U.S. Dollar Index
On Thursday, the U.S. dollar, as measured by the DXY index, continued its decline despite strong housing data reported in the European market. The downward pressure on the dollar is attributed to dovish bets on the Federal Reserve and a decrease in U.S. Treasury yields. Midweek, the dollar index saw some gains following the release of promising June retail sales data during the European trading session. That said, the U.S. economic outlook shows signs of deflation, bolstering market confidence in a rate cut in September. However, Fed officials remain cautious, emphasizing their reliance on data before making any significant moves. Besides expressing more confidence in U.S. inflation returning to the 2% target, Powell indicated that the Fed might cut rates before inflation reaches the target, especially if the labor market unexpectedly weakens. Nevertheless, after Powell clarified that the Fed is not yet at the point of providing time-based rate cut guidance, the dollar index started to turn upward.
The outlook for the dollar remains bearish. Technical indicators like the 14-day Relative Strength Index (RSI) and MACD are in negative territory, suggesting now is a good time to short the dollar. Although the dollar fell by over 1% last weekend, a slight upward adjustment might occur. Nonetheless, the bullish momentum gained at the start of the week is fragile, making the overall technical outlook distinctly bearish. The dollar index needs to break below the support region composed of 104.04 (last week’s low), 104.00 (a round number), and 103.99 (the low from June 4) before considering revisiting the year’s low below 103.75 (the lower boundary line of the daily downtrend channel) and 103.33 (76.4% Fibonacci retracement level). Meanwhile, the dollar index's upside is capped at 104.00 and 104.41 (the 200-day moving average).
Today, consider shorting the dollar index around 103.90 with a stop loss at 104.00 and targets at 103.50 and 103.40.
WTI Crude Oil
WTI oil prices rose by approximately 2.35% yesterday as the American Petroleum Institute (API) reported a decline in U.S. oil inventories. API crude inventories fell by 4.4 million barrels in the previous week, against an expected decrease of 3.3 million barrels. Earlier this week, WTI crude oil continued to decline due to growing concerns among barrel oil traders about the potential slowdown in China's fossil fuel demand. The API's inventory data for this week showed a reduction compared to the previous value, helping WTI prices to make a modest rebound late Tuesday. Recently released data on China’s second-quarter economic growth showed a slowdown, dampening market expectations of a significant surge in Chinese fossil fuel demand. Throughout most of 2024, the market has been waiting for an increase in Chinese crude oil demand; however, oil traders are now worried that limited economic growth in China will not generate sufficient barrel oil demand to absorb the global market's excess crude. The API reported that total crude oil supply shrank again for the week ending June 12.
Midweek, WTI crude oil prices experienced a bearish breakout, dragging prices below $81.81 (23.6% Fibonacci retracement from $72.62 to $84.65) and the 200-hour exponential moving average of $81.30 to a midweek low of $80.30, accelerating the downward momentum. The July WTI oil price dropped by -5.5% from peak to trough. The daily chart shows WTI oil prices remaining at the upper edge of a consolidation pattern. After a failed rally, if prices fall again below the support levels of $80.30 (Tuesday's low) and the psychological barrier of $80.00, WTI oil prices may be pushed towards the vicinity of the 200-day exponential moving average at $78.93. Should WTI crude oil prices break through $81.81 and $82.65 this week, it would signal a bullish trend for the market. The price is expected to revisit the levels of $84.35 and $84.65 (July 5 high).
Today, consider going long on crude oil around $82.45, with a stop loss at $82.25, and targets at $83.60 and $83.80.
Spot Gold
On Wednesday, gold prices hit a new high above $2,480 during the Asian trading session before retreating to below $2,460. A moderate recovery in U.S. Treasury yields led to the consolidation of gold’s gains. Gold prices have been rising continuously, marking the sixth increase in the past seven days, and reached an all-time high of $2,482.50 during the Asian session on Wednesday, before pulling back to the $2,460 range. Current market pricing indicates a more than 90% chance of a Federal Reserve rate cut in September. This, in turn, keeps U.S. Treasury yields subdued near multi-month lows and is seen as a key factor driving funds towards non-yielding gold. Moreover, widespread environmental risks—as reflected in the continued rise in global stock markets—help limit the gains of the safe-haven precious metal. However, the underlying backdrop suggests that the path of least resistance is still up, despite a stronger dollar, with gold benefiting from better-than-expected U.S. retail sales.
The daily chart shows that gold prices reached another all-time high of $2,482.50 yesterday, but there is still room for further gains. Gold prices are well above all moving averages (including the 20-day at $2,367; 50-day at $2,356; and 200-day at $2,308), which offer a steep upward slope. At the same time, technical indicators like the 14-day Relative Strength Index (RSI) are accelerating upwards, currently at 67.50, close to the overbought region but showing no signs of relinquishing. Thus, the short-term upside target can first consider $2,500 (a round number), breaking which will test the $2,578.20 region (1.786% Fibonacci retracement from $2,450 to $2,287) and $2,613 (2.0% Fibonacci retracement). In the short term, a technical correction to the previous high of $2,450 cannot be ruled out, breaking which will retreat to $2,415.10 (78.6% Fibonacci retracement) and $2,400 (market psychological level).
Today, consider going long on gold around $2,455.00, with a stop loss at $2,450.00, and targets at $2,475.00 and $2,480.00.
AUDUSD
The Australian dollar (AUD) fell for the third consecutive trading day, returning to the 0.6720-0.6725 range following a broadly bearish performance in commodities and ahead of a key release from the Australian labor market report. Despite falling U.S. Treasury yields and the market having fully priced in a Federal Reserve rate cut in September, the AUD experienced a second daily pullback amidst further gains in the U.S. dollar. Earlier this week, Powell noted that three inflation indicators for the second quarter "slightly strengthened confidence in inflation moving toward the Fed's target," accelerating market expectations for a Fed rate cut. Powell's remarks appeared to open the door for a rate cut sooner than previously expected. At its most recent meeting, the Reserve Bank of Australia (RBA) maintained a hawkish stance, keeping the official cash rate at 4.35%, and indicated future decisions would be flexible. The RBA is not in a hurry to ease policy, suggesting the Fed may adopt an accommodative stance in the mid-term while the RBA may maintain a restrictive policy stance for the long term, potentially providing support for the AUD in the coming months.
In the short term, if the AUD/USD continues to decline, it is expected to find mid-term support at 0.6700 (psychological barrier) and 0.6690 (weekly ascending wedge lower support line). If the AUD/USD breaks below this area, it could start testing the 50-day moving average at 0.6665 and the 200-day moving average at 0.6575. Although the 14-day Relative Strength Index (RSI) has fallen from a high of 71, it remains near the positive territory at 56, suggesting that the recent trend should consolidate around the current price level. Once the pair resumes its upward challenge, it may target the July high of 0.6798 and the psychological level of 0.6800, with the next targets extending to the December 2023 high of 0.6871 and the July 2023 high of 0.6894 (July 14).
Today, consider going long on the AUD around 0.6720, with a stop loss at 0.6700, and targets at 0.6770 and 0.6780.
GBPUSD
The British pound (GBP) continues to trade above 1.3000 after retreating from the high touched during the European trading session on the 24th, following an immediate reaction to the UK inflation data. A negative shift in risk sentiment limited the pair's upward movement in the latter half. Earlier this week, the GBP/USD hovered near recent highs as the market readjusted expectations for Federal Reserve rate cuts. The decline in U.S. retail sales capped off a recent series of U.S. economic data, suggesting that price pressures have finally eased sufficiently, and the Fed might enter a rate-cutting cycle in September. Weak U.S. retail sales data was the final straw for a market eager for rate cuts, with bets increasing that the Federal Open Market Committee (FOMC) will introduce rate cuts at its September 18 meeting. The release of various Consumer Price Index (CPI) figures last week added to this narrative. In the latter half of this week, GBP traders anticipate a series of key data releases from the UK. On Thursday, the UK will release the latest labor market data, followed by the June retail sales data on Friday.
From a daily chart perspective, GBP/USD rose to a 12-month high last week, nearing the key level of 1.3000. At this stage, there is still an upward bias as the price action has shown a series of higher highs and higher lows, although the bullish momentum has slightly faded. The bullish momentum has solidified, with buying pressure remaining steady. The 14-day Relative Strength Index (RSI) remains bullish but has exited the overbought territory, triggering a sell signal. If GBP/USD breaks below the support level of 1.2901 from July 12, it could initiate a decline, challenging the June 12 high of 1.2860. Below these levels, further declines could approach 1.2800. On the other hand, if the GBP sustains above 1.2900 and climbs above 1.2950, the first resistance will be at 1.3045. Further upward movement targets the 1.3125 level, the peak from July 18, 2023.
Today, consider going long on GBP before 1.2995, with a stop loss at 1.2980, and targets at 1.3040 and 1.3045.
USDJPY
During Wednesday's European trading session, USD/JPY has pulled back from its lows but faces significant selling pressure at the 156.00 level. The risk of Japanese intervention, coupled with deteriorating risk sentiment and a technical breakdown, has exacerbated the decline in USD/JPY. In early Asian trading on Wednesday, USD/JPY extended gains near 158.50 due to selling pressure surrounding the yen. There is a potential for yen-buying intervention worth approximately 2 trillion yen on Friday, as Tuesday's data indicated that the Bank of Japan intervened in the forex market on Thursday and Friday last week, pushing the yen from 162 to 157 within just two days. However, the interest rate differential between Japan and the United States continues to pressure the yen and creates a tailwind for USD/JPY. Earlier this month, the yen fell to a low of 161.95, the lowest level since December 1986. The Japanese Tankan Manufacturing Index rose from 6.0 in June to 11.0 in July.
Technical signals indicate that USD/JPY is turning neutral to bearish. USD/JPY briefly plunged to just above 156.00 this week, indicating a lack of buying interest. The 14-day Relative Strength Index (RSI) also turned bearish, suggesting that the bears have a slight advantage. If USD/JPY breaks below the 156.00 and 156.04 levels, it will test the next support at 155.03, with further declines potentially reaching around 154.52. On the other hand, if buyers push USD/JPY above the July 15 low of 157.15 and the 157.02 area (61.8% Fibonacci retracement from 160.23 to 151.85), USD/JPY could rise above yesterday’s high of 158.60, paving the way for a challenge of the 160.00 level.
Today, consider going short on USD before 156.35, with a stop loss at 156.60, and targets at 155.00 and 154.85.
EURUSD
On Wednesday, EUR/USD rose to a new high around 1.0950, responding to further dollar weakness and rising expectations ahead of the European Central Bank (ECB) meeting on Thursday. The market has fully priced in the expectation of the Federal Reserve initiating a rate-cutting cycle in September, with up to three rate cuts this year, each by 25 basis points. In Europe, the ECB will announce its latest rate decision on Thursday. U.S. retail sales for June were flat at 0.0%, in line with expectations and below the revised previous value of 0.3%. The decline in retail sales increased the market's expectation for a rate cut at the Federal Reserve meeting on September 18. Weak U.S. retail sales, combined with lower CPI data, have increased the likelihood of a Fed rate cut in September, with up to three rate cuts possible by 2024. The market generally expects the ECB to hold steady on Thursday, as policymakers await data to see if conditions improve after the first 25 basis point rate cut in June.
EUR/USD clearly broke through the 1.0900 level, with the intraday bid remaining above the key technical level of 1.09, as the market awaits a clear direction for EUR/USD. EUR/USD is holding near the four-month high of 1.0922 reached last Friday. The key for the bulls is to keep EUR/USD above 1.0900 and 1.0922, which would lead to further strengthening towards 1.0970 (a resistance trend line extending rightward from the May 16 high of 1.0896) and then further towards 1.1000. At this stage, key support for EUR/USD lies at the 200-day exponential moving average of 1.0810 and the psychological level of 1.0800. If EUR/USD continues to decline, it could push the bulls down to the 1.0764 level (61.8% Fibonacci retracement from 1.0666 to 1.0922).
Today, consider going long on EUR/USD before 1.0920, with a stop loss at 1.0905, and targets at 1.0960 and 1.0970.
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