US Dollar Index
Last week, the Swiss National Bank's unexpected rate cut and the Bank of England's dovish stance reinforced the view that the European Central Bank is far ahead of the Federal Reserve in terms of rate cuts, a development that is bullish for the US dollar. In contrast, Norway's central bank made a hawkish revision to its guidance. The ECB's policy meeting last week provided some support for the dollar. The dollar index traded close to 106.00, reaching a one-and-a-half-month high of 105.92. Now, weaker US inflation and/or economic activity data are needed to narrow the interest rate gap between the Fed and other central banks, ultimately driving a new round of dollar declines. The next major data point for the market is the May PCE, to be released on June 28, but some activity indicators before that can guide rate expectations to a lesser extent. Given the lingering political risks in the EU, the market is skeptical about whether there is enough data at this stage to meaningfully drive the dollar lower. In the coming days, the dollar index is likely to trade closer to the late-April lows of around 106.50 rather than the 105.12 level (last week's low).
From the weekly chart, the dollar index has broken higher and is poised for a third consecutive week of gains, nearing a one-and-a-half-month high of 105.92. Despite last week's US economic data mostly falling short of expectations, the dollar ultimately strengthened, largely due to key drivers such as a weak yen, political turmoil in France, and further contraction in European PMIs. On the upside, the levels traders need to watch remain largely unchanged. The first level to watch is 106.00 (market psychological barrier), which triggered a technical pullback in early May and may again act as resistance. Further up, the biggest challenge remains the year-to-date high of 106.51 since April 16, and 106.60 (midline of the upward channel on the weekly chart). On the downside, the 105.52 level (23.6% Fibonacci retracement of 102.35 to 106.51) is the first support before a triple bottom, which continues to act as support. First, the 9-week moving average at 105.18 guards the 105.00 level. The 100-day and 200-day moving averages near 104.62 and 104.48, respectively, provide double-layered support for any decline. If this area is breached, look to the 104.00 level (round number) to salvage the situation.
Today, consider shorting the dollar index near 105.98, with a stop loss at 106.10, and targets at 105.60 and 105.55.
WTI Spot Crude Oil
Last week, U.S. WTI crude oil prices rose for the second consecutive week. Although the follow-through was lacking, prices remained close to the late April high of $82.98 per barrel reached last week. The commodity's highest trading price last week was approximately $81.86 per barrel, suggesting a potential for continued upward movement. Data released by the U.S. Energy Information Administration (EIA) last week showed that U.S. crude oil inventories decreased more than expected, reiterating the expectation of a tightening market in the second half of the year. Additionally, investors' concerns about broader Middle East conflicts potentially disrupting global supply from key producing regions will continue to drive oil prices and support the recent positive outlook. Both crude benchmarks saw an average increase of around 3% last week, with WTI crude spot prices closing up 3.09% at $80.92 per barrel, and Brent crude futures closing at $85.24 per barrel, up about 3.89%. Oil prices have been rising since early June. Geopolitical risks remain prominent, including renewed confrontations between Israel and Hezbollah on the Israel-Lebanon border, new attacks by Houthi forces in the Red Sea, and potential disruptions related to weather.
From the daily chart, the fundamental backdrop seems favorable for bullish traders. Additionally, oil prices recently broke above the technically significant 100-day (79.43) and 50-day (79.25) simple moving averages, indicating that the path of least resistance for crude prices is upward. Therefore, any meaningful dips are likely to attract new buyers, albeit limited. Bulls are now eyeing a retest of $82.56 (23.6% Fibonacci retracement of 67.94 to 87.08), with a break targeting $84.14 (April 26 high). Currently, the key support area is around $79, coming from all three major simple moving averages: the 50-day (79.25), 100-day (79.44), and 200-day (79.11) levels. This should pose a significant barrier to further price declines and potentially act as a turning point. A daily close below $78.00 (round number) and $78.33 (38.2% Fibonacci retracement of 72.62 to 81.86) is needed to confirm a successful breach of these three simple moving averages' resistance and continue the decline toward the $76.15 target (61.8% Fibonacci retracement).
Today, consider going long on crude oil near 80.60, with a stop loss at 80.40 and targets at 81.75 and 82.00.
Spot Gold
Before the end of last week, data from the S&P Global U.S. Purchasing Managers' Index (PMI) showed that gold reversed earlier gains and fell below the 50-day simple moving average. This data caused gold prices to plummet to a low near $2,316 on Friday. A higher PMI indicates that inflation may continue to rise, causing the Federal Reserve to delay rate cuts, which is a key factor for gold prices. Lower interest rates benefit gold because they reduce the opportunity cost of holding non-yielding assets like gold compared to bonds and other assets. Therefore, any delay in rate cuts will put pressure on gold.
A survey by the World Gold Council (WGC) of international central bank reserve managers indicates that gold is likely to continue benefiting from another factor influencing its price—central bank purchases. Additionally, the Russian invasion of Ukraine and Israel's war with Hamas have accelerated the divide between the BRICS countries and the West, splitting the world along ideological and political lines. Since these conflicts are unlikely to end soon, they may continue to increase demand for gold, both as a potential medium of exchange and a safe-haven asset.
From the daily chart, gold prices had broken above the range trading upward before the end of last week, reaching a confluence of the downtrend line resistance at $2,345.00 and the 50-day simple moving average at $2,343.40. At this stage, gold prices reached a nine-day high of $2,368 before sharply retreating to a low near $2,316.80. Simultaneously, gold prices had confirmed a breakout above the "symmetrical triangle" upper trendline at $2,358 before pulling back, potentially favoring the bears. The 14-day Relative Strength Index (RSI) fell below the 50 level, currently near 47, indicating more downside potential for gold prices. Therefore, for gold to reverse its decline and rise again, it needs to break through the confluence point at $2,345.00 and $2,343.40, to enter the next upward resistance at the two-week high of $2,368, with the next level targeting the June 7 high of $2,387.80. On the other hand, a key support level for gold buyers may be the psychological barrier at $2,300. If the bears dominate and consistently break below this level, it will test $2,287.00 (a trend support line extending from late April). Breaking below this level would directly target the $2,241.20 level (100-day moving average).
Today, consider going long on gold near $2,318.00, with a stop loss at $2,315.00, and targets at $2,332.00 and $2,335.00.
AUDUSD
Last week, AUD/USD rebounded from an early low of 0.6585 to a high of 0.6680 before a minor technical pullback. This pullback was due to improved USD sentiment and general risk aversion in the forex market. Supported by these factors, the USD index climbed to 105.92, its highest level since May 1, despite weak U.S. economic data and ongoing discussions about potential Fed rate cuts later this year. Higher U.S. yields also contributed to the dollar's strength. Copper prices saw a slight increase, while iron ore prices remained within a consolidation range, contributing to the daily decline in the AUD. Regarding monetary policy, the Reserve Bank of Australia (RBA), like the Fed, is one of the last major central banks to adjust its stance. As expected, the RBA maintained its hawkish position last week, keeping the official cash rate (OCR) at 4.35%, and stated that future decisions would be flexible. In a press conference, RBA Governor Michelle Bullock confirmed that the board discussed the possibility of rate hikes while ruling out rate cuts. Additionally, the central bank remains vigilant about inflation, indicating it is unwilling to loosen policy unless necessary. The RBA emphasized that inflation remains persistently above target and reiterated its commitment to taking necessary actions to bring it back within the target range.
From the daily chart, AUD/USD rebounded approximately 100 pips from last week's low of 0.6585 to a high of 0.6680 before a minor technical pullback to around 0.6640. Currently, if the bulls want to regain control, they must push AUD/USD above 0.6700 (psychological level) and 0.6714 (May 16 high), followed by the January 4 high of 0.6760, all of which are before the crucial 0.7000 level. Since the 14-day Relative Strength Index (RSI) is hovering near the midline at 51.40, momentum shows neither buyers nor sellers have a decisive advantage, suggesting a short-term neutral outlook. On the bearish side, bears are trying to push AUD/USD lower, initially testing the psychological barrier at 0.6600 before the key 200-day moving average at 0.6548 and 0.6540 (38.2% Fibonacci retracement of 0.6362 to 0.6714). Further declines could see the pair return to 0.6500 (round number) and 0.6499 (61.8% Fibonacci retracement). Overall, as long as AUD/USD stays above 0.6549 - 0.6540, the uptrend will remain intact.
Today, consider going long on AUD near 0.6625, with a stop loss at 0.6610 and targets at 0.6670 and 0.6680.
GBPUSD
Following the Bank of England's decision to maintain interest rates, the British pound continued its decline for the second consecutive day. The pound remained weak, further impacted by mixed UK economic data. Retail sales exceeded expectations, but the preliminary PMI figures softened, suggesting a potential economic slowdown. The Bank of England's statement and meeting minutes last Thursday indicated that officials are getting closer to considering rate cuts. Market expectations for a rate cut in August are strong, causing GBP/USD to fall to a near one-month low of 1.2521. The recent unexpected rise in service sector inflation (5.7%) was attributed to volatility related to annual price increases rather than a significant trend. Although the Bank of England made no firm commitments, a rate cut in August is possible if inflation trends continue. Starting in August, the market's base expectation is for three rate cuts in 2024, which is more dovish than the previously expected two cuts. Currently, only 60% of the August rate cut is priced in. This bearish sentiment is likely to affect the pound, though political events in the Eurozone may delay a rebound in EUR/GBP. In the short term, most of the pound's weakness is expected to be reflected in GBP/USD, possibly pushing the pair below 1.25.
From a recent technical perspective, GBP/USD has fallen back below 1.2650 and is near a five-week low of 1.2622. Lower government bond yields and ongoing uncertainty ahead of the July 4 UK election are pressuring the pound, a situation unlikely to ease soon. The daily chart shows GBP/USD in oversold territory, which might slow further selling in the coming days. GBP/USD broke below the ascending channel's lower limit, and the 14-day Relative Strength Index (RSI) fell to 43.40, indicating a bearish short-term outlook. On the downside, 1.2623 (165-day simple moving average) and 1.2622 (last Friday's low) are key support levels. If GBP/USD breaks below these levels and uses them as resistance, it could continue to decline towards 1.2600 (psychological level) and 1.2579 (50% Fibonacci retracement of 1.2299 to 1.2860). A break below these levels targets 1.2513 (61.8% Fibonacci retracement) and the support region at 1.2500 (round number). The 21-day simple moving average at 1.2736 and 1.2727 (23.6% Fibonacci retracement) provide strong resistance, with a break above these levels aiming for 1.2760 (last Monday's high) and 1.2800 (psychological level).
Today, consider going long on GBP near 1.2615, with a stop loss at 1.2600 and targets at 1.2680 and 1.2690.
USDJPY
Before the end of last week, Japan's Finance Minister Shunichi Suzuki stated that he would work with colleagues to mitigate the economic damage caused by forex volatility, adding that excessive and disorderly forex fluctuations could harm the economy. He emphasized close communication with the US and other countries on forex issues, as the G7 agrees that such fluctuations can be detrimental. Suzuki does not believe the US views Japan's forex policy as problematic. The US Treasury has placed Japan on its "monitoring list" for forex practices but has not labeled Japan or any other trading partner as a currency manipulator. Despite verbal intervention, the yen remained near a two-month low against the dollar, trading at 159.82. Japan's inflation data affected USD/JPY buyers; in May, the annual inflation rate rose from 2.5% to 2.8%, against economists' predictions of 2.5%. Additionally, core inflation accelerated from 2.2% to 2.5%, with expectations of 2.6%. Rising inflation could spark speculation about a July rate hike by the Bank of Japan (BoJ), with BoJ Governor Kazuo Ueda warning that the decision will depend on data. Nevertheless, USD/JPY closed higher for the second consecutive week.
The daily chart shows USD/JPY steadily above the 50-day (156.11) and 100-day (153.20) moving averages since mid-March. The 14-day Relative Strength Index (RSI) at 69.68, above the 50 level, indicates continued upward momentum, confirming bullish price signals. USD/JPY returned to the 159 level, hitting the upper trendline of the ascending channel on the daily chart at 159.30 and reaching a nearly two-month high of 159.82. This suggests a potential move towards 160 and possibly the 34-year high of 160.20. A break above this level would target 162.17 (123.6% Fibonacci extension of 160.20 to 151.85). Conversely, a break below the mid-channel line at 157.50 could lead USD/JPY to test 156.60 (a trendline extending from the March 11 low of 146.48). A break below this level could intensify downward pressure, potentially driving the pair towards the 50-day moving average support area at 156.11.
Today, consider shorting USD near 160.05, with a stop loss at 160.30 and targets at 159.20 and 159.00.
EURUSD
Last week, preliminary PMI data from the Eurozone reflected unexpectedly weak economic activity, causing EUR/USD to decline and retest the mid-June low of 1.0670. Given the dovish signals from the European Central Bank’s (ECB) major peers (the Bank of England and the Swiss National Bank) and investor nervousness regarding EU fiscal and political developments, it is understandable that the euro faces some pressure in the second half of the year. What has recently helped the common currency in some instances are favorable activity indicators, such as today's PMI releases. It will be interesting to see whether the political uncertainty in France has affected French business confidence; the consensus does not think so. Last week, comments from two ECB members, Gediminas Šimkus and hawkish Joachim Nagel, regarding the current EU bond market turmoil may influence the market. The market still believes that EUR/USD may move lower towards the end of June, influenced by the U.S. core PCE and French election events. The risk of trading below 1.07 is real.
The daily chart for EUR/USD shows the pair trading near the monthly low of 1.0670 in June. The risk is skewed to the downside, and if EUR/USD breaks below this level and 1.0668 (78.6% Fibonacci retracement of 1.0601 to 1.0916), and begins using it as a resistance area, technical sellers may remain interested. In this scenario, the next bearish targets could be set at 1.0601 (April 16 low) and 1.0600 (psychological barrier). A break below these levels would continue to test 1.0560 (descending channel lower boundary) and further challenge 1.0500 (round number). The support area around the aforementioned 1.0560 - 1.0500 monthly lows is expected to play a supportive role. Conversely, on the upside, 1.0700 (psychological level, static level) could be seen as a temporary resistance level before 1.0721-1.0722 (61.8% Fibonacci retracement and 5-day simple moving average), and 1.0758 (50.0% Fibonacci retracement). The next level would directly target 1.0800 (psychological level) and the 1.0803 (25-day moving average) area.
Today, consider going long on EUR near 1.0675, with a stop loss at 1.0660, and targets at 1.0740 and 1.0750.
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