US Dollar Index
The US Dollar Index, which measures the value of the greenback against a basket of currencies, was volatile in a volatile session on Wednesday, hovering near a 14-month low as fears of a recession intensified. While market expectations for Fed easing continued to rise, the central bank countered dovish expectations. Personal consumption expenditures (PCE) data for August will be closely watched on Friday. The dollar fell across the board after market participants increased bets on the Fed to cut interest rates by another 50 basis points in November. The market had quickly priced in the Fed's first rate cut in four years and shifted to expectations of more cuts from the Fed. The dollar index fell further in the early part of the week as market expectations grew for a further double rate cut from the Fed in November, following the sharp 50 basis point cut in September. The interest rate market is currently pricing in a 60% second 50 basis point cut on November 7, with the remaining 40% expecting a more modest 25 basis point cut from the Fed. The US August Personal Consumption Expenditures (PCE) price index, due on Friday, will be in focus. Dovish rhetoric from Fed officials and signs of falling inflation could weigh on the dollar.
The technical analysis of the US Dollar Index reveals a bearish trend, with the 14-day relative strength index (RSI) around 44.00 and the moving average convergence divergence (MACD) showing a decrease in green bars. The technical outlook remains clearly bearish as the index is below the 20-day {101.15}; 50-day; {102.24}; and 100-day {103.60} simple moving averages. An unexpected upside breakout above 101.00 {round number}, and 101.15 {20-day moving average} would improve the outlook somewhat to 101.50. Otherwise, the index should continue to search for a bottom, with an initial target of 100.00 {market psychological barrier}, a breakout would point to 99.74 (July 13, 2023 low), and 99.69 {250-week moving average}. And further down to 99.31 {300-week moving average) level.
Today, consider shorting the US dollar index around 101.05, stop loss: 101.15, target: 100.70, 100.60
WTI crude oil
US WTI crude oil returned below $70.00 on Wednesday. In the Asian market on Wednesday, US WTI crude oil traded around $71.00. WTI oil prices fluctuated higher under the positive influence of China's stimulus measures and the continued tension in the Middle East geopolitical situation. As China is the world's largest crude oil importer, China's introduction of further stimulus measures has provided some support for oil prices. This, coupled with the sudden rise in geopolitical tensions in the Middle East, has dampened the bearish sentiment that has dominated the oil market for the past three weeks. Meanwhile, the escalation of geopolitical tensions in the Middle East has heightened concerns about oil supply disruptions, driving WTI oil prices higher. U.S. crude oil inventories fell more than expected last week. According to the American Petroleum Institute (API), U.S. crude oil inventories fell by 4.339 million barrels in the week ending September 20, compared to an increase of 1.96 million barrels in the previous week.
Crude oil had not one catalyst, but three, which occurred simultaneously, pushing crude oil prices above the critical level of $71.46 (February 5 low). With geopolitics, possible supply disruptions, and a recovery in Chinese demand, a broader rally could be in the cards here. If the three fundamental catalysts remain in focus, it would not be surprising to see crude oil reach $75 by the end of this week. If this positive momentum continues, a return to the 50-day simple shift of $73.42 is possible on the back of the three bullish factors. Once above $73.42, the next resistance level is $75.27 (Jan. 12 high) in play. On the downside, support should be recalibrated. The first point of decline now is $70.00 (market psychological barrier). If this level does not hold, the next step will be $69.00 (weekly chart downward channel axis). If this level faces a second test and falls, $67.97 (Dec. 8 low last year) will become the target.
Today, consider going long on crude oil around 69.40, stop loss: 69.20; target: 70.80; 71.00
Spot gold
More optimistic prospects for further rate cuts by the Federal Reserve in the second half of this year, coupled with the recent weak data released by the United States, have pushed gold prices close to recent historical highs of around $2,670 per ounce. Gold prices hit another record high on Wednesday, rising as high as $2,664 during Asian trading hours, and continued to rise after the overnight Wall Street opening. Financial markets were bereft of new directional catalysts throughout the first half of the day as economic data was light, although gold was boosted by broad-based weakness in the U.S. dollar. Gold extended its gains, breaching the $2,650 mark. Geopolitical tensions in the Middle East are escalating as bets on more aggressive policy easing by the Federal Reserve continue to grow. Meanwhile, dovish Fed expectations, along with disappointing U.S. macro data on Tuesday, have kept the dollar subdued near last week’s year-to-date lows. This has overshadowed the latest optimism from new Chinese stimulus measures to a greater extent and provided a tailwind for unyielding gold. Moreover, with more Fed officials set to speak this week, also this week, the focus will be on Friday’s release of the U.S. Personal Consumption Expenditures (PCE) price index, which could affect expectations of the Fed’s rate cut path and determine the next leg of gold’s trajectory.
The daily chart shows that gold is trading around $2,650 with no signs of giving up. Gold prices continue to make higher highs and higher lows, while the 14-day RSI technical indicator suggests that momentum favors sellers {currently at 76.00 overbought level}. Maintaining a mild bullish bias. Meanwhile, gold prices are well above the bullish moving averages, the 20-day simple moving average, currently hovering around $2,553. Although some mild divergences are expected to lead to a correction, the recent situation also tilts the risk to the upside. The short-term 4-hour chart shows that the moving averages are accelerating upwards and are well below the current price, which matches the continued buying interest. However, the momentum indicator continues to move downwards and is in the positive zone, diverging from the price trend. Finally, the RSI maintains a positive bias and is heading north near the overbought indicator. Therefore, the upper resistance area can be watched. The first resistance level will be $2,680, followed by the psychological $2,700 level. As for downside support, consider 2,622.00 (Tuesday's low), and a break will look towards the psychological market level of 2,600.00 US dollars.
Today, consider going long gold before 2,645.00, stop loss: 2,640.00; target: 2,665.00; 2,670.00
AUD/USD
AUD/USD broke through the 0.6900 mark, although it later fell to around 0.6820 due to a broad and strong rebound in the US dollar amid investors' skepticism about the Chinese central bank's stimulus plan. AUD/USD hit 0.6908 in Asian trading on Wednesday, the highest since February 2023, after the release of the Reserve Bank of Australia's monetary policy decision. As widely expected by the market, board members kept the official cash rate unchanged at 4.35%, a level set in November 2023. RBA Governor Michelle Bullock then held a press conference to reiterate her well-known hawkish signals. Bullock confirmed that interest rates will remain on hold for now, adding that the RBA will not cut rates in the near future as recent data has not had a "material impact" on the policy outlook. Investors were not surprised by the hawkish bias and were generally optimistic, but AUD/USD continued to climb. In early trading on Wednesday, Australia will release the monthly consumer price index for August, which is expected to be 2.8% compared to 3.5% in July.
The daily chart of AUD/USD shows strong upward momentum supporting a move higher. Technical indicators have lost some of their bullish power but continue to move higher as they approach overheating indicators. Meanwhile, AUD/USD has moved well above its bullish moving averages, with the 20-simple moving average (0.6756) more than 150 pips below the current price and well above the larger moving averages. In the short term, the 4-hour chart shows that the risk of AUD/USD is tilted to the upside, although the momentum has weakened. Technical indicators have retreated slightly from near overbought readings, moving slightly lower, but not enough to expect another decline. Therefore, the upward resistance should focus on 0.6936 {February 16, 2023 high, and 0.7000 {market psychological level}. At the same time, the support below can consider 0.6800 {round level}, and 0.6750 level.
Today, you can consider going long on the Australian dollar before 0.6805, stop loss: 0.6790; target: 0.6850; 0.6860.
GBP/USD
The further recovery of the US dollar puts pressure on the risk complex and prompts GBP/USD to fall further, falling back to the 1.3320 area on Wednesday, a two-day low. After the overall weakness of the US dollar at the beginning of the week, GBP/USD continued its continuous rise for the second consecutive day, breaking through the 1.3400 level and refreshing a 30-month high. The broad-based weakness in the US dollar has given the British pound exactly the boost it needs to maintain its current bullish momentum. On Wednesday, economic data will be quiet on the British pound front, but British pound traders will be keeping a close eye on a speech by Bank of England MPC member Megan Green. MPC member Green will speak at the North East Chamber of Commerce. Consumer confidence has deteriorated across the board, with consumer expectations for 12-month inflation accelerating to 5.2%. The result of the decline in consumer confidence has triggered interest rate markets to once again expect a sharp Fed rate cut in November. The CME FedWatch tool shows that interest rate markets are pricing in a near 60% probability of a second 50bp rate cut on November 7, while the probability of a modest 25bp rate cut is only 40%.
In terms of recent technicals, GBP/USD bulls continue to evade all recent warning signs, pushing GBP/USD into overbought territory {71.90}. In the past two weeks, GBP/USD has risen by more than 3%, rebounding from the previous swing low on the daily chart to the 1.3000 mark. Despite GBP/USD trading above 1.3400, shorts face a tough choice; while GBP/USD looks increasingly suitable for long dips, the lack of further upside technical resistance means that there is too much risk in choosing short opportunities, which may directly offset the still strong bullish momentum. On the upside, consider 1.3500 {market psychological level}, and 1.3638 {February 18, 2022 high}. As for downside support, focus on 1.3300 {round number}, and 1.3250 area levels.
Today, it is recommended to go long GBP before 1.3305, stop loss: 1.3290, target: 1.3350, 1.3360
USD/JPY
USD/JPY rose slightly in the North American session, rising more than 1.0% as the US dollar recovered. The rise in US 10-year Treasury yields drove the currency pair's gains. The dollar rose against the yen on Tuesday and then gave up, closing down 0.27%. Bank of Japan Governor Kazuo Ueda said that the outlook is subject to risks such as financial market turmoil and whether the US economy can achieve a soft landing. He said there is enough time to weigh policies, suggesting that there is no rush to raise interest rates. The yen is under downward pressure as traders assess the policy outlook of the Bank of Japan. The Bank of Japan said it will assess market and economic conditions before making any policy adjustments, indicating that there is no urgency to raise interest rates. The dollar faces challenges due to rising dovish sentiment around the Fed's policy outlook. Since falling to a December 2023 low on September 16, USD/JPY has been rising. It has established a series of higher highs and higher lows and can be said to be in a short-term uptrend.
Despite the pair testing 144.00 for three consecutive sessions, yesterday’s USD/JPY bulls conquered the previously mentioned 144.45 {34-day moving average} and touched 144.86 (23.6% Fibonacci rebound from 161.95 to 139.58) to spur Tuesday’s decline. The 14-day RSI technical indicator suggests that momentum is back in positive territory {currently at 51}. On the other hand, USD/JPY remains below the 34-day moving average, which could pave the way for a test of lower prices. The next key support will be 142.50 {9-day moving average} and then 142.00 {round number}. On the upside, if USD/JPY breaks above 144.45 {34-day moving average} and 144.86 (23.6% Fibonacci rebound from 161.95 to 139.58), the pair could see a bearish trend. Further upside will test the 145.53 {10-week SMA} level.
Today, we recommend shorting the USD before 144.85, stop loss: 145.00; target: 143.90, 143.80
EUR/USD
Despite hitting fresh yearly highs above 1.1200, EUR/USD gave up those gains and retreated to the 1.1120 range as the dollar recovered strongly ahead of key US data and Powell's speech on Thursday. On Tuesday, EUR/USD shrugged off bearish sentiment and rallied to recent highs, with another unsuccessful attempt at 1.1200. There is little reason for the euro to strengthen on its own, but the dollar's weakness across the board has helped to boost the euro. There was little data of note in Europe and the US on Wednesday. Dollar traders will have to wait until the New York session for a speech by Fed Board member Adrienne Kugler at Harvard Kennedy School in Cambridge. Consumer confidence deteriorated across the board on Tuesday, with consumers' expectations for 12-month inflation rising to 5.2%. Consumers also reported a generally weaker outlook for their household finances in six months, and consumers' assessment of overall business conditions also turned negative. Despite Fed Governor Bowman's concerns, the results of the decline in consumer confidence have triggered interest rate markets to once again increase bets on a big rate cut in November.
Starting this week, EUR/USD bulls seem to be showing signs of exhaustion as price action has entered the top of the recent momentum at 1.1200. Despite the intraday weakness, EUR/USD continues to remain well bid overall, and the pair has tested the yearly high despite being unable to recapture the key 1.1200 level in the short term. The daily chart shows that EUR/USD may extend its decline. The 14-day relative strength index (RSI) of the technical indicator has retreated to around 55. But it is not enough to confirm another decline for the time being. Meanwhile, the mildly bullish 50-week SMA provides support around 1.1010. On the downside, the first support is at 1.1051 (200-week SMA), a break of which will point to 1.1010 (50-week SMA), and the psychological level of 1.1000, which will be the main support area. A break below this level will make the bearish situation more serious. As for the upside, the round resistance level of 1.1200 will become the main obstacle for euro bulls. If this level is broken, the asset will fall to the high of July 2023 at 1.1275.
Today, it is recommended to go long on the US dollar before 1.1105, stop loss: 1.1090, target: 1.1160, 1.1170.
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