US Dollar Index
Last week, the US Dollar Index remained weak, staying at its April low. This was primarily in response to weak US Consumer Price Index data, coupled with weak sentiment data from the University of Michigan, both of which support the prospect of a Federal Reserve rate cut in September. Although market confidence in the forthcoming rate cut is increasing, Fed officials have maintained a cautious attitude, emphasizing that they rely on strict data analysis before initiating such significant changes.
The US Dollar Index, which tracks the dollar against six major currencies, fell last week following the release of weaker-than-expected inflation data, dropping 0.75% for the week to a nearly one-month low of 104.04. The market anticipates that as long as the data continues to follow the recent trend, the Fed will use the end-of-month FOMC meeting to signal readiness for a rate cut at the September meeting. This suggests that over the next month or so, the dollar should continue to fall to the 103-102 range. The expectation of a deeper Fed rate cut cycle and concerns about the size of the US fiscal deficit are both near- and long-term adverse factors for the dollar.
From a fundamental perspective, given the market's growing confidence in the Fed's easing policy, the dollar is likely to weaken again, and the Dollar Index may retest the March lows of 103-102. Last week, the Dollar Index broke through its 200-day simple moving average of 104.44, exacerbating the negative outlook for the dollar, while indicators such as the 14-day Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain deeply negative. The RSI is currently at a low of 33.93, amplifying the bearish sentiment since April. However, after falling more than 0.80% in just two trading days, a slight upward adjustment might occur. Nevertheless, the overall technical outlook remains bearish.
On the downside, the initial focus is on the dense low area from June to date, around 103.00-104.04. A break would shift the target to 103.75 (the lower trend line of the daily chart down channel) and further challenge 103.33 (the 76.4% Fibonacci retracement level of 102.35 to 106.51). Conversely, if 104.43 (the 50.0% Fibonacci retracement level) is reclaimed by the bulls, the next levels to watch are 104.80 (upper trend line of the down channel) and 104.92 (38.2% Fibonacci retracement level). The short-term ultimate target is the next key level of 105.00.
Today, consider shorting the Dollar Index near 104.15, with a stop loss at 104.30 and targets at 103.80 and 103.75.
WTI Crude Oil
Last week, investors weighed weak US consumer confidence against growing hopes for a Fed rate cut in September, causing WTI crude oil prices to slip about 1.43% to $82.26, ending a four-week streak of gains. Since the end of 2022, oil prices have been trading within a narrow range of $75 to $90 per barrel, as the OPEC+ group continues to keep supply off the market, but concerns about global oil demand often resurface, dampening bullish sentiment. This month, the surplus of supertankers in the Middle East has risen to its highest level since October last year. According to three people involved in the market, the surplus capacity of supertankers in the region over the next 30 days relative to crude oil capacity remained stable at 32% this week, the same as last week. Last week's surplus of supertankers was the largest since mid-October, with the 12-month average at 25%. Additionally, data from the US Commodity Futures Trading Commission showed that speculative net long positions in WTI crude oil futures increased by 559 contracts to 226,875 contracts in the week ending July 9.
After four consecutive weeks of gains, WTI crude oil prices retreated last week, falling 1.43% for the week but avoiding significant losses. This week, if oil prices can break above $83.00 (a round number) and $83.04 (the 10-day moving average), it would be a bullish signal for traders. Should Fed officials confirm the likelihood of a rate cut in September, more investors are expected to enter the oil market. On the upside, the high of $84.35 (a resistance trend line extending from the April 5 high of $87.08) is the first nearby resistance level to watch. Once this point is surpassed, the next level to look at as oil prices continue to rise would be the July 5 high of $84.65. The technical indicator, the 14-day Relative Strength Index (RSI), is already near 56 and is expected to overheat soon, with the 2024 high of $87.08 still within reach. On the downside, simple moving averages should now act as support, preventing any movements below them. This means avoiding dips below the 100-day moving average at $80.39, the 55-day at $79.47, and the 200-day at $78.57. Support at the “small double bottom” formed by $77.70 to $77.73 should be maintained. If these levels do not hold, prices may fall back to $75.00.
Today, consider going long on crude oil near $82.00 with a stop loss at $81.80 and targets at $83.00 and $83.20.
Spot Gold
Last week, the latest data showed consumer prices were higher than expected but failed to cool down the gold market. The short-term outlook for gold remains bullish. As the market approaches a low-interest-rate environment, gold prices seem poised to hit new highs by the end of the year. Cooling inflation, dovish comments from the Federal Reserve, and rising expectations of rate cuts are collectively creating a supportive backdrop for precious metals. Gold prices are expected to reach historic highs. Although the Producer Price Index last week did weaken some of gold's upward momentum, gold still managed to hold the critical support level of $2,400 per ounce. This is a strong indication that gold's consolidation phase is nearing an end. Federal Reserve Chairman Jerome Powell's relatively dovish comments, coupled with lower-than-expected Consumer Price Index inflation, have given gold a new bullish impetus. Meanwhile, in his two-day testimony before Congress, Powell warned that the risks facing the economy are balanced. "Rising inflation is not the only risk we face," Powell said in his prepared remarks. These two factors have provided gold with the upward momentum it has been waiting for. Gold prices have pulled back from Thursday's seven-week high but are still on track for a third consecutive week of gains. This upward trend emerged after weaker-than-expected US inflation data heightened market expectations for a rate cut as early as September.
Last week, gold prices rebounded, approaching the May 20 historical high of $2,450 to $2,424.60. At this stage, gold may be in a horizontal consolidation phase rather than forming a top pattern as it did before, which is a pause in the broader uptrend. In the short term, gold appears to be in a sideways trend, moving higher within the range since April. The bottom of the sideways trend is around $2,280, with the upper limit at $2,450. Since breaking the "horizontal channel" midline of $2,359 on July 4, gold has confirmed a bullish stance, targeting the next upward goal at the historical high of $2,450. In the long term, gold remains in an uptrend, suggesting a high probability of eventually breaking above the range. Breaking the $2,450 high (also the upper range limit) will point to the $2,457 target (an extended trend line from the April 12 high of $2,431.60). On the downside, short-term support for gold is at $2,400 (50.0% Fibonacci retracement), with the next level at the 5-day moving average of $2,384.10. A break below this will further point to the $2,359 level.
Today, consider going long on gold near $2,407.00 with a stop loss at $2,402.00 and targets at $2,425.00 and $2,428.00.
AUDUSD
Last week, the AUD/USD exchange rate maintained a positive trend, rising 0.53% to 0.6798, reaching its highest level since the beginning of the year and marking the fifth consecutive week of gains. Following the release of US inflation data, market participants adjusted their expectations for the timing of the Fed's first rate cut. The CME FedWatch Tool now predicts over an 80% chance of a 25-basis-point rate cut in September. The US dollar fell sharply, allowing the Australian dollar to resume its upward trajectory. Hot US CPI and PPI data did not trigger a recovery for the dollar. Meanwhile, data from the Melbourne Institute showed that Australia's consumer inflation expectations for July fell from 4.4% to 4.3%. Despite the decline, it remains well above the Reserve Bank of Australia's (RBA) target range of 2%-3%. The RBA is likely to be one of the last G10 central banks to initiate rate cuts, which could further bolster the Australian dollar. On the other hand, increasing speculation among investors suggests that due to high inflation in Australia, the RBA might delay the global rate-cutting cycle or even raise rates again. This perspective forces the RBA to maintain its hawkish stance, supporting the recent trend in the AUD/USD exchange rate. Additionally, China, one of Australia's closest trading partners, released its trade balance data for June, showing a trade surplus of $99.05 billion, significantly up from the previous $82.62 billion, which might weaken the upward momentum of the AUD.
Last week, AUD/USD maintained a bullish stance, holding the high since January and marking five consecutive weeks of gains. However, technical indicators such as the 14-day Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest it is approaching the overbought territory, indicating a potential correction. Buyers aim to stay above the 0.6765 resistance line of the weekly ascending wedge. If possible, the best scenario is to exceed 0.6798 (last week's and this year's high), 0.6818 (the 61.8% Fibonacci retracement level from 0.7157 to 0.6270), and 0.6825 (a resistance trend line extending from the high of 0.6895 on July 10 last year). Last week's close formed a "golden cross" bullish pattern with the 9 and 110-week moving averages. Should the bulls continue to strengthen and break the aforementioned levels, the AUD/USD could rise to the July high of 0.6895 and the 0.6900 psychological level, followed by the critical psychological level of 0.7000. Conversely, in the event of a correction, the 0.6690 level (lower support line of the weekly ascending wedge) is the first support range. If it falls further, it may successively drop to 0.6659 (110-week moving average) and 0.6551 (50-week moving average). If the decline continues, it could reach the May low of 0.6465 and the 2024 low of 0.6362 (April 19).
Today, consider going long on AUD near 0.6770 with a stop loss at 0.6755 and targets at 0.6820 and 0.6830.
GBPUSD
The GBP/USD pair maintained its bullish momentum, soaring to just below 1.3000, reaching its strongest level in nearly a year. Improved risk sentiment prevented the dollar from finding demand after Thursday's CPI-induced sell-off, thus boosting the pair. By the end of last week in New York, the GBP/USD exchange rate was around the annual high of 1.2991. The pound strengthened against the dollar due to expectations from June's US CPI data, which fueled anticipation of a Fed rate cut. Traders are betting on a rate cut by the Federal Reserve at its September meeting. This month, overall inflation saw a drop for the first time in four years, boosting market confidence that price pressures will return to the expected 2% level. The lower-than-expected inflation data severely pressured the dollar and bolstered the confidence of Fed officials that the disinflation process has resumed. The US Dollar Index, which tracks the dollar against six major currencies, remains slightly above 104.00.
From a recent technical perspective, GBP/USD saw a significant rise last week. The pair rebounded from a weekly low of 1.2777 to trade at the yearly high of 1.2991 before the weekend. The uptrend in GBP/USD continues, reaching a new year-to-date high, just a step away from 1.3000. From a momentum standpoint, the bulls dominate. Although the 14-day Relative Strength Index (RSI) is in an overbought state at 65.97 due to aggressive price action, it has not yet reached the extreme level of 80 used by traders. Therefore, there is still some room for upside, with 1.3000 poised for a tug-of-war between bulls and bears. Being constrained by the psychological level of 1.3000 could pave the way for range trading within the 1.2900 - 1.3000 range. However, a break below 1.2900 would lay the groundwork for testing the March 8 high, turned support, at 1.2894, followed by the June 12 high at 1.2860 and the psychological barrier at 1.2800. On the upside, watch for levels around 1.3022 (the 78.6% Fibonacci retracement level from 1.3748 to 1.0359) and 1.3090 (the upper trend line of the weekly horizontal channel).
Today, consider going long on GBP before 1.2972 with a stop loss at 1.2960 and targets at 1.3020 and 1.3030.
USDJPY
Last week, the USD/JPY exchange rate rose by 3% after the US Consumer Price Index (CPI) data pushed down US Treasury yields, and Japanese officials seemed to intervene in the yen once again. The USD/JPY fell through the key support level of 160.00, reaching a nearly three-week low of 157.36. Although the market expects the yield differential between the US and Japan to narrow significantly by the end of the year, it is advised not to chase the USD/JPY higher or take on yen loan risks. Given that speculative investors' yen short positions are near record levels, if US data continues to indicate a soft landing, the USD/JPY could see a round of correction. Therefore, investors with existing USD/JPY short positions should consider using short-term pullbacks to reduce or exit these positions. Additionally, Japan's Chief Cabinet Secretary Hirokazu Matsuno indicated readiness to take all available forex measures. The Bank of Japan (BoJ) will decide the specifics of monetary policy, aiming to achieve the 2% price target sustainably and stably. The BoJ might raise rates at the upcoming July meeting, which has bolstered the yen and led to the USD/JPY decline.
Before the weekend, the USD/JPY experienced significant technical retracement, falling back below the psychological level of 160.00 to a nearly two-week low of 157.35, down 1.81% for the week, marking the largest weekly drop since April 29. Daily chart analysis shows a weakening bullish tendency as it broke through the lower trend line of the ascending channel at 160.90. Additionally, the 14-day Relative Strength Index (RSI) at 40.85 indicates declining price momentum. The USD/JPY might find initial support near the 157.36 (last week's low) and 157.02 (61.8% Fibonacci retracement level from 160.23 to 151.85) area. A break below this level could reinforce bearish sentiment, potentially leading the pair to retest the 156.65 (75-day moving average) and 156.04 (50.0% Fibonacci retracement) areas. On the upside, immediate resistance is around the lower trend line of the ascending channel near 159.90, followed by the 21-day moving average at 159.95. Returning to the ascending channel could improve sentiment for the USD/JPY, possibly targeting 161.80 (last week's high) and the 162.20 (123.6% Fibonacci retracement) level, ultimately aiming for the upper limit of the ascending channel at 163.90.
Today, consider going short on USD near 158.20 with a stop loss at 158.50 and targets at 157.00 and 156.80.
EURUSD
The EUR/USD pair regained its monthly high of 1.0900 during the US session on Friday. Despite the US Producer Price Index (PPI) report showing faster-than-expected producer inflation growth in June, the dollar remained weak, strengthening major currency pairs. The report indicated that the annual core PPI, excluding volatile food and energy prices, rose sharply by 3.0%, above the expected 2.5% and the previously reported 2.3%. For the month, core PPI grew strongly by 0.4%, exceeding the market expectation of 0.2% and the previous value of 0.3%, which was revised upward from a flat position. Conversely, consumer inflation decelerated faster than expected in June. Higher-than-expected producer inflation and lower-than-expected consumer inflation could jeopardize market speculation that the Federal Reserve will start cutting rates after its September meeting. According to the CME FedWatch Tool, the central bank is expected to cut rates in September, with further cuts anticipated at the November or December meetings. The US CPI data for June, released last Thursday, triggered expectations of a Fed rate cut, suggesting that the disinflation process has resumed after being interrupted in the first quarter of this year.
From a technical perspective, EUR/USD gathered strength last week, rebounding to a high of 1.0911 on the daily chart, just below 1.0930 (the upper trend line of the ascending channel). Before the weekend close, the pair formed a bullish "golden cross" pattern with the 10-day (1.0816) and 34-day (1.0787) moving averages. If the pair breaks above 1.0911 (last week's high) this week, it will target the 1.0930 (upper trend line of the ascending channel) and 1.0933 (61.8% Fibonacci retracement level from 1.1139 to 1.0601) area, with an eye on 1.0970 (a resistance trend line extending from the May 16 high of 1.0896). The 14-day Relative Strength Index (RSI) has entered the bullish range of 66.60, indicating upward momentum. Thus, EUR/USD is likely to further challenge the psychological levels of 1.1000 and 1.1012 (76.4% Fibonacci retracement level) in the short term. On the downside, if it breaks below the key support area formed by 1.0870 (50.0% Fibonacci retracement level) and 1.0850 (lower trend line of the ascending channel) and makes a decisive break, a new downward trend could emerge toward 1.0816 (10-day moving average) and 1.0800 (psychological level).
Today, consider going long on EUR before 1.0890 with a stop loss at 1.0875 and targets at 1.0930 and 1.0940.
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