US Dollar Index
Last week, the US Dollar Index (DXY) continued its upward trend through the weekend, reaching its highest level since early May at 105.80. This rise was fueled by higher-than-expected US inflation in May, a more hawkish Federal Reserve as indicated by the final dot plot, and political risk premiums in the Eurozone. The Fed's decision to adjust its target to combat inflation for adaptive progress, while maintaining confidence in reducing inflation to 2%, also contributed to this trend. The Dollar Index shrugged off weak data and maintained a positive momentum. Currently, the index hovers near its early May high of 105.80, before pulling back slightly to around 105.50, but it continues to hold daily gains. The US economic outlook remains mixed, with the Fed maintaining its economic activity outlook unchanged but raising its Personal Consumption Expenditures (PCE) expectations. Preliminary analyses indicate weak inflation but a resilient labor market, prompting the Fed to project smaller rate cuts. Last Friday, the University of Michigan’s consumer sentiment data showed disappointing results, hitting the lowest point in seven months. This caused the Dollar to pare some of its daily gains, as much of the US economy revolves around consumer spending.
On the daily chart, the Dollar Index surged from last week's mid-low of 104.25 to the pre-weekend high of 105.80, touching its highest level since early May. Technical indicators maintain a positive outlook, with the Relative Strength Index (RSI) staying above 50 at 58.05 and the Moving Average Convergence Divergence (MACD) continuing to show green signal bars. This indicates a strong short-term trend. Additionally, the 100-day and 200-day moving averages formed a "golden cross" bullish pattern last week. Furthermore, the index remains above the 20-day (104.74), 100-day (104.52), and 200-day (104.46) simple moving averages. These combined factors reinforce the bullish outlook for the Dollar Index. Short-term targets are set at 105.80 (last Friday’s high) and 106.00 (psychological level), with the next level at 106.51 (April 16 high). If the index fails to rise further and declines instead, it might test 105.00 (psychological barrier), and critical support levels at 104.46 (200-day MA) and 104.52 (100-day MA).
Today, consider shorting the Dollar Index around 105.70, with a stop loss at 105.85 and targets at 105.20 and 105.10.
WTI Spot Crude Oil
Last week, investors weighed OPEC+ assurances and the latest US employment data, which reduced expectations for an imminent Federal Reserve rate cut, leading to a third consecutive weekly decline. WTI crude oil settled at $75.50 per barrel, down more than 1.81% for the week. Brent crude oil futures settled at $79.62 per barrel, down 2.5% for the week. Data showed that US employment growth in May far exceeded expectations, leading Wall Street to generally predict that the Fed will start cutting rates in September. Despite increasing inflation uncertainty, the European Central Bank announced its first rate cut since 2019 on Thursday. High leverage costs tend to suppress economic activity and oil demand. The employment report suggests that high interest rates will persist longer, often dampening enthusiasm in the oil market. Additionally, OPEC+ production cuts and Russian support indicate their readiness to pause or resume oil production growth. Nevertheless, oil prices fell for the third consecutive week due to demand concerns. Earlier this week, oil prices dropped as analysts viewed Sunday's OPEC+ meeting as indicative of increased supply, which is unfavorable for prices.
On the daily chart, WTI crude oil prices are trading within the range of the 10-day (76.42) to the 65-day (80.38) moving averages. Currently, the critical resistance area is at $79, from all three major simple moving averages: the 50-day (79.65), 100-day (79.20), and 200-day (79.26). This may pose a significant barrier to further oil price increases and could be a turning point. A daily close above $80.00 (psychological level) and $80.36 (May 29 high) is needed to confirm a successful breakout of the resistance from the three simple moving averages and to continue rising towards the target of $82.56 (23.6% Fibonacci retracement level of 67.94 to 87.08). Conversely, if oil prices reverse downward, the first target is $77.51 (50.0% Fibonacci retracement level), with a break below this level continuing to test $76.42 (10-day moving average) and the $75.25 area (61.8% Fibonacci retracement level).
Today, consider going long on crude oil around $78.25, with a stop loss at $78.00 and targets at $79.50 and $79.70.
Spot Gold
Last week, gold technically rebounded and rose by about 1.68% to the positive area around $2,333.00. A slight drop in the benchmark 10-year US Treasury yield to 4.2% helped gold prices rise before the weekend. Mixed signals about the future direction of US interest rates, a key driver for gold, did not help establish a clear direction for the precious metal. During uncertain times, gold tends to fluctuate within a range, as conflicting signals keep traders guessing. This is especially true regarding the future path of US interest rates. Despite the country's economic data showing a trend towards deflation, expected to lead to lower rates, Federal Reserve officials responsible for rate cuts remain more cautious. Lower rates would be a positive catalyst for gold as they reduce the opportunity cost of holding non-yielding assets. However, it is unclear when and by how much the rates will decrease. Gold was also impacted after the People's Bank of China revealed that they had stopped buying precious metals between the end of April and May. This was the first time in 18 months that the Chinese central bank did not increase its gold reserves, suggesting that the price ceiling might have been reached.
Gold continues to form a bearish "Head and Shoulders" pattern, which typically appears at market tops and signals a trend reversal. On gold, the Head and Shoulders pattern has completed the left shoulder (2418), the right shoulder (2388), and the "head" (2450). The so-called "neckline" of this pattern appears to be at the $2,290.00 support level. The declining volume during its formation confirms this pattern. A decisive break below the neckline would validate the Head and Shoulders pattern, activating a downside target of $2,130, calculated as 2,290 - (2,450 - 2,290). Before reaching this Head and Shoulders downside target, focus on $2,316.50 (65-day simple moving average), $2,300 (psychological level), $2,299 (23.6% Fibonacci retracement level from 1810.50 to 2450.00), and $2,290 (neckline of the Head and Shoulders). The next level to watch is $2,277.40 (April 29 low). On the other hand, if gold prices break above $2,345 (50-day simple moving average) and $2,352.00 (65-week simple moving average), it would challenge the $2,388.00 level (right shoulder of the Head and Shoulders), questioning the validity of the pattern and potentially indicating a continuation towards the initial targets of $2,400 and even $2,450.
Today, consider going long on gold around $2,328.00, with a stop loss at $2,325.00 and targets at $2,345.00 and $2,348.00.
AUDUSD
Due to rising US Treasury yields before the weekend, the US dollar remained strong, causing the Australian dollar to decline slightly. However, after a Reuters survey of 43 economists, the AUD/USD currency pair attempted to recover from its earlier losses. The poll predicted that the Reserve Bank of Australia (RBA) might keep the current interest rate unchanged in June. 90% of economists expect the rates to remain stable next quarter, with a potential decrease of 25 basis points to 4.10% by the end of 2024. Additionally, 63% of economists predict that rates will drop to 4.10% or lower by year-end, while a minority (35%) expect no changes. Despite the economic data showing weak CPI, PPI, and higher-than-expected initial jobless claims, the dollar remained stable after rising the previous day. Federal Open Market Committee (FOMC) policymakers revised their expectations, now anticipating only one rate cut this year, down from the three predicted in March. This adjustment bolstered the dollar's resilience and pressured the AUD/USD exchange rate.
The daily chart shows that the AUD/USD is trading within a "horizontal channel" with upper and lower bounds at 0.6680 and 0.6560. Currently, the price is running below the midline of the horizontal channel at 0.6625. The AUD/USD is in a sideways short-term trend, and given that "the trend is your friend," it may continue the range-bound pattern. The AUD/USD needs to decisively break this range to signal a move towards a more directional trend. The likelihood of an upside breakout is slightly higher than a downside breakout because the trend before this range was bullish. A decisive break above the upper limit of the range at 0.6680 will indicate an extension towards a conservative target of 0.6714, a strong break will aim for 0.6747 (January 5 high), and further pointing to 0.6800 (psychological level). If it breaks below 0.6600 (psychological barrier), it will indicate that the subsequent move will at least reach the support levels at 0.6582 (50-day moving average) and 0.6579 (38.2% Fibonacci retracement level from 0.6362 to 0.6714). The next level to watch is the 200-day moving average at 0.6543, and 0.6538 (50.0% Fibonacci retracement level).
Today, consider going long on AUD around 0.6600, with a stop loss at 0.6585 and targets at 0.6640 and 0.6650.
GBPUSD
Late last week, as the US dollar continued to rise, the British pound is currently testing its support levels. The latest bout of euro weakness supported the dollar, and the yen also fell following the Bank of Japan meeting last night. GBP/USD is testing last week’s low of 1.2656. Data expected to be released this week is anticipated to show that UK inflation will decline further, with core CPI year-over-year dropping from 3.9% to 3.5%, and headline CPI year-over-year falling from 2.3% to 2.0%. UK inflation has been steadily decreasing over the past year, and it is expected to reach the Bank of England’s target rate (2%) in the coming months. The inflation data is released a day before the Bank of England's latest monetary policy decision, and if market predictions are met, the Bank of England might take a slightly dovish stance. The Bank of England is expected to cut rates at its September meeting and again by 25 basis points by the end of the year. While this scenario is unlikely to change, if inflation meets or exceeds expectations, the Bank might provide a more dovish forecast. On Friday, the latest S&P Global UK June Purchasing Managers' Index (PMI) will be released. While this data is important, inflation data and the Bank of England meeting will be the driving forces for the pound's future movements.
The daily chart shows that GBP/USD is testing the support levels at 1.2656 (last Friday’s low) and 1.2638 (61.8% Fibonacci retracement level from 1.2299 to 1.2893), following a downward move from the high of 1.2860 early last week to 1.2656 before the weekend. The new round of weakness in other major currencies has supported the dollar. GBP/USD is testing 1.2600 (psychological level) and 1.2596 (50.0% Fibonacci retracement level). A confirmed break below this level would shift focus to 1.2525 (38.2% Fibonacci retracement level). If the pair closes above 1.2851 (14-day moving average) and 1.2765 (78.6% Fibonacci retracement level) this week, it would negate any recent bearish bias and push the pound towards 1.2800 (psychological barrier) and 1.2850 (midline of the upward channel).
Today, consider going long on GBP before 1.2668, with a stop loss at 1.2650 and targets at 1.2720 and 1.2730.
USDJPY
Before the weekend, USD/JPY retraced its gains to around 157.30. The yen significantly dropped due to the Bank of Japan's decision to keep its policy unchanged, and widespread risk-off sentiment helped the yen recover some ground. During the week, the yen gave back recent gains as the dollar strengthened following the Federal Reserve's hawkish stance, boosting the USD/JPY pair. As widely expected, the Federal Open Market Committee (FOMC) maintained the benchmark lending rate in the range of 5.25%–5.50% for the seventh consecutive time at its policy meeting. Although the Bank of Japan will keep rates unchanged, traders will closely watch for any announcements regarding a potential reduction in the central bank's monthly bond purchases. The US Dollar Index, which measures the value of the dollar against six major currencies, recouped recent losses. This recovery can be attributed to the Fed's hawkish stance. FOMC policymakers currently expect only one rate cut this year, down from three predicted in March. The CME FedWatch tool shows that the probability of the Fed cutting rates by at least 25 basis points in September has fallen to 61.5%, down from 69.4% a week ago.
Before the weekend, USD/JPY traded back above 157.00 (midline of the upward channel). The daily chart indicates a bullish inclination as the pair consolidates within the upward channel pattern. Additionally, the 14-day Relative Strength Index (RSI) is above the 50 level at 57.60, indicating upward momentum. A notable obstacle is the psychological level of 157.00. Breaking this level and maintaining support from the bulls could guide USD/JPY towards key levels near 157.71 (May 29 high). Further resistance is at 160.20, the highest level in 34 years. On the downside, the first support level to watch is 156.10 (an upward trendline extending from the March 11 low of 146.48). Breaking this level could intensify downward pressure on USD/JPY, potentially pushing it towards the retracement support area near 155.50 (lower boundary of the upward channel).
Today, consider going short on USD before 157.55, with a stop loss at 157.80 and targets at 156.80 and 156.70.
EURUSD
EUR/USD continues to face bearish pressure, trading at its lowest level since early May, below 1.0700. Due to risk-off sentiment and looming EU political uncertainties, the demand for the US dollar has increased, adding downward pressure to the pair as it heads into the weekend. The euro remains affected by last weekend's European Parliament elections and expectations of further rate cuts this year. After rising to a high of 1.0850 last Wednesday, EUR/USD experienced a technical pullback on Thursday and Friday, resulting in a significant drop. The dollar received buying support last week following the Fed's reduction in US rate expectations, causing the euro to give back some of the gains made after the US Consumer Price Index (CPI) data on Wednesday. The pair is under pressure, trading at its lowest level since early May, just below 1.0700. The negative shift in risk sentiment helped the dollar strengthen late last week. Additionally, as investors reassessed the Fed's policy outlook in light of the hawkish revisions in the Summary of Economic Projections, the negative impact of weak inflation data on the dollar began to fade. Meanwhile, after significant macroeconomic events in the US, investor attention shifted back to political tensions in the Eurozone, making it difficult for the euro to find demand.
On the daily chart, technical indicators show that the 14-day Relative Strength Index (RSI) is slightly above 30 at 38.97, indicating that there is more downside potential before the pair becomes technically oversold. Additionally, a "death cross" formation was completed just before the weekend, with the 14-day moving average crossing below the 250-day moving average. Therefore, the area around 1.0668 (78.6% Fibonacci retracement level from 1.0601 to 1.0916) and 1.0667 (last Friday's low) is the first support level to watch. The next levels to watch are 1.0601 (April 16 low) and 1.0600 (psychological level). If EUR/USD manages to stabilize above 1.0700 (psychological level), sellers might take profits early in the week, allowing the pair to retrace higher. In this case, 1.0758 (50.0% Fibonacci retracement level) might be seen as the next resistance level before reaching 1.0800 (psychological level) and 1.0820 (250-day moving average).
Today, consider going long on EUR before 1.0685, with a stop loss at 1.0670 and targets at 1.0745 and 1.0760.
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