the labour market tanking anymore. Additionally, Powell also hinted towards rising inflation risks. Further pressure was added as the US Senate blocked a funding package, bringing the government one step closer to a shutdown. On the earnings front, SanDisk and Apple’s earnings garnered attention. SanDisk reported fourth-quarter EPS of $6.20, $2.71 better than the analyst estimate of $3.49. Revenue for the quarter came in at $3.03 billion versus the consensus estimate of $2.67 billion. Apple reported a profit of $2.84 per share on revenue of $143.8 billion. Revenue from China reached $25.53 billion, a 38% YoY increase. This rise exceeded the consensus estimate of $21.82 billion.
From a technical standpoint, on the daily chart, the index has trendline support connecting the lows at $6,503 on 21st November, $6,848 on 26th January, and $6,867 on 29th January. However, over the same period, a massive RSI divergence is evident; it is much more pronounced on the weekly chart. Meaning that the trendline support is a pivot, and a break of it could result in a bearish stance on the index.
- U.S. Dollar Index (DXY)
The DXY index rose by 0.40% on the day, trading at 96.50 in early Friday trade.
The dollar rose against the G-10 and Asian currencies due to a sharp revision in market expectations regarding the Fed leadership. The recent news that Trump is likely to nominate Kevin Warsh as the next Fed Chair triggered a relief rally in the USD.
Even though Kevin Warsh has recently advocated for the Fed to adopt lower interest rates, investors are focusing on his historical reputation as an inflation hawk, especially at a time when the Fed’s independence has looked increasingly vulnerable. This reduced the risks related to the Fed capture that had negatively impacted the USD in the previous week.
From a fundamental perspective, the near-term bias for the dollar remains modestly constructive, depending upon the expectations that are already priced in by markets. Warsh will probably resist any aggressive pressure for rate cuts from the White House. As long as these factors are true, USD has room to continue its advance as concerns about Fed independence begin to dissipate over time from last week’s events. However, should the nomination of Warsh also send a message that he will immediately begin to capitulate to political pressure for lower interest rates, then the current rally will prove to be short-lived. In this case, the current downtrend for the USD will quickly resume once the initial Fed Chair appointment-related uncertainty subsides.
Today’s move for the USD represents a relief rally and should be viewed as such. For the USD to remain strong, Warsh will need to send a clear message about the Fed’s institutional independence and policy discipline in the coming days.
EURUSD is stabilising around 1.1920 after spiking to 1.2081 and quickly retracing, with the pair now holding above key support at 1.1905. The EUR/USD is confined between 1.1905 and 1.2000. However, the broader bullish trend is still intact as long as the pair hold the 1.1835 level, and upside momentum will only resume on a break back above 1.2000. Thus, today’s trend is bearish.
- Crude Oil
After gaining steadily for three straight sessions, oil retreated in early trading on Friday as markets were gripped with a risk-off sentiment following Trump’s fresh wave of threats against Iran. Brent slipped below the $70 threshold while WTI fell below $66 as the dollar rebounded. Trump indicated that he would likely appoint Kevin Warsh as the next Fed chair, who is known for his hawkish tendencies. This helped the dollar rebound while also sending treasury yields higher, thereby exerting pressure on oil. Nonetheless, recent gains in crude oil sparked by rising geopolitical risks have put Brent on track for its largest monthly gain since 2022. U.S. aircraft-carrier strike groups have arrived in the Middle East, and if the U.S. strikes Iran, it could prompt Iran to retaliate. OPEC+ countries are scheduled to meet this Sunday to discuss March’s supply policy, and markets broadly expect the cartel to remain on pause.
Brent is down 1.83% at $68.41, with support at around $67.08, followed by the next support at $66.88. It could encounter resistance at around $70.47. WTI is down 1.58% at $64.19, with support around $63.45, and resistance at around $66.40.
- Gold and Silver
Gold fell by 0.89% yesterday and is down by 4.44% in the early trading hours. As for silver, it dropped by 0.68% and is down by 7.38% this morning. The selloff is mainly attributed to profit-taking.
On a fundamental level, global uncertainty remains high, keeping gold bullish. Trump said that “very big, powerful ships” are sailing toward Iran, adding to geopolitical risk. However, as gold and silver hit record levels, a round of profit-taking followed. Markets are also focused on Trump’s announcement of the new Fed Chair on Friday morning. Investors expect Kevin Warsh, who is seen as hawkish. This has pushed the dollar higher, and a stronger dollar usually puts pressure on gold prices. Large swings in gold and silver were expected as volatility continues to rise. Silver volatility (SLV) is currently around 96%, while gold volatility (GLD) is near 46%. While the long-term bullish case for gold and silver remains, investors should be cautious of sharp moves in either direction.
On a technical level, yesterday gold reached its highest point at $5584, before retreating and closing at $5,364. On the upside, yesterday’s high ($5584) may act as resistance. A break above this point can lead to further upside towards $5,700. On the downside, potential support lies between $4988 and $5000.
For silver, resistance is seen near the psychological level of $120. Silver touched $120.86 yesterday before retreating to $116. Currently, silver is at $108. Silver may reach its next resistance at $112, as shown on the four-hour chart. A sustained break above this level could strengthen bullish momentum and push prices toward $120. On the downside, support lies near $104. A break below this level could lead silver to meet its next support at the psychological $100 level.
