US Dollar Index
The US Dollar, represented by the Dollar Index, continued to show weakness as traders evaluated a series of data released on Wednesday. US traders remain on standby, celebrating Independence Day. Midweek, after the release of strong ADP labor market data, the Dollar Index fell to its lowest level since June 18, slightly above 105.00. Additionally, the minutes from the Federal Open Market Committee (FOMC) June meeting indicated that members acknowledged easing price and overall economic pressures. Before the July 4 Independence Day holiday, US Treasury yields declined across the board, and another round of data-driven sell-offs pushed the Dollar back to multi-day lows. Moreover, ahead of France's second-round election next weekend, the market is expected to closely monitor the UK election. The Dollar Index accelerated its decline due to poor US economic data and the Independence Day holiday on Thursday.
Midweek, the short-term outlook for the Dollar Index turned negative, with technical indicators like the 14-day Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) both in negative territory. Notably, the bulls lost their position above the 20-day moving average (105.45). The market should watch for potential pullbacks around the 105.00 (psychological level) and 104.75 (100-day moving average) regions. On the upside, the former support level at the 20-day moving average of 105.45 has now become a resistance line. The next level to watch is 105.80 (Wednesday's high), as deflation and the continuously improving labor market in the US enhance investor confidence in a potential rate cut in September. However, Fed officials have shown restraint and continue to maintain a data-dependent approach.
Today, consider shorting the Dollar Index around 105.30, with a stop loss at 105.45 and targets at 104.80 and 104.79.
WTI Spot Crude Oil
WTI maintains gains above $84.00, with the US non-farm payroll data becoming a focal point. For the week ending June 28, crude oil inventory declines exceeded expectations, continuing to support downward pressure on oil prices. The strength of the US labor market seems to be slowing down. US WTI crude oil rebounded to higher levels this week, recovering to $84.50 per barrel after falling slightly below $82.00 per barrel. The US Energy Information Administration (EIA) reported a significant week-on-week decrease in US crude reserves, triggering a risk rebound despite underwhelming US economic data that initially caused a sharp drop in reserves. EIA data showed that US crude oil inventories for the week ending June 28 decreased by 12.157 million barrels, far exceeding the forecasted 150,000 barrels and completely offsetting the previous week's increase of 3.591 million barrels. The EIA also noted similar declines in gasoline and distillate inventories during the same period, albeit to a lesser extent. The ongoing and intense Israeli-Palestinian Hamas conflict in the Middle East continues to pose a risk to firm crude prices, as energy traders fear that instability could lead to the conflict spreading to neighboring countries, especially directly involving Iran.
Despite a midweek bullish outlook, WTI traded below the peak near $84.55 earlier in the week, finding new technical support at $81.62 (Monday's low) and the 200-hour exponential moving average at $81.55. After a bullish breakout from a recent tough consolidation phase, WTI is leaning more towards a bullish trend, with upside targets at $84.50 and around $85.48 (April 19 high). Conversely, momentum remains weak, and crude prices might retreat to $82.56 (23.6% Fibonacci retracement level of $67.94 to $87.08) and $81.62 (Monday's low) before resuming the next upward wave.
Today, consider going long on crude oil around $84.00, with a stop loss at $83.70, and targets at $84.90 and $85.20
Spot Gold
Gold prices are striving to extend their gains and are trading within a narrow range above $2,350. The persistent weakness of the US dollar, along with the low yields on US Treasury bonds, is helping to limit gold's downside ahead of the crucial US June employment report on Friday. Early Thursday, spot gold prices aimed to continue their previous upward momentum, currently near a one-week high of $2,360. With US markets closed on July 4th for the holiday, the subdued market conditions, alongside the ongoing decline in the dollar and US Treasury yields, are supporting gold prices. The Federal Reserve released the minutes from its June meeting, highlighting that officials emphasized it would be inappropriate to lower the target range for the federal funds rate until they have more confidence that inflation is sustainably moving towards the committee's 2% target. This led to a sharp decline in US Treasury yields, significantly dragging down the dollar. Gold prices often benefit in low-interest-rate environments. Ahead of the US Independence Day holiday, gold continues to capitalize on dovish Fed expectations, and its movement might be exacerbated by low liquidity and position adjustments before the US non-farm payroll data on Friday.
From a daily chart perspective, gold prices broke above the critical 50-day simple moving average (at $2,339.00) midweek, surpassing this week's consolidation range. The bullish breakout gained momentum as prices also closed above the descending resistance line at $2,353.00. The 14-day Relative Strength Index (RSI) broke above the 50 level (last reported at 55.50), reinforcing bullish interest. Gold buyers now need to consistently break above the two-week high of $2,369 to extend the rally towards the June high of $2,389. Further upward, the $2,400 threshold will be tested. Conversely, the immediate support is now at the descending trendline resistance turned support level at $2,350. If selling pressure intensifies, gold sellers might target the 25-day moving average at $2,330.50.
Today, consider going long on gold around $2,354.00, with a stop loss at $2,350.00, and targets at $2,368.00 and $2,372.00.
AUDUSD
In the short term, AUD/USD is targeting the 0.6800 level again. The pair has gained additional upward momentum and continues to consolidate its break above the critical 0.6700 level, supported by ongoing USD selling pressure and strong domestic performance. AUD/USD has significantly rebounded and finally broke through the key 0.6700 level, reaching a six-month high. This is due to positive domestic data from Australia and further selling pressure on the USD, especially after the release of weak US economic data. Alongside the strong rebound of the AUD, copper and iron ore prices also seem to have broken out of their multi-week consolidation phases, closing with substantial gains. In terms of monetary policy, the Reserve Bank of Australia (RBA), like the Federal Reserve, is expected to be among the last of the G10 central banks to start cutting rates. In its recent meeting, the RBA maintained a hawkish stance, keeping the official cash rate at 4.35% and stating that future decisions will be flexible. The potential dovish policy of the Federal Reserve contrasts sharply with the RBA's possibly prolonged restrictive stance, which could support AUD/USD in the coming months. However, concerns over China's post-pandemic challenges and its economic slowdown may hinder the sustained recovery of the AUD.
From the daily chart, if the bulls push further, AUD/USD will break through Wednesday's high of 0.6733, then may face 0.6760 (the high of January 4). Following that, 0.6800 (a psychological level), and further, directly targeting the top of December 2023 at 0.6871, then the high of July 2023 at 0.6894 (July 14), and the critical 0.7000 level. Conversely, if AUD/USD takes on a bearish inclination, it may push the pair lower, first to the 25-day moving average at 0.6650, with further support at 0.6600 (a psychological level). The June low at 0.6574 (June 10), and then the significant 200-day moving average at 0.6560.
Today, consider going long on AUD/USD around 0.6715, with a stop loss at 0.6700, and targets at 0.6750 and 0.6760.
GBPUSD
GBP/USD rises ahead of the UK election results, consolidating around 1.2750 during the US session on Thursday. The widespread weakness of the US dollar has supported the pair, but traders have refrained from making new bets on the pound while waiting for the UK election exit polls. GBP/USD has extended its recent rebound, reaching just below 1.2800 midweek, supported by disappointing US ISM Services PMI data, which heavily pressured the dollar and aimed the pair at new multi-week highs. The market may remain subdued as US markets are closed on Thursday for the holiday. The US ADP Employment Change for June fell from 157,000 in the previous month to 150,000, below the expected 160,000. A deeper look into the ADP Employment Change shows that many new jobs were in lower-paying sectors like leisure and hospitality, which typically see fewer job additions.
The pound has continued its recent bullish rebound from the demand area below 1.2615, climbing to 1.2780 midweek and pushing the buying interest significantly above the 1.2700 psychological level and the July 1 high of 1.2709. Despite the midweek bullish rebound, a substantial supply area awaits buyers above the 1.2800 level. A sustained breakout could target 1.2860 (June 12 high). Conversely, if sellers regain control in the short term, the next target is the 1.2700 psychological level. If the pound weakens further, the pair may fall to the 50-day moving average at 1.2666, which would attract further attention.
Today, consider going long on GBP/USD around 1.2735, with a stop loss at 1.2720 and targets at 1.2780 and 1.2790.
USDJPY
USD/JPY surged to 161.00 during the US holiday, with the yen rising against the dollar when US markets were closed. Despite concerns over the end of bond purchases, the 30-year bond auction progressed smoothly. The dollar index was hit by dovish US economic data and weaker trading, hovering slightly above 105.00 as the yen appreciated against the dollar on Thursday. USD/JPY fell back from the peak of 161.95 to around 160.94, the highest level since 1986. Traders continue to watch the significant movements of the yen and potential interventions by Japanese authorities to prevent excessive depreciation. The yield differential appears crucial for the USD/JPY outlook. The yen's weakness puts downward pressure on consumer confidence, and forex intervention may be imminent. Following an overnight rise on Wall Street, the Nikkei 225 index climbed near 40,700 points on Thursday. The weak yen also boosted profit prospects for Japan's export-oriented industries, lifting the stock market. Weak economic data has bolstered expectations for a Fed rate cut in 2024, lowering US Treasury yields and challenging the dollar. US markets were closed Thursday for the Independence Day holiday.
The uptrend in USD/JPY remains intact amidst rising risks of intervention by Japanese authorities or the Bank of Japan in the forex market. USD/JPY continues to climb steadily, currently at multi-year highs, with buyers eyeing a test of 162.00 (psychological level); 162.15 (upper boundary of the rising channel around 162.15 and 162.17 (123.6% Fibonacci retracement of 160.20 to 151.85). The 14-day Relative Strength Index (RSI) has turned overbought but shows no signs of reversing. Nonetheless, the path of least resistance is upward, with resistance at the aforementioned levels. Once broken, the next stop would be the psychological resistance at 163.00 and the 123.6% Fibonacci retracement level at 164.37 of 160.20 to 151.85. On the downside, there is short-term support at 160.75 (midline of the rising channel) and near the 9-day moving average at 160.65. A break below this level could weaken the bullish bias, potentially pushing USD/JPY towards 160.00 (psychological level).
Today, consider shorting USD/JPY around 161.40, with a stop loss at 161.60 and targets at 160.60 and 160.40.
EURUSD
The upcoming US non-farm payroll data will test the EUR/USD rebound. EUR/USD has maintained its multi-day upward trend, breaking through the 1.0800 level in response to the ongoing downward pressure on the dollar, all ahead of the critical non-farm payroll data release at the end of the week. During the European session on Thursday, EUR/USD consolidated within a narrow range around the 1.0800 psychological resistance level. Uncertainty ahead of the US June non-farm payroll data on Friday and the second round of French legislative elections on Sunday led the pair to move sideways. Additionally, trading volumes appeared lower due to the US Independence Day holiday. The cooling of the US labor market heavily weighed on the dollar. Midweek, US ADP employment data showed an unexpected cooling in labor demand in the private sector for June. Furthermore, the initial jobless claims data for the week ending June 28 also indicated signs of easing labor market conditions.
EUR/USD traded within its midweek range around 1.0800. The pair has climbed above the 20-day and 14-day moving averages, located near 1.0738 and 1.0730 respectively, indicating a stable recent outlook. The long-term appeal of EUR/USD has also improved, with the 14-day Relative Strength Index (RSI) oscillating around 53.50, suggesting a slight advantage for bullish market participants. Additionally, the pair has risen above the 200-day moving average near 1.0794. Therefore, the upside targets to watch are the weekly high of 1.0852 (June 12) and 1.0916 (June 4 high). The triangular reversal pattern on the daily chart indicates that volume is low and price range is narrow. If bears regain control, EUR/USD could retest 1.0700 (psychological level), adapting to the June low of 1.0666 (June 26), and ultimately the 2024 low of 1.0601 (April 16).
Today, consider going long on EUR/USD around 1.0795, with a stop loss at 1.0780 and targets at 1.0850 and 1.0860.
Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
