Buying at Lows after Pullback

Commodity

Summary:

Affected by the news of a new round of US sanctions against Russia, WTI crude oil has accelerated its rise to just below the resistance level. There is a need for a short-term pullback. Buying at lows after a pullback is suggested.

BUY WTI

Close Time

CLOSED

75.694

Entry Price

79.100

74.500

75.898 +0.119 +0.16%

9.8

Pips

Profit

74.500

75.792

Exit Price

75.694

Entry Price

79.100

Fundamentals

Supply Side

On January 10, current US President Joe Biden announced a new round of sanctions on the Russian economy, targeting Russia's two largest oil companies and 183 oil tankers. It is expected to impact Russia's crude oil exports by over 1 million barrels per day, tightening the global crude oil market supply and thus driving oil prices steadily higher. On the same day, the maximum increase of WTI crude oil was nearly $4.

In addition, there are rumors that the administration of President-elect Donald Trump may strengthen sanctions against Iran in the coming months, which will continue to support crude oil prices.

Demand Side

The US nonfarm payroll report for December was strong. The number of newly added nonfarm jobs reached 256,000, far higher than the market expectation of 160,000. The unemployment rate dropped to 4.1%, indicating a good recovery trend of the US economy. Market confidence has been greatly boosted, which usually drives an increase in energy demand. At the same time, the cold weather in the Northern Hemisphere has increased the heating demand, stimulating the consumption of heating oil and diesel.

Moreover, China, the largest crude oil consumer in Asia, has seen steady economic growth recently, which will stimulate an increase in crude oil demand. According to data released by the National Bureau of Statistics of China on Monday, both China's exports and imports in December far exceeded expectations, and the trade surplus hit a record high of $990 billion.

Overall, the tight supply situation of crude oil continues in the short term, and the demand side is also growing continuously, which will support the continued rise of crude oil prices.

Technical Analysis

Based on the daily chart, spurred by the news of the new round of US sanctions against Russia, WTI crude oil has accelerated its rise to below the resistance level of 78.00. The short-term upward pressure has increased, and the RSI has also entered the overbought area, indicating a higher possibility of limited upside space and a pullback.

Regarding the 4-hour chart, WTI crude oil has started to oscillate and consolidate below the resistance level of 78.00. The bullish momentum has weakened to some extent. However, the moving average system maintains a bullish arrangement, indicating that this commodity is still in an uptrend and the continuity of the upward movement is strong.

It is better to wait for a retracement and stop buying. Try to buy at lows when necessary.

Trading Recommendations

Trading direction: Buy

Entry price: 75.70

Target price: 79.10

Stop loss: 74.50

Valid Until: January 28, 2025, 23:00:00

Support: 75.58/74.72/72.31

Resistance: 77.79/78.75/79.25

Risk Warnings and Disclaimers

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Warren Takunda

Commodity

Summary:

Gold prices bounce back from Monday's losses, bolstered by news that the Trump administration may introduce tariffs gradually to avoid an inflation shock.

BUY XAUUSD

Close Time

CLOSED

2664.95

Entry Price

2740.00

2635.00

2756.70 +12.12 +0.44%

205.9

Pips

Profit

2635.00

2685.54

Exit Price

2664.95

Entry Price

2740.00

Gold (XAU/USD) prices halted their sharp decline on Monday and bounced back with a slight gain on Tuesday, trading near $2,670 at the time of writing. This recovery comes as market sentiment shifts, following reports that the President-elect Donald Trump administration is considering a more gradual approach to the implementation of its planned tariffs, which have long been a source of market uncertainty. Traders and investors, particularly in the precious metals markets, are viewing this move as a signal of caution, aiming to avoid an inflation shock that could exacerbate existing economic pressures.

The news of the potential gradual tariff rollout has provided some relief to gold prices, which had suffered under the weight of expectations regarding Federal Reserve policy rate hikes earlier in the week. At the core of the market's initial concern was speculation about rising interest rates, particularly in the wake of persistent inflationary pressures and the Fed’s ongoing stance towards tightening. However, the potential tariff strategy outlined by sources close to the Trump administration has reignited hopes for a more measured and cautious economic approach.

Sources familiar with the matter revealed that the Trump administration is exploring a gradual introduction of tariffs, as opposed to an immediate and aggressive implementation, which had previously been expected. The administration is particularly focused on avoiding a potential inflationary shock that could disrupt economic recovery. According to these sources, the Trump administration is wary of the impact that steep tariffs could have on consumer prices, which may cause inflation to spike, further complicating the Federal Reserve’s already delicate task of managing monetary policy.

The news regarding the tariff approach comes amid heightened market sensitivity to inflation data. Investors are already bracing for key economic reports, including the release of the US Producer Price Index (PPI) on Tuesday, followed by the highly anticipated Consumer Price Index (CPI) report on Wednesday. Market watchers are aware that any unexpected spikes in these inflation indicators could lead to a significant market reaction, particularly in the bond and forex markets. A hotter-than-expected PPI number, for instance, could fuel speculation of an even more aggressive response from the Fed, potentially pushing US yields higher once again. This scenario could overshadow the positive sentiment stemming from the tariff news, as investors may reassess their expectations for monetary policy going forward.

The key to understanding the price movement of gold and other assets this week lies in the upcoming inflation data. While the news about a more gradual tariff approach has given the market some relief, a strong print for PPI or CPI could undermine that optimism, driving yields higher and reigniting concerns over the Fed’s tightening cycle. With market participants already on edge about the Fed’s next moves, an upside surprise in inflation data would likely remove any remaining possibility of a rate cut in 2025, which many traders have hoped for in light of recent economic slowdowns.

As it stands, the CME Fedwatch tool shows a significant chance of the Federal Reserve maintaining the current policy rate until its meeting in June 2025, with 47.2% odds of rates remaining unchanged compared to 52.8% odds for a rate cut. This balancing act by the Fed is critical, as any deviation from the expected path could cause a sharp revaluation of asset prices, including gold, which typically thrives in low-rate environments.

Technical Analysis

From a technical perspective, gold’s price has been testing minor resistance levels in its ongoing rally. At the time of writing, XAU/USD was nearing the $2,673.70 mark, a level that could act as a key barrier for further upside momentum. Traders will be closely watching whether gold can breach this resistance to confirm the potential for a push toward the $2,700.00 level, which is considered the next major target. Stochastic indicators are currently signaling positive momentum, which aligns with the ongoing bullish trend, provided the price maintains stability above $2,659.00.

For traders, the short-term outlook remains positive, with expectations of continued upward pressure as long as gold holds above key support at $2,659.00. The expected trading range for the day is seen between $2,655.00 (support) and $2,695.00 (resistance). Given the bullish bias supported by technical indicators, a breakout above $2,673.70 could trigger further buying interest, propelling gold to its next target near $2,700.00.

TRADE RECOMMENDATION

BUY GOLD

ENTRY PRICE: 2665

STOP LOSS: 2635

TAKE PROFIT: 2740

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The USD/JPY has surged toward the 158.00 mark as demand for the Japanese yen weakens. Investors are awaiting the release of US inflation data for December, which is expected to guide future interest rate decisions.

BUY USDJPY

Close Time

CLOSED

158.000

Entry Price

160.000

156.000

155.826 +0.344 +0.22%

200.0

Pips

Loss

156.000

155.999

Exit Price

158.000

Entry Price

160.000

The USD/JPY currency pair has made significant strides, gaining ground to near 158.00 during Tuesday's European session. This rally comes as the Japanese yen (JPY) loses its strength, with safe-haven demand subsiding. Over the past few trading days, the yen had managed to maintain a firm stance against the US dollar (USD), despite the latter reaching a fresh two-year high. However, the prevailing market sentiment now appears to favor riskier assets, which has pressured the yen lower and given the USD/JPY a bullish boost.

The Japanese yen had benefited from safe-haven flows in recent months, but this support has started to fade as investors have shifted their focus to more risk-on assets. The reversal comes amid expectations of potential shifts in monetary policy, particularly in the US, which has led to a reduction in safe-haven inflows to the yen. As the USD/JPY pair nears the 158.00 mark, the market’s attention is now firmly on key upcoming events that could further influence the yen’s path.

A significant catalyst for the USD/JPY's recent strength has been the anticipation surrounding the release of the US Consumer Price Index (CPI) data for December. The data, due out on Wednesday, will provide crucial insight into inflationary pressures in the US and could shape expectations surrounding future Federal Reserve interest rate hikes.

Bank of America analysts have highlighted the sensitivity of the USD/JPY to surprises in the CPI print, noting that any upside surprise could reignite upward pressure on the pair. "If US CPI surprises to the upside this week, upward pressure for USD/JPY spot is likely to resume, due to the pair's high sensitivity to CPI surprises," the analysts wrote.

The broader market consensus is that the US annual headline inflation for December is expected to have risen by 2.8%, slightly above the 2.7% increase seen in November. Core CPI, which excludes volatile food and energy prices, is forecast to have remained steady at 3.3%. Should the CPI data align with or exceed these expectations, it would serve to reinforce the narrative of persistent inflationary pressures in the US, further diminishing the likelihood of dovish Federal Reserve policy moves.

The Federal Reserve’s stance has already begun to shift in recent weeks, particularly following the surprisingly strong US Nonfarm Payrolls (NFP) data for December. The strong jobs report has tempered earlier dovish expectations, suggesting that the US labor market remains resilient despite broader economic uncertainties. As a result, market participants are increasingly pricing in the potential for the Fed to maintain a more hawkish stance for the foreseeable future.

The Japanese yen, on the other hand, is facing its own set of challenges. On the domestic front, speculation is mounting regarding the Bank of Japan's (BoJ) forthcoming interest rate decision. The BoJ’s policy meeting on January 24 will be closely watched for any signals of tightening, especially in light of recent remarks from BoJ Deputy Governor Ryozo Himino. In a statement on Tuesday, Himino indicated that the central bank would discuss the possibility of raising interest rates, with a decision to be made based on the economic and price projections outlined in its quarterly outlook report.

While the yen has shown resilience in recent sessions, it remains highly sensitive to any signs of policy shifts from the BoJ. Given the BoJ’s long-standing ultra-loose monetary policy, any move towards tightening would likely have a significant impact on the yen’s value, particularly against the US dollar.

Technical Analysis

The USD/JPY is currently hovering near the 50-period Exponential Moving Average (EMA50), suggesting that the pair is consolidating at a key support level. A break above 158.30 would likely signal the resumption of the bullish trend, with the next target seen at 160.00. In the meantime, traders should monitor for any signs of a pullback, as a failure to break above 158.30 could result in short-term consolidation or correction.

The technical outlook remains bullish in the medium term, with traders advised to look for confirmation of this trend in the coming sessions. A breach of the 157.35 level, however, could signal a shift in momentum and bring bearish pressure into play. For now, the bullish trend remains the preferred outlook, with the current expected trading range for USD/JPY seen between 156.90 support and 158.50 resistance.

TRADE RECOMMENDATION

BUY USDJPY

ENTRY PRICE: 158.00

STOP LOSS: 156.00

TAKE PROFIT: 160.00

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The Australian Dollar (AUD) has shown a modest recovery against the US Dollar (USD), bouncing from its lowest level since April 2020.

SELL AUDUSD

Close Time

CLOSED

0.61900

Entry Price

0.60500

0.62500

0.62858 +0.00137 +0.22%

60.0

Pips

Loss

0.60500

0.62500

Exit Price

0.61900

Entry Price

0.62500

The Australian Dollar (AUD) has extended its recent gains against the US Dollar (USD) for a second consecutive day, rebounding from its lowest level since April 2020, when it reached a trough at 0.6131. As of Tuesday, the AUD/USD pair has retested the 0.6200 level, a previously broken support zone, suggesting a potential shift in market sentiment. Despite the Australian currency's recent bounce, the broader market conditions present a mixed outlook, with both positive and negative forces at play.

The rebound in the AUD can largely be attributed to the ongoing strength in global commodity prices. As Australia is a major exporter of commodities, including iron ore and coal, the price movements of these assets play a crucial role in shaping the currency’s performance. Recent improvements in market sentiment, spurred by the stabilization of commodity prices, have bolstered investor confidence in the Australian economy. This has allowed the AUD to find support in a market environment that remains conducive to risk-sensitive currencies.

Further adding to the positive momentum for the Australian Dollar is a shift in the global market narrative. In particular, US President-elect Donald Trump’s economic team has expressed a preference for gradually increasing import tariffs. This stance has buoyed investor confidence, with the potential to reinvigorate global trade flows. The Australian Dollar, being a risk-on currency, stands to benefit from this renewed optimism, which has been reflected in the AUD/JPY cross as well.

Locally, the Australian stock market mirrored the positive movement in the currency, with the S&P/ASX 200 Index increasing by 0.48% to around 8,230 on Tuesday, snapping a three-day losing streak. Mining and energy stocks were at the forefront of this recovery, mirroring the performance of the commodity market. The Australian equity market’s positive performance followed strong gains on Wall Street, where investors, moving away from the megacap tech stocks, shifted their focus to other sectors.

However, the Australian Dollar faces significant headwinds in the near term. A key factor weighing on the currency is the growing speculation surrounding the Reserve Bank of Australia’s (RBA) next move. Market participants are pricing in a 75% probability of a rate cut by the RBA in February, following a second consecutive drop in Australia’s consumer confidence. The Westpac Consumer Confidence Index showed a decline of 0.7% to 92.1 points in January, indicating continued pessimism among Australian consumers. This suggests that domestic economic conditions remain fragile, and further easing by the RBA could put additional downward pressure on the AUD.

Traders are now focused on the upcoming Australian employment data, which will be released later this week, to gauge the strength of the labor market and gain clarity on the RBA’s policy trajectory. If the employment data comes in weaker than expected, it could reinforce expectations of an imminent rate cut, pushing the AUD further into bearish territory.

China’s economic stimulus measures also provide a degree of support for the Australian Dollar. Given the strong trade links between Australia and China, any changes in China’s economic environment are keenly watched by Australian market participants. Recent actions by the People’s Bank of China (PBOC) have shown an increased commitment to providing fiscal stimulus, which could benefit Australian exports, particularly in commodities. This stimulus, coupled with a stronger Chinese economy, could offer a lifeline for the AUD, although its effect may be temporary given the broader market headwinds.

On the other side of the equation, the US Dollar (USD) remains firmly supported by hawkish expectations surrounding US monetary policy. The US Dollar Index (DXY), which measures the performance of the USD against a basket of six major currencies, hovers near 109.60, marking its highest level since November 2022. This strength in the USD is largely driven by the robust performance of the US labor market. The latest nonfarm payrolls (NFP) data for December, which showed an increase of 256,000 jobs, significantly exceeded market expectations of 160,000 and further solidified the case for the Federal Reserve to maintain interest rates at elevated levels.

The strength in the US labor market has pushed US Treasury yields higher, with the 2-year yield climbing to 4.42% and the 10-year yield reaching 4.80%. These movements in the US Treasury market reflect rising expectations that the Federal Reserve will keep rates higher for longer, bolstering the US Dollar in the process. Federal Reserve officials, including Kansas Fed President Jeffrey Schmid, have reiterated the need to tighten monetary policy gradually to bring inflation back under control. Such hawkish rhetoric continues to support the USD’s upward trajectory.

Technical Analysis

The technical outlook for the AUD/USD pair is currently bearish. After testing and retesting the broken support level near 0.6180, the currency pair shows signs of continued decline, with targets potentially extending to 0.6095 and 0.6050.

The 50-day exponential moving average (EMA50) continues to exert downward pressure on the price, reinforcing expectations of further bearish movement. Holding below 0.6180 will be crucial for maintaining this downward bias, with a break above this level likely to suggest a shift towards the resistance line at 0.6275 before any new negative attempts.

TRADE RECOMMENDATION

SELL AUDUSD

ENTRY PRICE: 0.6190

STOP LOSS: 0.6250

TAKE PROFIT: 0.6050

Risk Warnings and Disclaimers

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Winkelmann

Commodity

Summary:

Oil prices have been on a steady rise and are nearing a key resistance level. With the market technically overbought, there's a heightened risk of a potential pullback.

SELL WTI

Close Time

CLOSED

78.000

Entry Price

75.000

79.200

75.898 +0.119 +0.16%

120.0

Pips

Loss

75.000

79.200

Exit Price

78.000

Entry Price

79.200