US Dollar Index
The dollar erased all the losses from Fed Chairman Jerome Powell’s speech last Friday, and the dollar, as measured by the US dollar index, recovered slightly on Wednesday after closing lower on Tuesday. The 10-year US Treasury yield was just above 3.80%, supporting the dollar. With no high-level economic data released on Wednesday, the dollar is likely to remain in a narrow range. The MBA’s weekly mortgage application results will be released on August 28, and the US Energy Information Administration’s report on US crude oil inventories and the speech of Waller at the Federal Open Market Committee also confirm this. Last week’s decline was attributed to the dovish remarks of Fed Chairman Jerome Powell at the Jackson Hole Symposium, suggesting that the central bank may shift to a more accommodative monetary policy stance. This in turn caused the 10-year US Treasury yield to fall below 3.8%, weighing heavily on the dollar. Despite the positive economic growth that exceeded expectations, the market’s desire for aggressive monetary easing seems to be misplaced. The current situation warrants caution as all data show a disconnect between economic fundamentals and market pricing.
While the US dollar index has found support at its lowest level since December, it shows that the selling pressure has not stopped. The technical indicator 14-day relative strength index (RSI) remains in oversold territory (29.90), suggesting the possibility of further upward correction. The moving average convergence divergence (MACD) shows a solid red bar, in line with the RSI and provides additional evidence of potential upside momentum as there is more room to correct. Having said that, there are no clear signs of a reversal yet and the US dollar index may fall further. If the US dollar index is below the key support level of the double bottom formed by the bottom of December 2023 at 100.61 and the low of 100.60 last week, the next level is 100.00 (market psychological level), while the resistance levels to watch are 101.59 (23.6% Fibonacci rebound level from 104.80 to 100.60), and 102.00 (round number level).
Consider shorting the US dollar index around 101.20 today, stop loss: 101.35, target: 100.90, 100.80
WTI spot crude oil
US WTI crude oil was trading at around $75.50 on Wednesday. WTI prices fell slightly as investors worried about slowing economic growth in the United States and China. Data released by the Conference Board on Wednesday showed that the US consumer confidence index rose to 103.3 in August from an upwardly revised 101.9 in July. In addition, as China is the world's largest oil importer, concerns about the health of the Chinese economy and future oil demand also dragged down crude oil prices. The downside of WTI prices may be limited amid the possible shutdown of Libyan oil production and geopolitical tensions in the Middle East. It is worth noting that Libya's oil production is about 1.2 million barrels per day, of which more than 1 million barrels are exported to global markets. Developments surrounding Libya's production cuts have raised further supply concerns and lifted WTI oil prices.
As shown on the daily chart, the oil price surged to a technical barrier just below $79.00. From this level, almost four different resistance levels will limit the oil price near the psychological barrier of $80.00. The triple combination of simple moving averages and downtrend lines should keep the price calm at the current level. With the market correcting downward, this could be the end of the recent rally in crude oil. On the upside, the double level of $77.65 coincides with the downtrend line and the 200-day simple moving average at $78.08. If the bulls can break it, $78.78 {Monday high} could be the first resistance area, followed by $80.00 (market psychological level}. On the downside, $75.08 {23.6% Fibonacci rebound from 84.73 to 72.10}, and the next level is around $74.07 {Friday low} is the next relevant support.
Today, consider going long on crude oil around 75.25, stop loss: 75.00; target: 76.50; 75.70
Spot Gold
Gold settled around $2,500 on Wednesday, having fallen earlier as the U.S. dollar rebounded. Given that gold is primarily priced in dollars, any strength in the greenback will weigh on its price. The dollar index rose nearly 0.5% to just above 101.00 on Wednesday, rebounding from a 1-year low of 100.5 hit the previous day. Gold prices rose above $2,510 per troy ounce, supported by escalating geopolitical tensions in the Middle East. In addition, Federal Reserve Chairman Powell's speech at the Jackson Hole Symposium last week, in which he said the "time has come" to initiate rate cuts, supported the precious metal as rate cuts would reduce the opportunity cost of holding zero-yielding assets. Investors will shift their focus to the U.S. second quarter GDP and personal consumption expenditures (PCE) price index data, which will be released on Thursday and Friday, respectively. If these data are better than expected, they could boost the dollar and limit the upside for dollar-denominated gold prices.
Gold prices continue to rise. Gold prices remain in a five-month upward channel The daily chart shows that gold prices remain above the key 200-day exponential moving average (2,228), and the bullish outlook for gold prices remains unchanged. The 14-day relative strength index, a technical indicator, is around 60.00, confirming the continued bullish pressure in the near term, providing support for the upward momentum. The key resistance level for gold prices is $2,530, which is the confluence of the historical high and the upper line of the trend channel. A bullish breakout above this level could see gold prices head towards $2,551.10 (161.80% Fibonacci rebound from 2450.20 to 2286.20) and possibly rise to the psychological level of $2,600. On the downside, initial support is at the $2,500 round number. A break below the above level could lead to a further drop to $2,484.50 (Friday's low). The next level is around $2,470, which is the August low. 22nd low.
Consider going long on gold before 2,500.00 today, stop loss: 2,496.00; target: 2,515.00; 2,520.00
AUD/USD
AUD/USD broke above 0.6800 for the first time since January, although this early move lacked follow-up and later reversed against the backdrop of the dollar's strong recovery of upward traction. In early Asian trading on Wednesday, AUD/USD briefly rose above 0.68 to an eight-month high of around 0.6813. Risk sentiment from escalating geopolitical tensions in the Middle East weighed on risk assets such as the Australian dollar. Data released by the Australian Bureau of Statistics (ABS) on Wednesday showed that the Australian Bureau of Statistics CPI rose to 3.5% year-on-year in July, compared with an increase of 3.8% in June. The market is expecting a 3.4% reading for the period. Heightened geopolitical risks in the Middle East could drive safe-haven flows, causing the Australian dollar to rise temporarily. However, the Fed's continued interest rate cut outlook may limit the dollar's upside and provide some support for AUD/USD.
From the daily chart, AUD/USD rose further in the middle of the week and broke through the nearly eight-month high of 0.6813. The 14-day relative strength index of the technical indicator fluctuated around 67. It shows that AUD/USD continues to strengthen. The question now is whether the currency pair can hold above the key psychological support level of 0.6800 at this stage. If the bulls can do this, it may push AUD/USD to 0.6830 {a trend line extending to the right from the high of 0.6999 in July last year}, and a break will point to the December 2023 high of 0.6871 (December 28). On the other hand, if AUD/USD attempts to fall, it may initially fall to 0.6760 {Tuesday's low}, and then to the important AUD/USD levels around 0.6735 {10-day moving average}, and 0.6700 {market psychological level}.
Consider going long AUD before 0.6765 today, stop loss: 0.6750; target: 0.6820; 0.6830
GBP/USD
GBP/USD struggled to hold its ground, trading below 1.3200 on Wednesday, influenced by a broad-based rebound in the US dollar. Markets became anxious ahead of speeches by Bank of England and Federal Reserve policymakers later in the day. Midweek, the British pound continued to ride the coattails of the broad-based decline in the US dollar, with GBP/USD testing new multi-year highs to 29-month highs of 1.3266. Investors are pinning their hopes on a rate cut by the Federal Reserve in September, while the US PCE price index will be released on Friday, with few important economic data to refer to before the market. Fed Chairman Jerome Powell's speech at the Jackson Hole Economic Symposium last Friday all but confirmed that the Fed will enter a rate-cutting cycle on September 18, which has peaked market appetite again. There is little to watch on the UK economic data front, and things will be quiet in Europe and the US on Wednesday. Central bank watchers will be watching BoE policymaker Catherine Mann's speech after the London session closes.
The early week correction in GBP/USD has ended, with bids rising again to a 29-month high of 1.3266. GBP/USD is now on track to resume its recent bullish trend, having gained 4.75% since its swing low of 1.2665 in early August. GBP/USD has closed higher in all but two of the past 14 consecutive sessions, and technical resistance at high levels has been reduced. Bulls should beware of overbought pullbacks to lows, but with GBP/USD trading above the 50-day EMA at 1.2876, a significant drop is needed before technical patterns show signs of a bearish trend reversal. On the upside, watch for the 1.3300 round number, and the 1.3331 (76.4% Fibonacci retracement of 1.4250 to 1.0356). On the downside, watch for the first support at 1.3170, then 1.3142 (July 10 low), and 1.3120 (lower limit of the ascending channel) levels.
Today, we recommend going long GBP before 1.3175, stop loss: 1.3160, target: 1.3230, 1.3240
USD/JPY
USD/JPY reversed its trend and recorded a respectable gain of more than 0.50% on Wednesday as the dollar gained some momentum, but it remains vulnerable to key data releases for the rest of the week. The pair closed around 144.50 after rebounding from the daily low of 143.68. The yen fell slightly against the dollar on Wednesday. However, the divergent policy outlooks of the Bank of Japan and the Federal Reserve put downward pressure on the USD/JPY pair. Bank of Japan Governor Kazuo Ueda said in parliament last Friday that the central bank may consider further rate hikes if economic forecasts are accurate. The hawkish tilt of the Bank of Japan may limit the downside of the yen. Meanwhile, Federal Reserve Chairman Jerome Powell said at the Jackson Hole Symposium that "the time has come to adjust policy." In addition, San Francisco Fed President Mary Daly mentioned in an interview with Bloomberg TV on Monday that "the time has come" to start cutting interest rates, most likely starting with a 25 basis point cut. The CME FedWatch tool shows that the market fully expects the Fed to cut interest rates by at least 25 basis points at the September meeting.
Daily chart analysis shows that USD/JPY is trading near 144.00 on Wednesday. USD/JPY is testing the downtrend line, indicating a weakening bearish bias. However, the 14-day relative strength index, a technical indicator, is near 32, indicating that the bearish trend is confirmed. On the downside, if USD/JPY remains below the downtrend line, it may fall to 143.44, the low at the beginning of this week. A break below this level may push the currency pair to 142.25 {the axis of the downtrend channel on the weekly chart}, and the seven-month low of 141.69 recorded on August 5. A break below this level could push USD/JPY towards support at 140.25. As for resistance, USD/JPY could challenge 145.00 (round number), and further test the immediate resistance of the 10-day moving average near 145.73. If it breaks through this level, it will test the resistance level near 146.38 (23.6% Fibonacci rebound level from 161.80 to 141.61).
Today, it is recommended to short the US dollar before 144.75, stop loss: 144.95; target: 143.90, 143.80
EUR/USD
The EUR/USD pair partially retreated to around 1.1120 on Wednesday in response to a corrective move higher in the US dollar. The EUR/USD pair had risen to a high mid-week, mainly supported by the continued easing of buying pressure on the US dollar in the broader market. After opening the week, the EUR/USD pair recovered to a high of around 1.1200, slightly retreating from recent gains, but a new round of market risk sentiment has brought buying back to recent highs. However, the EUR/USD pair still faces resistance at the 1.1200 mark as euro bulls struggle to gain strength to boost the EUR/USD pair. The Eurozone Harmonized Index of Consumer Prices for August will be released early on Friday, as inflationary pressures continue to ease, but not nearly as fast as European Central Bank (ECB) policymakers would like. US second quarter gross domestic product (GDP) data will be released on Thursday this week, however, the key data this week will be the US PCE price index for July, which will be released on Friday. Market participants who are hopeful of a rate cut will be looking for lower-than-expected inflation data, while stronger-than-expected inflation data could provide a new shock to investors' risk appetite.
In terms of recent technical trends, EUR/USD is on track to post its best monthly performance since November 2022, having risen 3.1% in August alone and reaching a high of 1.1201. Despite a pullback due to exhaustion of technical indicators in early trading this week, EUR/USD has risen for four consecutive trading weeks and is well above the 200-day moving average of 1.0852. Although EUR/USD maintains strong buying and bullish trend to 1.1273 (July 18, 2023 high) and 1.1275 (61.8% Fibonacci rebound from 1.2351 to 0.9535) will become key levels of upside obstacles in the near term. A break below will see 1.1300 (market psychological level). However, EUR/USD is still at risk of a bearish correction. If there is a lack of upward momentum, the price may fall all the way back to the near-term support around 1.1100, which is also a key round number. If it breaks, it will test 1.1022 (August 19 low).
Today, it is recommended to go long on the US dollar before 1.1100, stop loss: 1.1090, target: 1.1170, 1.1180.
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