US Dollar Index
The US dollar rose on the back of U.S. retail sales data. Traders are pricing in a Trump victory, while the Federal Reserve remains optimistic about its forecasts. The US Dollar Index moved higher, trading near key levels for more upside potential. The index depreciated by 1.7% in the first two weeks of July to 104.04. Fed officials are more confident in the decline of US inflation. The dollar faced pressure from the futures market, returning to early June lows. The probability of the Fed starting to cut interest rates in September has risen to 94.5%, up from 56.5% at the last FOMC meeting on June 12. Fed officials are more confident in the decline of the US inflation rate after the first quarter's stalemate. The CPI inflation rate has declined for the third consecutive month, marking the first month-over-month negative value since May 2020. The Fed's preferred inflation measure, the PCE price index, should reflect the weakening CPI readings. In May, the PCE inflation rate fell year-over-year to 2.6%, meeting the Fed's expectation for Q4 2024. The core inflation rate fell to 2.6%, lower than the Fed's forecast of 2.8%, which is more impressive.
From a technical perspective, the outlook for the dollar is negative. Daily indicators, including the 14-day Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) index, are well below the 50 mark, nearing oversold thresholds. Additionally, the Dollar Index is at its lowest level since April, losing support at the 200-day simple moving average of 104.42. Although the index has fallen more than 0.80% since last weekend, a moderate upward correction is possible. Key resistance targets are 104.43 (50.0% Fibonacci retracement from 102.35 to 106.51) and 104.80 (upper boundary of the descending channel). However, given the overall weak technical outlook, if the Dollar Index falls below the support zone formed by 104.04 (last week's low); 104.00 (round number); and 103.99 (June 4 low), the downward target will be 103.75 (lower boundary of the daily descending channel), with the next target at 103.33 (76.4% Fibonacci retracement).
Today, consider shorting the Dollar Index near 104.38, with a stop loss at 104.50 and targets at 104.05 and 104.00.
WTI Crude Oil
WTI prices dropped due to potential reduced demand from China. In June, China's crude oil imports fell to 46.45 million tons on a monthly basis. Federal Reserve Chairman Jerome Powell stated that inflation is expected to reach the Fed's target. On Tuesday, WTI U.S. crude oil prices showed a negative bias for the third consecutive day, despite a lack of follow-up selling and staying above overnight lows. The commodity is currently trading around $81.20, pressured by multiple factors. Official data released on Monday showed that China's economy grew by 4.7% year-over-year in Q2 2024, down from 5.3% in Q1. This has heightened market concerns about a slowdown in the world's second-largest economy and a decline in fuel demand from the world's largest oil importer, which, in turn, is seen as a key factor exerting some downward pressure on crude prices. Meanwhile, the U.S. dollar gained some positive traction and further recovered from a more than three-month low touched on Monday, further driving flows into dollar-denominated commodities. That said, investors are increasingly accepting that the Fed will begin its rate-cutting cycle in September, which might prevent aggressive bets by dollar bulls and further profit-taking. Additionally, concerns over supply disruptions caused by ongoing conflicts in the Middle East should act as a weather vane for crude prices and help limit further losses.
WTI oil prices are consolidating in the short term, failing to break out bullishly and returning to the $81.00 price level, a key pivot level. Therefore, it would be prudent to wait for a strong follow-up sell-off before preparing for a continuation of the recent pullback from near $84.00 or the two-month high of $84.65 touched on July 5. At this stage, bearish pressure may lead oil prices to fall close to the $80.00 level. If this key psychological level is unfortunately breached, WTI oil prices will revert to $78.63 (50.0% Fibonacci retracement from $72.62 to $84.65) and $78.56 (200-day moving average) before stabilizing. If WTI crude oil prices can break above $81.81 (23.6% Fibonacci retracement) and $82.65 this week, it would be a bullish signal for the market. It is expected that crude oil prices will resume a new round of uptrend, with $84.35 (a resistance trendline extending from the April 5 high of $87.08) and $84.65 (the July 5 high) as the next targets.
Today, consider going long on crude oil near $80.55, with a stop loss at $80.30 and targets at $81.80 and $82.00.
Spot Gold
After a brief pullback during the U.S. morning session, gold gathered bullish momentum, trading at a record high above $2,450, reaching $2,470. The benchmark 10-year U.S. Treasury yield remains around 4.2%, boosting gold prices. On Tuesday, during the Asian session, gold prices are poised to continue their previous gains. The market's growing expectation that the Federal Reserve will cut interest rates in September supports the non-yielding gold. Federal Reserve Chairman Jerome Powell indicated earlier in the week that the Fed wouldn't wait for inflation to reach 2% before cutting rates, confirming market bets on a September rate cut. Powell's comments led to a new round of declines in the U.S. dollar and Treasury yields, driving gold prices back to their historic high of $2,470. Earlier, the U.S. dollar rose on safe-haven demand due to an attempted assassination of former President Donald Trump during a rally in Pennsylvania, leading to some corrective movements in gold prices.
From recent trends, technical indicators such as the 14-day Relative Strength Index (RSI) are bullish near 70, with gold prices staying above $2,460. Last Friday, the 20-day moving average ($2,358) closed above the 50-day moving average ($2,352), forming a bullish "golden cross," adding credibility to the bullish potential of gold prices. However, gold buyers need a daily close above the high of $2,450 to challenge $2,478.10 (1.786% Fibonacci retracement from $2,450 to $2,287) and $2,613 (2.0% Fibonacci retracement). Any pullback in gold prices could test the round number support at $2,450, with a break below potentially testing the two-month high of $2,439.80 and challenging bearish commitments. Subsequent support levels are at $2,400, the low of July 11 at $2,371, and the psychological level of $2,350.
Today, consider going long on gold near $2,466.00, with a stop loss at $2,463.00 and targets at $2,480.00 and $2,485.00.
AUDUSD
The AUD/USD pair fell further, extending Monday's decline in response to a slight rise in the US dollar and falling commodity prices. At the start of the new trading week, AUD/USD struggled to maintain its upward momentum, failing to break through the 0.6800 milestone, thus ending a four-day winning streak. The recent consecutive gains in AUD/USD were due to the weakening US dollar, particularly following lower-than-expected US inflation data for June. This fueled market speculation that the Federal Reserve might cut rates as early as September, with some investors even increasing the possibility of a third rate cut this year. This prospect contrasts sharply with recent comments from Fed Chairman Jerome Powell, who took a cautious stance during his congressional testimony, stating that more evidence is needed to show inflation is moving towards the target before making any rate adjustments. On the monetary policy front, the Reserve Bank of Australia (RBA) is not in a hurry to ease policy, and both the RBA and the Fed are expected to be among the last G10 central banks to start cutting rates. Additionally, the potential easing from the Fed, contrasted with the RBA's likely prolonged restrictive stance, could provide support for AUD/USD in the coming months.
From a technical perspective, AUD/USD is trading around 0.6730. The pair is consolidating within an ascending channel on the daily chart, indicating a bullish bias. However, the 14-day Relative Strength Index (RSI) has declined from a high of 71, indicating a potential pullback. Further declines could weaken the bullish trend. AUD/USD might test the psychological level of 0.6800. Breaking this level could support the pair towards the upper boundary of the ascending channel near 0.6810 and the resistance zone at 0.6818 (61.8% Fibonacci retracement from 0.7157 to 0.6270). A breakthrough could extend its rise to the December 2023 high of 0.6871, followed by the July 2023 high of 0.6894 (July 14). On the downside, the initial target is the key psychological level of 0.6700 and 0.6690 (support line of the weekly ascending wedge). Further declines could aim for 0.6655 (55-day moving average).
Today, consider going long on AUD/USD near 0.6720, with a stop loss at 0.6700 and targets at 0.6770 and 0.6780.
GBPUSD
GBP/USD struggled to gain traction, trading around the 1.2970 region during the U.S. session. June U.S. retail sales data helped the dollar remain resilient against its rivals, preventing the pair from extending last week's gains. At the start of the week, GBP/USD took a breather from its bullish momentum, falling back to just below the 1.3000 level after the forex market paused in selling the dollar to reconsider recent movements and reassess the possibility of a Fed rate cut in September. Fed Chairman Jerome Powell endorsed the recent progress on inflation, which dominated market focus for the new trading week. The rate market has pinned all hopes on a rate cut in September, with a 100% probability that the federal funds rate will be lowered by at least 25 basis points. Early Wednesday, the UK Consumer Price Index (CPI) inflation will be released, followed by UK labor and wage data on Thursday, and the week will conclude with a statement on UK retail sales economic summary on Friday.
After three days of gains since last Wednesday, the 1.3000 mark is contested, with GBP/USD trading near a 12-month high but below the July 27, 2023, peak of 1.2995. Technical indicators like the 14-day Relative Strength Index (RSI) remain bullish, though it has turned overbought, with some traders viewing the 80 level as the extreme due to the strength of the uptrend. Therefore, the next resistance for GBP/USD will be 1.2995-1.3000. Once this level is cleared, the next target will be the July 19, 2023, high of 1.3041, followed by the July 18, 2023, peak of 1.3126. Conversely, if GBP/USD sellers step in, they need to push the price below the July 12 low of 1.2901. If a reversal occurs, the next target will be the June 12 high turned support at 1.2860, followed by a drop to the July 10 low of 1.2779.
Today, consider going long on GBP/USD near 1.2950, with a stop loss at 1.2935 and targets at 1.3025 and 1.3030.
USDJPY
On Tuesday, the Japanese yen fell against the US dollar, reaching as low as 159.00 before rebounding to 158.30. Federal Reserve Chairman Jerome Powell remained silent on the Fed's next moves. The slight rise in the dollar on Tuesday supported the USD/JPY pair. Powell stated on Monday that the three inflation data points from this year "to some extent bolstered market confidence" that inflation is sustainably reaching the Fed's target, suggesting that a Fed shift to a rate-cutting policy might not be far off. San Francisco Fed President Mary Daly mentioned that more information is needed before the rate decision. Increasing speculation that the Fed will lower borrowing costs could weaken the dollar in the short term. Currently, the market is pricing in a 100% probability of at least a 25 basis points cut in the Fed funds rate at the September meeting. Potential intervention by Japanese authorities in the forex market could provide some support for the yen.
Despite USD/JPY's current price action remaining above 158.00, indicating the uptrend remains intact, the pair is trading below 160.00 (a psychological level) and around 159.90 (the lower boundary of the ascending channel), having broken through the previous support-turned-resistance zone. Technical indicators such as the 14-day Relative Strength Index (RSI) show momentum shifting to the sellers (at 46.00), suggesting the pair is neutral to bearish. In this context, the path of least resistance for USD/JPY is downward. The first support level for USD/JPY will be at 157.36 (last week's low) and the 157.02 area (61.8% Fibonacci retracement from 160.23 to 151.85). Once breached, the next support will be around 156.04 (50.0% Fibonacci retracement). Conversely, if USD/JPY rises above the July 12 high of 159.45, it will pave the way for a challenge of 160.00 and target 161.80 (last week's high) and 162.20 (123.6% Fibonacci retracement).
Today, consider shorting USD/JPY near 158.50, with a stop loss at 158.80 and targets at 157.60 and 157.70.
EURUSD
EUR/USD fell back below the 1.0900 region but then regained balance, closing slightly higher on Tuesday due to weakened dollar momentum and increased bets on a Fed rate cut in September. At this stage, the euro remains firm. Early in the week, the euro dipped slightly to the upper 1.08 area, which provided good support, and during the European trading session, it comfortably recovered the 1.09 area, reaching a short-term marginal new high (the highest since March). It is poised to further climb to the psychological 1.10 level. The significant narrowing of the Eurozone/US interest rate spread—the 2-year spread narrowed to -162 basis points, the narrowest since March—along with the normalization of the OAT/Bund 10-year spread, have contributed to the euro's strong performance in recent weeks. In the short term, EUR/USD might reach 1.10+. The ECB policy decision on Thursday is not expected to change rates.
The euro has built a strong technical momentum in the short term. Early in the week, EUR/USD traded at a new high of 1.0922 at the upper boundary of the ascending channel on the daily chart. The bullish trend strength indicators on the intraday, daily, and weekly DMI support the spot's upward trend. This suggests that EUR/USD faces more upward pressure and limited correction space currently. After breaking above Monday's high of 1.0922, it will further strengthen towards 1.0970 (a resistance trend line extending from the May 16 high of 1.0896) and further to 1.1000 (a psychological barrier). Support levels can be watched at 1.0850 (the lower boundary of the ascending channel) and the 200-day moving average level of 1.0807.
Today, consider going long on EUR/USD near 1.0885, with a stop loss at 1.0870 and targets at 1.0935 and 1.0940.
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