US Dollar Index
After weak CPI data, the USD has seen a strong pullback. The Federal Reserve should no longer be concerned about the deflation trajectory. The USD index further declined, reaching a low of 104.07. During the Asian session on Thursday, the USD index continued its second day of decline near 104.95. Despite the cautious stance of Federal Reserve Chair Jerome Powell, the USD index saw a slight drop. On Wednesday, Powell told the House Financial Services Committee that the US central bank would make rate decisions based on data, upcoming information, changing outlooks, and risk balances, rather than political considerations. Powell added that it would be inappropriate to lower policy rates until there is greater confidence that inflation is moving sustainably toward the Fed's 2% target. On the other hand, safe-haven sentiment ahead of key economic data, along with political uncertainty in Europe and geopolitical risks in the Middle East, might provide some support for the safe-haven USD.
From a technical perspective, the USD index, a measure of the USD's value relative to a basket of foreign currencies, has been fluctuating between 102.00 and 106.50 since early January. The index fell from a high of 112.17 in September 2022 and dropped to 99.00 in July 2023, as markets began to anticipate the end of the Fed's tightening cycle. There are no signs of the USD index breaking out of the 102.00 - 106.50 range, which likely depends on market perceptions of rate cuts. If the USD index achieves a bullish breakout, it would target 106.51, the monthly and annual high for this year, and 107.11 (the high from November last year). This seems the most likely scenario at present. A break below 102.00 seems far-fetched at this stage. Interim support lies at 104.40 (200-day moving average) and 103.99 (June low). For the USD index to break the 102.00 mark, it must break through the 103.99 - 104.40 range, but the current US economic situation does not support this scenario.
Today, consider shorting the USD index around 104.60, with a stop loss at 104.70 and targets at 104.25 and 104.20.
WTI Crude Oil
Midweek, investors have started to increase their holdings in WTI crude oil again. The impact of Hurricane Beryl on oil supply was less than expected. The resilience of WTI crude, as commodity traders increased their holdings, has led CTAs to also increase their positions in WTI. These funds are likely to continue holding their positions unless oil prices drop below the critical $80 per barrel level, which has remained strong since the supply risk premium from Middle East tensions was reinstated. Experts believe the hurricane season will arrive early. However, without escalating into a broader conflict, the risk premium associated with Middle East tensions tends to dissipate quickly. With systemic capital flows reaching high long levels, a reduction in the risk premium could soon pressure the market due to a lack of sustained buying. Meanwhile, Hurricane Beryl's impact on oil supply was less than expected, adding further downward pressure on the market.
From the daily chart, WTI crude oil remains in a short-term technical adjustment, falling from the nearly two-month high of $84.65 earlier in the week to a midweek low of $80.80, just above the technical support level of $80.00. Since mid-June, the chart shows oil prices breaking out of the consolidation pattern in June. However, as bears seem to drive prices down to the 200-day moving average at $80.00 and $78.60, the price action might have re-entered a technical adjustment phase. Once it falls below the 200-day moving average, the trend seems to weaken. Conversely, if oil prices can rise above the $81.81 and $81.76 levels, the trend will resume its rebound. The next level will look towards $83.50, with a breakout challenging the April 26 high of $84.50 and the double top formed around last Friday’s high of $84.65.
Today, consider going long on crude oil around $82.70, with a stop loss at $82.50, and targets at $83.80 and $84.00.
Spot Gold
After the release of June's Consumer Price Index data, the benchmark 10-year US Treasury yield fell over 2% in a day, below 4.2%, boosting gold prices. On Thursday, gold prices continued their upward momentum for the third consecutive day. Following Federal Reserve Chair Jerome Powell's testimony earlier in the week, the gold rally saw a brief pause. Powell's cautious attitude towards a relaxed job market triggered another decline in the USD and US Treasury yields. With the weakened USD, gold prices surged towards $2,400 again. On Thursday, risk capital flowed into Asian markets, and the USD's decline supported gold prices. Gold might break resistance and retest its historical highs as the USD could follow the Treasury yield's downturn. Additionally, speeches from Federal Reserve officials and US President Biden might impact USD-denominated gold prices. Biden might share his views on June's inflation data and the timing of the Fed's rate cuts. The market might also focus on his comments on nomination issues, given long-standing concerns about Biden's age and suitability for re-election as US President.
The short-term technical outlook for gold remains favorable for bulls, with the 14-day Relative Strength Index (RSI) pointing above the 62 level. Gold bulls must break above the six-week high of $2,393 to resume the uptrend, targeting $2,432 (April 12 high) and, if broken, advancing towards the historical high of $2,450. Before this, the $2,400 level could be a key hurdle. On the downside, gold might find immediate support at the psychological level of $2,350, with a break below challenging the $2,340 demand area. Near this level, the 50-day ($2,343) and 20-day ($2,338) simple moving averages converge. A sustained break below the latter might trigger a new round of declines, heading towards the $2,300 round figure.
Today, consider going long on gold before $2,412.00, with a stop loss at $2,408.00 and targets at $2,428.00 and $2,435.00.
AUDUSD
The Australian dollar has maintained strong upward momentum, testing the 0.6800 boundary amid increased USD selling pressure and expectations of a Fed rate cut. The rising likelihood of a Trump victory in November suggests that the AUD, sensitive to China, may face long-term troubles. The Reserve Bank of Australia (RBA) may be dealing with the most severe inflation issue among G10 countries. Persistent monthly CPI data is bringing it closer to another rate hike. July 31 will be a decisive day when Q2 CPI data is released; if the data surprises to the upside, the market expects the RBA to hike rates in August. Even if another rate hike can be avoided, the prospect of a rate cut is becoming increasingly dim. Given the market's reward for hawkish monetary policy, the AUD has room to rise this summer before the US election becomes a critical factor.
AUD/USD continues to rise, leading the pair to midweek gains. The outlook remains optimistic, with technical indicators like the 14-day Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) staying strong in the deeply positive region. Following the pair's performance reaching the highest point since January at 0.6798, the trend suggests a bullish outlook. Therefore, on the upside, focus on 0.6800 (a psychological level); a break would target the December 2023 high of 0.6871. However, traders appear to be consolidating these gains, which limits the upside potential. In case of a correction, the support level to monitor is near 0.6700, with additional support around the 50-day moving average at 0.6653. A break below this level might push the pair towards the psychological support at 0.6600.
Today, consider going long on the AUD before 0.6745, with a stop loss at 0.6730 and targets at 0.6790 and 0.6805.
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.
