US Dollar Index
The US Dollar, represented by the Dollar Index, continued to decline to a three-week low of 104.82, dragged down by last Friday's weak June non-farm payroll data, which broke below the 105.00 mark. With increasing anti-inflationary signals in the US economy, confidence in a rate cut in September has grown. However, Federal Reserve officials continue to avoid an immediate rate cut, maintaining a data-dependent approach, while beginning to acknowledge challenges in the labor market.
The US labor market report indicates a cooling trend, boosting expectations for a Fed rate cut at the September policy meeting, leading to a drop in the Dollar. The Fed swaps market has fully priced in two rate cuts by the end of the year. Nevertheless, the timing of the rate cuts will depend on how Fed officials interpret current labor market data and inflation figures.
Traders are selling off the Dollar and interest rates are plummeting due to the favorable outlook for a September rate cut. The June non-farm report was what the Fed hoped to see. It is a favorable figure, indicating an economic slowdown and a deceleration in wage growth amid rising unemployment. Wage growth below 4% is what the Fed aims to see, confirming that the US economy is slowing. Last week, the Dollar continued to decline, while political developments in the UK and France drove the Pound and Euro higher against the Dollar. Even the Yen strengthened slightly against the Dollar.
After the non-farm payrolls report fell short of market expectations, the Dollar Index broke below the 105.00 level to a three-week low of 104.82, marking its seventh consecutive day of decline. Traders seem to be reducing their long positions, and the Dollar Index may plummet to last month's low of 103.99. On the positive side, after a firm rejection of early-week tests, the 10-day simple moving average (SMA) at 105.57 and 105.52 (23.6% Fibonacci retracement from 102.35 to 106.51) have now turned into resistance. The technical indicator, the 14-day Relative Strength Index (RSI), is moving sideways near 43.80, indicating a lack of rebound momentum, and may further push the Dollar Index down to test the 104.75 level (100-day SMA). If the index continues to fall, it will target 104.43 (50.0% Fibonacci retracement), 104.00 (psychological level), and 103.99 (June 7 low). On the other hand, if the 10-day SMA at 105.58 is reclaimed, 105.95 (midline of the ascending channel) and 106.05 (last week's high) are the next key levels nearby.
Today, consider shorting the Dollar Index near 105.00, with a stop loss at 105.15 and targets at 104.65 and 104.60.
WTI Spot Crude Oil
Last week, oil prices closed lower over the weekend due to the increased possibility of a ceasefire agreement in Gaza, which offset the impact of strong summer fuel demand and potential supply disruptions from Gulf of Mexico hurricanes. This week, WTI crude oil rose by 2.1%, closing the week at $83.45. Brent crude fell by 2.34%, closing the week at $87.63 per barrel, both marking their fourth consecutive week of gains. Earlier last week, WTI crude had reached its highest level since April, at $84.56 per barrel. On Friday, the Israeli Prime Minister's Office announced that Israel was attempting to reach a ceasefire and hostage release agreement in Gaza, with negotiations set to resume next week. Evidently, the easing of Middle East conflicts reduced the region's oil risk premium, putting pressure on oil prices. However, prices rose this week due to expectations of strong US summer oil demand and the largest drop in US inventories in nearly a year, indicating tight supply and further boosting market bullish sentiment. The US Energy Information Administration (EIA) reported a four-week increase in gasoline consumption for the first time in a year. The EIA also revealed last Wednesday that US crude inventories fell by 12.2 million barrels last week, far exceeding the expected 700,000-barrel drop predicted by analysts.
From the recent performance of crude oil, the market has been consolidating within a high range of $81.81 (23.6% Fibonacci retracement from $72.62 to $82.65) to $84.65 (last week's high). Currently, the price is above the 9-day moving average of $82.71. Observing the daily chart, oil prices have been on an upward trend since the June 4 low of $72.62, reaching the recent high of $84.56 before the end of last week, a 15% increase in just one month, indicating strong upward momentum. The technical indicator, the 14-day Relative Strength Index (RSI), is moving around 62.48 and has resumed an upward trend, with the MACD golden cross running well. Short-term moving averages (5-day: $83.68; 10-day: $82.64) are in a bullish alignment, with bulls still holding a significant advantage. Despite resistance near the "double top" formed by the April 26 high of $84.50 and last Friday's high of $84.65, the price pullback has been minimal, temporarily stabilizing at the 16-day moving average of $81.87 and the 23.6% Fibonacci retracement level of $81.81. As long as the price does not fall below the psychological level of $80.00, and a rebound occurs, bulls may test the highs again, suggesting a potential continued upward trend. If the price breaks through the 5-day moving average of $83.68, it could revisit last week's high of $84.65 and potentially test resistance near the April 19 high of $86.26.
Today, consider shorting crude oil around $83.75, with a stop loss at $84.00 and targets at $82.90 and $82.70.
Spot Gold
Gold prices rose last week, extending their upward momentum to a six-week high of $2,393.00, as investors became increasingly optimistic that the Federal Reserve would lower interest rates sooner than previously anticipated. The weakening dollar also boosted gold, which is primarily traded in USD. The release of the US non-farm payroll report on Friday further propelled gold prices, as the unemployment rate rose from 4.0% to 4.1%, reaching its highest level since the end of the COVID-19 crisis in November 2021. This provided more justification for the Federal Reserve to begin cutting rates in the coming months. The dollar and US Treasury yields plummeted on Friday, and gold, as a safe-haven asset, continued its rally to its highest level in over a month. The employment report suggested to financial markets that the Fed is likely to lower its main interest rate later this year, possibly in September or December. Gold prices typically strengthen when interest rates decline. Conversely, rising interest rates and bond yields can deter investors from gold, as it does not provide any yield. Meanwhile, most investors indicated that gold prices would rise this week.
From the daily chart, gold has now comfortably surpassed the 45-day simple moving average (SMA) of $2,343.60, overcoming a significant technical milestone. Additionally, gold prices have surged past the resistance level of $2,368.00, the high from June 21, driven by strong bullish momentum. Breaking through this level will further bolster bullish sentiment and unlock the next targets at $2,387.70 (61.8% Fibonacci retracement from $2,450 to $2,287), and $2,388.00 (the high from June 7), followed by the psychological barrier at $2,400.00 and the historical high of $2,450.00. Currently, short-term support for gold is at $2,368.50 (50.0% Fibonacci retracement), with the next level of support at the 45-day SMA of $2,343.60. Should prices suddenly drop to and break below the psychological level of $2,300, a reversal downtrend might ensue, with a conservative target at $2,291 (lower support line of the descending triangle).
Today, consider going long on gold before $2,387.00, with a stop loss at $2,384.00 and targets at $2,405.00 and $2,410.00.
AUDUSD
Last week, the Australian Dollar (AUD) appreciated for the fourth consecutive day. This upward movement can be attributed to persistent high inflation, prompting the Reserve Bank of Australia (RBA) to delay potential rate cuts. The AUD/USD showed strong momentum, breaking through the key resistance level of 0.6700 midweek and reaching a high of 0.6739, the highest since January 5 this year, before the weekend. The continued significant rise in spot AUD/USD was driven by a clear sell-off in the USD, as investors adjusted due to weak recent US economic data and its impact on the timing of potential Fed rate cuts. Additionally, copper and iron ore prices have emerged from several weeks of consolidation, continuing their recent upward trend. This, along with recent Australian data supporting rate hike expectations, helped AUD/USD reclaim the 0.6700 level, contributing to the strong rebound of the AUD.
In terms of monetary policy, the RBA, like the Fed, is expected to be among the last G10 central banks to begin cutting rates. Futures markets indicate that there is no longer an expectation of a rate cut by the RBA in the first quarter of next year, and even the possibility of a rate hike this year is being priced in. Furthermore, Australian retail sales rose by 0.6% month-on-month in May, exceeding expectations. Looking ahead, policy divergence may benefit the AUD relative to other currencies.
The daily chart shows the formation of an "ascending wedge" since mid-April, indicating a potential bearish reversal. Additionally, the technical indicator, the 14-day Relative Strength Index (RSI), is slightly below the 70 level. If the RSI breaks above 70, it would indicate that the asset is overbought and may undergo a short-term correction. Currently, if bulls intensify their efforts, AUD/USD is likely to test key resistance areas at 0.6760 (January 4 high) and 0.6762 (78.6% Fibonacci retracement from 0.6871 to 0.6362). Further targets are near the psychological level of 0.6800, followed by 0.6820 (upper resistance line of the ascending wedge on the daily chart). On the downside, if AUD/USD starts to decline further, the pair would test 0.6676 (61.8% Fibonacci retracement) and 0.6666 (lower support line of the ascending wedge), followed by the 50-day moving average at 0.6635. The ultimate target on the downside is 0.6600 (psychological level) and the 200-day moving average at 0.6560.
Today, consider going long on AUD before 0.6732, with a stop loss at 0.6720 and targets at 0.6785 and 0.6790.
GBPUSD
At the end of last week's trading, the British Pound showed absolute strength against major currencies except the Yen. The Conservative Party, led by Prime Minister Rishi Sunak, lost to the Labour Party, led by Keir Starmer, in the parliamentary elections on the 4th, leading to a strong rise in the Pound to a three-week high of 1.2792, with further potential to rebound to the 1.2800 resistance level amid significant USD sell-offs. The Conservative Party has been in power since 2010. Investors expect that Labour's absolute majority significantly increases the appeal of the Pound. Unlike during Conservative rule, an absolute majority is considered beneficial for the financial markets. Additionally, the GBP is expected to perform strongly against the EUR and USD, as political uncertainty is anticipated to pressure these currencies. In terms of monetary policy, the market expects the Bank of England to start cutting rates from the August meeting. The next trigger for the Pound will be the monthly GDP and factory data for May, set to be released on Thursday, July 11.
From the daily chart, after the Conservative Party led by PM Sunak lost to the Labour Party led by Starmer in the parliamentary elections on the 4th, GBP/USD traded slightly below 1.2800 before the weekend, closing at 1.2792, hitting a three-week high. GBP/USD strengthened after breaking the 61.8% Fibonacci retracement level of 1.2666 from the March 8 high of 1.2893 to the April 22 low of 1.2299. The pair has now touched the 78.6% Fibonacci retracement level of 1.2765. Currently, GBP/USD is forming a bullish "round bottom" pattern on the daily chart, with a "golden cross" between the 5-day and 30-day moving averages, which are both above the current price (at around 1.2729 and 1.2673 respectively), indicating a bullish outlook. The 14-day Relative Strength Index (RSI) has risen above 60.00. Sustaining above this level suggests momentum could turn upward to 1.2800 (psychological barrier) and 1.2803 (March 21 high). Breaking these levels could lead to a rise to 1.2860 (June 21 high) and 1.2893 (March 8 high). On the downside, the key levels to watch are 1.2700 (psychological level) and 1.2666 (61.8% Fibonacci retracement), with further declines possibly extending to 1.2600 (psychological level) and 1.2572 (200-day moving average).
Today, consider going long on GBP before 1.2795, with a stop loss at 1.2780 and targets at 1.2845 and 1.2860.
USDJPY
Last week, USD/JPY remained strong above 160.00. With the widening interest rate differential between Japan and the US, USD/JPY continued to rise, reaching 161.95, the highest level in nearly 38 years. Later in the week, the pair saw a pullback, hitting a weekly low of 160.52. During this period, USD/JPY will seek directional cues from potential interventions in the forex market by the Japanese government. For USD/JPY to decline, there needs to be a reversal in the USD and a rate cut by the Federal Reserve, or an urgent signal from the Bank of Japan towards monetary normalization (rate hike or accelerated balance sheet reduction). Neither scenario seems likely. According to the FOMC meeting on June 11-12, Federal Reserve officials emphasized a data-dependent approach to monetary policy and avoided committing to rate cuts before further observation. With recent weak US economic data, expectations for a Fed rate cut this year have increased, potentially limiting the USD's upside.
Under possible intervention by Japan's Ministry of Finance, USD/JPY retraced from the 38-year high of 161.95 to just below 160.00 last week. With the 14-day Relative Strength Index (RSI) on the daily chart firmly in the overbought territory, a correction seems imminent. The psychological level of 160.00 and the initial support at 159.80 (midline of the ascending channel) are critical. If these levels are breached, USD/JPY will likely plunge to 158.43 (78.6% Fibonacci retracement from 160.23 to 151.85) and 158.00 (psychological level). Further support would be at 157.52 (45-day simple moving average). Nevertheless, the pair may continue to rise steadily due to its popularity among investors. If USD/JPY climbs back above 161.40 (midline of the ascending channel), the first resistance level will be the pivot at 161.95 (last week's high), followed by 162.20 (1.236% Fibonacci retracement). If these levels are cleared, the next target would be 164.42 (1.500% Fibonacci retracement).
Today, consider shorting USD before 161.00, with a stop loss at 161.30 and targets at 160.00 and 159.90.
EURUSD
Last week, EUR/USD hit a three-week high near 1.0830. The pair strengthened due to an improved outlook for the Euro ahead of the second round of the French elections scheduled for Sunday and a weaker USD. The Euro's appeal increased as expectations grew that the far-right National Rally, led by Marine Le Pen, would be unable to convert its first-round victory into an absolute majority. This was partly due to strategic withdrawals by at least 200 candidates from President Emmanuel Macron’s alliance and the left-wing coalition ahead of the legislative elections. Meanwhile, speculation about follow-up rate cuts by the European Central Bank (ECB) on July 18 has decreased as deflation in the Eurozone appears to be stalling. In June, the core Harmonized Index of Consumer Prices (HICP), excluding volatile items, showed a steady year-over-year increase of 2.9%. Additionally, traders significantly increased their bets on a Fed rate cut in September due to various factors, including Fed Chairman Jerome Powell’s confidence in the central bank’s progress on inflation, easing labor market pressures, and the contraction in the services Purchasing Managers' Index (PMI).
From a technical perspective, EUR/USD strengthened for the seventh consecutive day last week. The pair gained momentum after stabilizing above the 5-day (1.0783) and 30-day (1.0778) moving averages. The overall trend has also strengthened as the daily chart shows a “rounded bottom” rebound, with the 5-day and 30-day moving averages forming a bullish "golden cross" pattern at the close last week. The 14-day Relative Strength Index (RSI) is near 60.00. If it breaks this level, EUR/USD could trigger a bullish move towards 1.0870 (50.0% Fibonacci retracement from 1.0601 to 1.1139); further breaking this could see it reach 1.0933 (61.8% Fibonacci retracement) and 1.0943 (March 21 high). On the downside, if EUR/USD falls below the key support area formed by the 5-day (1.0781) and 30-day (1.0778) moving averages, a decisive break could lead to a new downward trend towards 1.0737 (14-day moving average) and 1.0700 (psychological level).
Today, consider going long on EUR before 1.0822, with a stop loss at 1.0805 and targets at 1.0860 and 1.0870.
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