US Dollar Index
The US Dollar Index quickly lagged behind Monday’s gains, refocusing on recent year-to-date lows of 100.51. The MBA’s weekly mortgage application results are due on August 28, as are the US Energy Information Administration’s report on US crude oil inventories and the FOMC’s Waller speech. Last week’s decline was attributed to the dovish comments by Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium, suggesting that the central bank may shift to a more accommodative monetary policy stance. This, in turn, caused the 10-year US Treasury yield to fall below 3.8%, weighing heavily on the dollar. Despite the positive economic growth that exceeded expectations, the market’s desire for aggressive monetary easing seems misplaced. The current situation warrants caution as all data points to a disconnect between economic fundamentals and market pricing.
While the US Dollar Index may have found support at its lowest level since December, it suggests that selling pressure has not stopped. The 14-day relative strength index (RSI), a technical indicator, remains in oversold territory (29.90), suggesting the possibility of further upward corrections. The Moving Average Convergence Divergence (MACD) shows a solid red bar, in line with the RSI and provides additional evidence of potential upside momentum as there is more room to correct. That being said, there are no clear signs of a reversal yet and the US Dollar Index could fall further. As the US Dollar Index is below the key support level of 100.61, the bottom of December 2023, and the double bottom formed by last week's low of 100.60, the next level is 100.00 (market psychological level), while the resistance levels to watch are 101.00 {round number}, and 101.02 (5-day moving average). Then there is 101.59 (23.6% Fibonacci rebound level from 104.80 to 100.60).
Consider shorting the US dollar index near 100.68 today, stop loss: 100.80, target: 100.30, 100.25
WTI spot crude oil
Oil traders appeared to be taking profits on Tuesday after prices retreated before a key technical area near $77.60 after three days of sharp gains. The market is digesting the sudden disruption of Libyan oil production. On Tuesday, US WTI crude oil traded near $77. WTI oil prices continued to recover against the backdrop of Libya's production outages, which in turn have been exacerbated by reports of escalating conflict in the Middle East. Developments surrounding Libya's production cuts have raised further supply concerns and boosted WTI oil prices. The biggest risk to the oil market may be that political tensions in Libya lead to a further decline in the country's oil production, with production potentially falling to zero from the current 1 million barrels per day. In addition, the market's firmer expectations that the Federal Reserve will cut interest rates at its upcoming September meeting have also boosted WTI oil prices. On Monday, San Francisco Fed President Mary Daly said she thought it was appropriate for the Fed to start cutting interest rates. Lower interest rates generally support WTI oil prices because it reduces borrowing costs, which in turn boosts economic activity and oil demand. However, crude oil's upside may be limited.
In terms of recent trends, last week's worrying sell-off by hedge funds did not occur, and with the recent rebound, more positions may be taken. The conflict in the Middle East has escalated again recently. Crude oil prices are expected to rise sharply again. On the upside, if oil prices hold above the 200-day simple moving average (78.08). It will move towards the 100-day simple moving average of $79.65, and $80.00 {market psychological level}. On the downside, $76.92 {38.2% Fibonacci rebound from 84.73 to 72.10} and $75.08 {23.6% Fibonacci rebound} are the first short-term support areas, and the next level reference is around $74.07 {Friday's low} as the next relevant support level.
Today, consider shorting crude oil around 77.10, stop loss: 77.40; target: 75.80; 75.70
Spot gold
On Tuesday, gold prices rose strongly in the North American session amid environmental risks and stable US Treasury yields. Investors ignored better-than-expected US economic data and failed to support the already battered US dollar. The US dollar rebounded slightly on Tuesday, and gold prices were bearish. However, the signal from Federal Reserve Chairman Powell at the Jackson Hole Symposium to start cutting interest rates may provide support for precious metals. Lower interest rates are generally good for gold because they reduce the opportunity cost of holding zero-yielding assets. In addition, rising geopolitical tensions in the Middle East could further boost gold, a traditional safe-haven asset. The People's Bank of China stopped buying gold in July, marking the third consecutive month that the central bank did not buy gold for reserves. Traders will focus on August data for new impetus. As China is the world's largest gold producer and consumer, concerns about China's sluggish economy and demand for precious metals may drag down gold prices. Later this week, the preliminary annualized GDP and personal consumption expenditure price index data for the second quarter of the United States will be in focus.
Gold prices are lower. Gold prices are still blocked by the upper line of the five-month upward channel. Nevertheless, the broader bullish outlook remains as gold prices find good support above the key 20-day exponential moving average of 2,464.00 on the daily chart. The 14-day relative strength index (RSI) of technical indicators remains around 61.50, indicating continued strength in gold prices. If gold breaks out of the resistance zone and continues to show a bullish trend above the $2,530-$2,540 area (all-time highs and upper trend channel line), the price may attack $2,551.10 (161.80% Fibonacci rebound from $2450.20 to $2286.20), and the psychological $2,600 level. On the other hand, any selling after breaking the psychological market level of $2,500 may attract more technical selling and send gold down to the next support area of $2,484.50 (Friday's low). The key support level to watch is $2,450.20 (previous all-time high on May 20).
Consider going long on gold today before 2,520.00, stop loss: 2,516.00; target: 2,535.00; 2,538.00
AUD/USD
AUD/USD shook off Monday's pullback and refocused on the uptrend with the near-term target at the key 0.6800 mark, all ahead of the release of key inflation data from the Reserve Bank of Australia on Wednesday. AUD/USD gave up Friday's strong gains, with better-than-expected durable goods orders data from the US and pressure soon after approaching the key resistance area around 0.6800 on the back of a recovery in the US dollar. The Australian dollar edged lower in Asian trading on Monday, still hovering around a seven-month high of 0.6798. However, the AUD/USD pair moved higher as risk appetite warmed up following a dovish speech by Federal Reserve Chairman Powell at the Jackson Hole Symposium last Friday. The Australian dollar was also supported by the hawkish sentiment of the Reserve Bank of Australia regarding its policy outlook. The minutes of the Reserve Bank of Australia's recent meeting showed that board members unanimously agreed that a rate cut was unlikely anytime soon. In addition, RBA Governor Bullock said that the RBA will not hesitate to raise interest rates again if necessary to combat inflation.
Daily chart analysis shows that the Australian dollar traded around 0.6780 at the beginning of the week. The AUD/USD pair has returned to the rising channel, suggesting that the bullish bias has been strengthened. However, the 14-day relative strength index of the technical indicator is close to the 65 mark, supporting the continued bullish momentum. In terms of resistance, AUD/USD is testing the seven-month high of 0.6798. If it breaks through this level, AUD/USD will test 0.6830 {a trend line extending to the right from the high of 0.6999 in July last year}, and a break will point to 0.6871 {the high of December last year}. On the downside, AUD/USD may find support around 0.6707 {9-day moving average}, and 0.6700 {market psychological barrier} levels, and then a break below the above areas may weaken the bullish bias and push AUD/USD to 0.6670 (61.8% Fibonacci rebound from 0.6871 to 0.6347).
Consider going long AUD before 0.6776 today, stop loss: 0.6760; target: 0.6820; 0.6830.
GBP/USD
GBP/USD was in positive territory above 1.3260 during the US trading session on Tuesday. The US dollar benefited from cautious market sentiment and better-than-expected CB consumer confidence data, limiting the pair's gains. GBP/USD rose as the exchange of fire between Israel and Hezbollah in Lebanon did not escalate further, easing market concerns about a wider conflict in the Middle East. GBP/USD traded around 1.3190 against risk assets during the Asian session on Tuesday. The market fully expects the Fed to cut interest rates by at least 25 basis points at its September meeting. In addition, San Francisco Fed President Mary Daly said in a television interview on Monday that the "time has come" to start cutting interest rates, most likely starting with a 25 basis point cut. The UK BRC Shop Price Index recorded an annual rate of -0.3% in August. British Prime Minister Keir Starmer said last week that it would take time to deal with the many challenges facing the UK. In his speech, he warned that "things will get worse before they get better" and he saw this as an opportunity to be honest with the public.
GBP/USD started to move lower after breaking above the upper line of the ascending channel, indicating that the currency pair is undergoing a technical correction. The 14-day relative strength index (RSI) indicator, a technical indicator on the daily chart, is well above 75.50, suggesting that the currency pair has more room to fall to complete the correction. The first support is at 1.3142 (July 10 low), followed by 1.3120 (lower limit of ascending channel) and 1.3100 (market psychological level). On the upside, 1.3270 (static level since March 2022) is a short-term resistance. A breakout further points to the 1.3300 round number, and 1.3331 (76.4% Fibonacci rebound level from 1.4250 to 1.0356).
Today, it is recommended to go long on GBP before 1.3245, stop loss: 1.3230, target: 1.3290, 1.3300
USD/JPY
On Tuesday, USD/JPY hovered below 145.00 in the Asian session, recovering to around 143.90. The pair was not affected by the cautious market environment, cheering the recent rebound in the US dollar and US Treasury yields. The focus remains on US data and the policy divergence between the Federal Reserve and the Bank of Japan. On Tuesday, the yen fell against the dollar for a second consecutive day, but the yen's decline may be limited based on the hawkish sentiment of the Bank of Japan. In addition, the opposing statements of the Bank of Japan and the Federal Reserve on their policy outlook put downward pressure on USD/JPY. Bank of Japan Governor Kazuo Ueda said in parliament on Friday that if economic expectations are accurate, further interest rate hikes may be possible. Meanwhile, Federal Reserve Chairman Powell said at the Jackson Hole Forum that "the time has come to adjust policy." However, Powell did not elaborate on when to start cutting interest rates and the scale of the rate cut. In addition, San Francisco Fed President Mary Daly said in an interview with Bloomberg TV on Monday that the "time has come" to start cutting interest rates, and it is likely to start with a 25 basis point cut.
Daily chart analysis shows that USD/JPY traded around 140.00 on Tuesday. The currency pair is testing the descending trend line, indicating a weakening bearish bias. However, the 14-day relative strength index (RSI) of the technical indicator is still slightly above 30, indicating confirmation of the bearish trend. On the downside, if USD/JPY remains below the downtrend line, it will be seen around 143.45 (Monday's low). A break below this level may push the exchange rate to 142.25 {the central axis of the downward channel on the weekly chart}, and the 7-month low of 141.69 (August 5). A break below this level may push the exchange rate to the retracement support level of 140.25. As for resistance, USD/JPY may challenge the short-term resistance of 145.00 (round mark). A break above this level may pave the way for a test of the retracement resistance level around 146.38 (23.6% Fibonacci rebound level from 161.80 to 141.61).
Today, it is recommended to short the USD/JPY before 144.25, stop loss: 144.50; target: 143.20, 143.00
EUR/USD
The resurgence of the dollar’s downward trend has allowed EUR/USD to regain balance and post solid gains as it nears recent year-to-date peaks in the 1.1200 region on Tuesday. Despite continued risk appetite, EUR/USD has retreated from recent highs near 1.1200. The pair moved higher on Friday. Powell continued to pave the way for a September rate cut, saying that “the time has come for a policy adjustment.” He remained cautious as always. However, financial markets were eager to price in lower borrowing costs in the United States. As a result, Wall Street posted solid gains, while the dollar moved lower against most major rival currencies. However, the new week brings additional caution, as the United States will release the Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s favorite inflation indicator, later this week. Meanwhile, Germany released its August IFO business climate index, which came in at 86.6, down from 87 in July but better than the expected 86.5. The United States of the United States released durable goods orders for July, which rose 9.9% on the month, much better than the expected 4%. The positive news from the US has no relevant impact on the dollar.
The daily chart shows that the EUR/USD pair has traded as low as the 1.1150 price area after the release of the US data yesterday. However, the 14-day relative strength index, a technical indicator, is in the 70.90 area, showing that bulls have paused but are still in control. The pair is trading above all moving averages, with the 20-day simple moving average maintaining an almost vertical slope around 1.1023. Meanwhile, the 100-day (1.0827), and 200-day (1.0851) moving averages are slightly above the shorter-term moving averages. Finally, technical indicators remain above their mid-lines but lack directional strength. At this stage, the bullish trend provides near-term support around 1.1100, which is also a key round number. A break below this level could see a test of 1.1022 (August 19 low). Meanwhile, the pair is likely to move higher to 1.1201 (Monday's high), while 1.1273 (July 18 2023 high) and 1.1275 (61.8% Fibonacci rebound from 1.2351 to 0.9535) will become key levels of upside barriers in the near term.
Today, it is recommended to go long on EUR/USD before 1.1170, stop loss: 1.1155, target: 1.1230, 1.1250.
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