US Dollar Index
The US dollar, as measured by the US dollar index, showed a downward trend slightly below 103.00 during Wednesday's trading session. The decline came after the confirmation of lower-than-expected US inflation, which somewhat overshadowed the stable outlook for the country's labor market. In the first half of the week, risk assets strengthened further, and the US dollar continued to be under pressure. The US dollar index retreated for the third consecutive day and once again broke below the 103.00 support level amid lower US Treasury yields. The cooling of US producer price index (PPI) inflation by more than expected has prompted markets to bet that the Federal Reserve will accelerate the pace of interest rate cuts in September, while the dollar retested recent lows. The annual rate of US producer price index inflation fell to 2.2% in July, lower than the expected value of 2.3%. The continued decline in US inflation pressures boosted risk appetite during the US market session, and market bets on a 50-basis point rate cut by the Federal Reserve in September rose to 55%. Looking at the overall economic data, the US economy continues to achieve above-trend growth. This suggests that market participants may overestimate the need for aggressive monetary easing as the Federal Reserve may ask for more data before cutting interest rates.
From the recent trend, there is no major change in the technical outlook of the US dollar index, which is still in a repeated weak pattern. The 14-day relative strength index (RSI) based on technical indicators is stable below 35, indicating that the continued selling pressure still exists. The moving average convergence divergence (MACD) continues to be negative as the red bar tends to stabilize, showing continued bearish activity as it has just broken below the recent support of 103.00 again. The index's position is below 103.10 (the central axis of the downward channel) and 103.00 (market psychological level), indicating a mainly bearish trend. Therefore, the downward support can be seen at 102.40 {the lower track of the downward channel}, and the market psychological level of 102.00. The upper resistance is concerned with 103.00 (market psychological level), and 103.56 {50.0% Fibonacci retracement level} level.
Today, you can consider shorting the US dollar index around 102.70, stop loss: 102.85, target: 102.30, 102.20
WTI spot crude oil
WTI crude oil closed at around $77.60 on Wednesday. WTI prices fell slightly as concerns about a wider Middle East war and concerns about strong global oil demand eased. Oil prices broke their winning streak and fell after very weak U.S. producer price index data could mean weak demand in the future. Meanwhile, the International Energy Agency (IEA) is following suit, pointing out the risk of a large surplus just as OPEC is about to ease its production cuts. Still, geopolitical tensions caused by Iran's direct attack on Israel supported gold prices, and traders seemed to be betting that OPEC would deepen its production cuts to further support oil prices. At the beginning of the week, WTI oil prices rose more than 3% to a nearly 1-month high of $80.40 per barrel, the strongest single-day gain so far this year. According to data from the U.S. Commodity Futures Trading Commission (CFTC), WTI speculative net long positions fell to a two-month low of 172,600 contracts.
From the technical trend, WTI crude oil has risen sharply from the low of $72.10 on the 5th of this month to the high of $80.40 at the beginning of this week, and the price of WTI crude oil has risen by more than 10%. At present, the price of oil has returned to the level below the 200-day moving average of $78.15. Therefore, the 7-month low of $72.10 in early August proved to be a short-lived episode. The 200-day was supported by some profit-taking in the US market. If the price falls back below the 200-day moving average, there is a possibility that it will quickly fall back to $77.64 (20-day moving average) after this rebound, or even $76.92 {38.2% Fibonacci rebound level from 84.73 to 72.10}. If there are some bearish headlines or catalysts, it may fall back completely to the rebound near $72.00. On the upside, once it holds above the 200-day moving average, the psychological area of $80 will open up, with the ultimate target level of around $81.74 (76.4% Fibonacci rebound level).
Consider going long on crude oil around 77.30 today, stop loss: 77.00; target: 78.50; 78.80
Spot gold
Gold is still under moderate bearish pressure, trading below $2,450 in the second half of Wednesday. Although the US dollar remains low after the release of July CPI data, it is difficult for gold prices to move higher due to mixed market sentiment. In early Asian trading on Wednesday, gold prices rose modestly to around $2,465. Amid continued tensions in the Middle East, safe-haven inflows may support gold to the upside. As tensions in the Middle East escalate, gold remains Supported by geopolitical risks and expectations of a rate cut by the Federal Reserve as tensions rise between Iran and Israel, as well as Ukraine. On Tuesday, Atlanta Fed President Rafael Bostic said that recent economic data has given him "more confidence" that the Fed can get inflation back to its 2% target. However, more evidence is needed before Bostic is ready to support a rate cut. In addition, rising inflation may reduce the chances of the Federal Reserve adopting an accommodative policy, which may put some selling pressure on the price of gold, a zero-yielding asset.
From a technical perspective, the daily chart shows that bulls are in control. Gold is trading above all moving averages, with the 20-simple moving average losing some bullish power, but still providing dynamic support near 2,420.00. Meanwhile, technical indicators are constantly heading upwards, above their midlines, while the relative strength index (RSI) is consolidating near 60, with risks skewed to the upside. Gold is ready to retest its all-time high of $2,483.70 and $2,500. The psychological barrier of the US dollar, if it is decisively broken, will create conditions for the continuation of the upward trajectory. On the other hand, the support area of 2450-2448 US dollars now seems to protect the recent downward trend. After falling below this support point, the gold price may fall back to around 2420 US dollars (20-day moving average). The next relevant support level is around the round mark of 2,400 US dollars.
Today, you can consider going long on gold before 2,443.00, stop loss: 2,440.00; target: 2,465.00; 2,470.00
AUD/USD
AUD/USD fell during Wednesday's trading session, closing around 0.6600 following a dovish decision by the Reserve Bank of New Zealand. In addition, demand for Australian exports may fall due to a slowing Chinese economy, which could have a negative impact on the AUD. However, the hawkish stance of the Reserve Bank of Australia (RBA), coupled with mixed economic data from Australia, could temper the downside. AUD/USD extended gains for the third consecutive session on Wednesday. Further gains could be in the cards as the latest economic data showed that wage growth in Australia remained high in the second quarter, prompting the RBA to take a hawkish stance on its policy outlook. The RBA kept the cash rate unchanged at its meeting last week to ensure inflation returns to its 2-3% target. RBA Governor Bullock also dismissed the prospect of a rate cut in the next six months, stressing that the RBA remains cautious about inflation risks and is ready to hike rates again if necessary. Traders are now awaiting consumer inflation expectations and employment data from Australia to be released on Thursday.
The daily chart shows that the Australian dollar was trading around 0.6600 on Wednesday. Currently, AUD/USD continues to move within the ascending channel, indicating a strengthening bullish bias. In addition, the 14-day relative strength index (RSI) of the technical indicator has exceeded the 50 level (latest at 54), confirming the bullish momentum. On the upside, AUD/USD may test the upper line of the ascending channel at 0.6675. A break above this level will push AUD/USD to the monthly high of 0.6798 reached on July 11. In terms of support, AUD/USD may retest 0.6000 (market psychological level), followed by the 9-day moving average of 0.6560, and 0.6519 {38.2% Fibonacci rebound level from 0.6798 to 0.6347} level.
Consider going long AUD today before 0.6580, stop loss: 0.6570; target: 0.6630; 0.6640.
GBP/USD
GBP/USD struggled to gain traction; trading slightly lower on the day to around 1.2820. Earlier in the day, weaker-than-expected UK inflation data weighed on the pound, but US July CPI data limited the dollar's gains. Midweek, GBP/USD rebounded to a two-week high, rising to an intraday high of 1.2873. A cooler-than-expected cooling of US producer price index (PPI) inflation prompted the Federal Reserve to increase the pace of rate cuts in September, while cable traders shrugged off a multi-year peak in UK unemployment claims. While markets generally turned to hopes of a Fed rate cut on the back of slowing inflation data, the UK is facing a deteriorating employment situation. The change in the number of claimants in July registered 135,000 new unemployment benefit seekers, the highest number of UK unemployment claims since the pandemic shut down much of the UK in 2020, and GBP traders will be looking forward to the upcoming UK GDP data on Friday with more trepidation than expected.
The daily chart shows that the 14-day relative strength index (RSI) indicator, a technical indicator, remains above 55, highlighting a bullish bias in the short term. If GBP/USD rises above the 1.2800 (market psychological level) and 1.2826 (20-day moving average) area and starts using it as support, 1.2900 (market psychological level), 1.2955 (76.4% Fibonacci rebound from 1.3045 to 1.2664) may be seen as the next resistance area. On the downside, the first support is at 1.2800 (market psychological level), and 1.2809 (38.2% Fibonacci rebound level), and a break below those points to 1.2753 (23.6% Fibonacci rebound level).
Today, it is recommended to go long GBP before 1.2805, stop loss: 1.2790, target: 1.2850, 1.2860
USD/JPY
July CPI data was basically in line with expectations, only one or two basis points away from the market's forecast before the data was released. The yen pared its intraday gains despite the hawkish sentiment surrounding the Bank of Japan. The Japanese parliament will hold a special meeting to discuss the Bank of Japan's interest rate hike last month. USD/JPY attracted some selling on rallies during the Asian session on Wednesday and was last seen retreating to around 146.80. However, USD/JPY remains in the range that it has been in for the past week or so as traders are eagerly awaiting the release of the remaining US economic data before positioning themselves for the next directional move. The dollar fell to its lowest level in more than a week. On top of that, expectations of another rate hike by the Bank of Japan in 2024 also helped limit the yen’s losses and could cap the USD/JPY pair.
From a technical perspective, the USD/JPY pair remains range-bound, which also suggests that traders are hesitant. Therefore, it would be prudent to wait for strong follow-through buying before confirming that the USD/JPY pair has bottomed out around the 141.70-141.65 area, the lowest level since early January hit last week. Daily chart analysis shows that the pair remains below its 14-day moving average of 148.28, indicating a bearish trend in the short term. In addition, the 14-day relative strength index (RSI) has broken above 30 points, suggesting a potential correction. It may indicate that the momentum of the pair may improve. For support, USD/JPY may test the low of 146.27 on August 9, with the next level pointing to 144.89 (78.6% Fibonacci retracement of 140.25 to 161.95). On the contrary, if USD/JPY re-crosses 147.90-148.00 and strengthens further, the next resistance of the pair will be in the 148.90 {a support trend line extending upward from the January 2023 low of 127.46} area. This is followed by 150.00 {a psychological level in the market}.
Today, it is recommended to short the US dollar before 147.60, stop loss: 147.80; target: 146.60, 146.40
EUR/USD
EUR/USD rose slightly and is expected to consolidate the recent breakthrough of the key 1.1000 mark, reaching a new yearly peak around 1.1050 after the price fluctuations around the US dollar after the US CPI. EUR/USD continued its upward trend at the beginning of the week, and strengthened on Tuesday against the backdrop of a sharp sell-off in the US dollar, turning to rise in the 1.10 area. At the same time, further declines in the US dollar index caused the US dollar to fall back to a multi-day low below 103.00, reflecting an improvement in risk sentiment, which was exacerbated by weak US producer prices in July. Last weekend, Michelle Bowman, a member of the Federal Reserve's Monetary Market Committee, who is known for her hawkish stance, adopted a more dovish tone, acknowledging that inflation has seen a "welcome" improvement in recent months. In addition, if the Fed chooses to cut interest rates more aggressively, the interest rate policy gap between the Fed and the ECB may narrow in the medium to long term, as market participants expect the ECB to introduce two more rate cuts this year, all of which is likely to support a rebound in EUR/USD. However, in the long term, the US economy is expected to outperform Europe, suggesting that any weakness in the US dollar may be temporary.
From the recent trend, further gains in EUR/USD may test the August high of 1.1008 (August 5), then hit 1.1023 (78.6% Fibonacci rebound from 1.1139 to 1.0601), and 1.1085 (December 29 last year high). A break will look up to the December 2023 high of 1.1139 (December 28). On the downside, the next target for EUR/USD is 1.0913 (Tuesday's low), followed by the 200-day moving average of 1.0837. From a big picture perspective, if EUR/USD is above the key 200-day moving average, the uptrend will continue.
Today, it is recommended to go long on USD before 1.1000, stop loss: 1.0985, target: 1.1050, 1.1060.
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