US Dollar Index
Amidst recent volatility, the US Dollar Index has fallen for the third week in a row. And fell to its lowest point since July last year at 100.22. The US Dollar Index is now just a hair away from the key market level of 100.00. It now seems clear that US labor market data will be the main macro driver of the US dollar's performance at the end of the year. This is why the US dollar rebounded slightly late last week due to the lower-than-expected initial jobless claims data for the week. The US dollar's performance is also in line with the US yield curve. Due to some of the above factors, the US dollar is likely to break out of the two-year range, but the timing remains uncertain. But suffice it to say that if the US Dollar Index loses support at 100, the market will see some strong follow-through selling. In terms of economic data, the US economic calendar is quite blank, which is ideal for traders to let the dust settle after a turbulent week. This week, the US will release a lot of data. The main factors include the final US gross domestic product (GDP) data for the second quarter and the personal consumption expenditure (PCE) price index, which is the preferred inflation indicator of the Federal Reserve.
The US dollar index is in a precarious position. Struggling with the 200-week moving average at 100.52, a weekly close below the 200-week moving average could signal further weakness ahead. Further depreciation could occur this week if US data slows further, opening the door for another large rate cut in November. On the downside, the breakout of the 200-week moving average at 100.52 last week to a near 14-month low at 100.22 could signal more weakness ahead. If that happens this week, the psychological 100.00 level would be the next level to watch. If this level is breached by the bears, it would point to the July 14, 2023 low of 99.58, and the 99.68 (61.8% Fibonacci retracement of 90.35 to 114.78) area. On the other hand, the US dollar index is still likely to first rise to around 101.10 (a downward trend resistance line from the June high of 106.13). Further up, the index may reach 101.84 (September 12 high), and a break below it will look to 102.57 (50.0% Fibonacci retracement level) and the 50-day simple moving average of 102.46 area levels.
Today, consider shorting the US dollar index around 100.88, stop loss: 101.00, target: 100.55, 100.50
WTI crude oil
The US WTI crude oil closed higher for the second consecutive week last week and re-entered the key psychological level of $70.00, reaching a nearly three-week high of $71.46. Due to some profit-taking, the price of WTI crude oil fell slightly technically, but it is still above $70.00. However, as geopolitical tensions in the Middle East continue to escalate and the Federal Reserve is likely to cut interest rates further in the coming months, the downside for WTI crude oil prices may be limited. Late last week, Israeli warplanes and artillery attacked Hezbollah in southern Lebanon. The market continues to highlight that Lebanon is the main avenue for Iran to directly participate in the wider regional war and thus disrupt oil supply. The Federal Reserve decided to cut interest rates by 0.5 percentage points at its September meeting last Wednesday. The new "dot plot" shows a gradual easing cycle. Lower interest rates generally support WTI crude oil prices because it reduces borrowing costs, which can promote economic activity and oil demand. Falling US crude oil inventories may support oil prices in the short term.
Crude oil prices consolidated their recent gains last week. With tensions in the Middle East escalating again and the US strategic reserves being reduced, a surge in prices seems to be a given. Looking ahead, the key is to see how demand will keep up with the ongoing heating season. The first level to watch on the rise is $71.46 (February 5 low), which will return to the table as the next level to watch. Ultimately, a recovery to $75.27 (Jan. 12 high) is still possible, but this may happen if there is a seismic shift in the current balance. On the downside, initial support remains at $70.00 (market psychological level), with $69.00 (weekly chart downward channel axis) as the target. Once $69.00 is broken, $67.97 (Dec. 8 low) will be targeted, and $64.50 will be the triple bottom that began in the summer of 2023. Further down, the next level is $64.38, the lows of March and May 2023.
Consider going long on crude oil near 70.90 today, stop loss: 70.65; target: 72.00; 72.20
Spot gold
Last week, gold prices reached a record high of $2,600 per ounce for the first time last Wednesday after the Federal Reserve cut interest rates by 50 basis points. Although Fed Chairman Powell tried to emphasize in his press conference that such rate cuts should be the exception rather than the rule, the market is clearly not convinced. With two meetings left, this means a further 50 basis point rate cut in November or December. Currently, the market sees a slightly higher probability of a December rate cut. As long as these expectations persist, gold's upward trend will continue. However, only 25 basis point rate cuts are expected at each of the two meetings, which is why gold's rally will not last forever. The precious metal is close to technical overbought ahead of the release of the personal consumption expenditures (PCE) price index data this Friday, which could be the next major catalyst for gold. In the middle of the week, after a knee-jerk sell-off, the negative shift in risk sentiment helped the dollar rebound in the late US session, causing gold prices to take a sharp turn downward. But before the weekend, in the absence of important data releases, gold resumed its upward trend and set a new record again on Friday, breaking through $2,600 to 2,625.80.
From the daily chart, the 14-day relative strength index (RSI) indicator of technical indicators rose to 71.52 last week. Gold is still slightly below the upper line of the ascending channel since the beginning of August. The upper limit of this channel is the key resistance level of $2,646. The last time the daily RSI reached 66 and gold climbed above the upper line of the ascending channel was in mid-August, when there was a sharp correction to the low of 2,480. Therefore, if gold rises above $2,646 and turns overbought, buyers may avoid another rise in the short term and allow gold to correct lower technically. On the downside, the key support areas will consist of $2,588 (the axis of the upper industry channel); $2,585 (Friday's low); and $2,584 (5-day simple moving average), before which $2,600 (round mark) is a temporary support level. Once a strong break below the $2,584-2,585-2,588 area is achieved, the next target will be $2,561.40 (23.6% Fibonacci retracement of 2353.20 to 2625.80). At this stage, it is difficult to set a near-term upside target as gold has entered uncharted territory. If investors ignore the overbought conditions, the round mark of $2,646 may become the next resistance level. Exceeding this level will test the psychological price of $2,700.
Today, you can consider going long on gold before 2,618.00, stop loss: 2,615.00; target: 2,645.00; 2,650.00
AUD/USD
Last week, the Australian Bureau of Statistics released data showing that the net employment population increased by 47,500 in August compared with July, far higher than the market forecast of an increase of 25,000. The unemployment rate remained at 4.2% in August, in line with expectations, and the employment participation rate remained stable at a historical high of 67.1%. Australia's employment population exceeded expectations for the third consecutive month in August, which supports the view that the Reserve Bank of Australia does not need to cut interest rates in the near future. The interest rate advantage continues to drive a sharp rebound in AUD/USD. AUD/USD hit a high of 0.6840 this year, under pressure from the increasing expectations of the Federal Reserve to cut interest rates. The Federal Reserve's focus on preventing a deterioration in the labor market has led traders to expect a 75 basis point rate cut in the remaining two Federal Reserve policy meetings. The Australian dollar remained stable despite the People's Bank of China's decision to keep interest rates unchanged. For now, the outlook for the Australian economy is mixed, but the Reserve Bank of Australia's hawkish stance on inflation has led the market to expect a modest 25 basis point rate cut in 2024. This suggests that the more aggressive easing cycle previously expected is shifting due to persistent inflationary pressures.
AUD/USD has been steadily moving higher while continuously making waves higher than the previous one. Although there is not much room for a rebound above the long-term range high of 0.6871 (December high) due to the lack of positive news before hitting the long-term range high of 0.6871 (December high), the short-term trend remains bullish. The 14-week relative strength index (RSI), a technical indicator on the weekly chart, is now at 58.69, indicating sufficient room for future gains, and the upward tilt is beginning to become obvious, indicating that the strength of the Australian dollar rebound is increasing. If it can break through last week's high of 0.6840, the initial upside target will be the high of 0.6871 in December last year, and further towards 0.6889 (180-week moving average), and 0.6899-06895 (double top highs in June and July last year), and break it to 0.6947 (76.4% Fibonacci rebound level from 0.7157 to 0.6270), and further test 0.70 (market psychological level). On the other hand, AUD/USD has a mild bearish divergence with the relative strength index (RSI). This divergence occurs when prices make new highs, but the RSI fails to make new highs. The non-confirmation is a bearish signal, indicating potential slight weakness. This indicates that AUD/USD is at risk of a correction. If a pullback occurs, the initial support area below is currently at 0.6748 (5-week moving average), and if it breaks, it will be between 0.6713 (50.0% Fibonacci rebound level) and 0.6700 (round mark).
Today, you can consider going long on the Australian dollar before 0.6790, stop loss: 0.6775; target: 0.6840; 0.6850.
GBP/USD
GBP/USD continues to remain strong after rebounding last week, with the pair hitting its highest level since March 2022 near 1.3340. The bullish potential of GBP/USD remains unchanged as the pound benefits from the monetary policy divergence between the Bank of England and the US Federal Reserve. The Federal Reserve chose to cut interest rates by 50 basis points on Wednesday, lowering the federal funds rate to a range of 4.75%-5.0%. In contrast, the Bank of England decided on Thursday to keep its policy rate at 5.0%, with Governor Andrew Bailey warning that policymakers "need to be careful not to cut rates too quickly or too much". The central bank's imbalances added momentum to the pair's upside, pushing it to a fresh 30-month high of 1.3340. Heading into the weekend, buyers remain in control despite renewed risk sentiment soured by concerns over a slowdown in China. With the Fed and the Bank of England policy decisions out, the focus will now shift to global business PMI data and US personal consumption expenditures (PCE) inflation data in the coming week.
Observing the weekly chart, the GBP/USD pair closed above the 5-week simple moving average resistance (1.3184 at the time) mid-week, achieving a technical breakout. Since then, buyers have remained in control, while the technical indicator, the 14-week relative strength index (RSI), has remained above the 69 level and is currently around 69.55, proving the bullish outlook is correct. However, further upside would require a daily close above 1.3300. If this is achieved, the next upside resistance is 1.3380 (upper line of the ascending channel), before a new buying opportunity emerges, with a break of 1.3400 critical point and 1.3411 (78.6% Fibonacci rebound from 1.4248 to 1.0339). Alternatively, any pullback may meet initial demand at 1.3268 (Friday's low), below which it will challenge the 5-week simple moving average at 1.3184. If sellers manage to gain a foothold below this level, a new round of decline is likely to approach 1.3115 (central axis of the ascending channel). 1.3000 (market psychological level) will be the bottom line for GBP buyers.
Today, we recommend going long on GBP before 1.3310, stop loss: 1.3290, target: 1.3355, 1.3360
USD/JPY
Last week, USD/JPY rebounded sharply to a high of 144.50. USD assets strengthened as the yen weakened following the Bank of Japan's monetary policy announcement. As expected, the Bank of Japan kept interest rates in a range of 0.15%-0.25% but did not support the need for further rate hikes for the remaining year, which was widely expected by market participants. "If Japan's economic and price forecasts are realized, we will raise interest rates and adjust the degree of monetary support accordingly," Bank of Japan Governor Kazuo Ueda said at a press conference. Looking ahead, market speculation on further BoJ rate hikes is expected to remain firm as Japan's nationwide Consumer Price Index (CPI) data for August was 3%, up from 2.8% in July. The data points to broader inflationary pressures in Japan and reinforces bets that the Bank of Japan will raise interest rates again in 2024. This is a big divergence from the Federal Reserve's relatively dovish outlook and attracted some intraday sellers in USD/JPY on Friday. Meanwhile, the dollar index, which tracks the value of the greenback against six major currencies, rebounded from an intraday low of 100.40 to around 100.85. The short-term outlook for the dollar is expected to remain uncertain.
From the weekly chart, USD/JPY has been falling along the downward channel since the high of 161.95 at the end of June to the low of 139.58 last week, a drop of 14%. This shows that the short-term downtrend has been established. Although the oscillator of the 14-week relative strength index (RSI) among technical indicators rebounded slightly last week (rebounding from 31.41 to 38.55), it still remained in the negative area, indicating that USD/JPY has the least resistance to the downside. However, as the close of last week formed a bullish "piercing the foot and breaking the head" pattern on the weekly chart. Therefore, any subsequent upward movement may continue to encounter strong resistance around 144.86 (the 23.6% Fibonacci rebound level from 161.95 to 139.58). Following closely behind is the 9-week SMA, the area around 145.79, which, if decisively cleared, could negate the bearish outlook and trigger an aggressive short-covering move. USD/JPY could then aim to recapture the 148.13 (38.2% Fibonacci rebound) mark. On the other hand, once the pair resumes its downtrend, the 143.01 (125-week MA) area currently seems to limit the near-term downside ahead of daily swing lows around 142.00 (round number mark) and 141.65 (134-week MA). Some follow-through selling has the potential to drag USD/JPY towards the 141.00 mark and, in turn, the 140.00 psychological mark. And pave the way for further declines.
Today, it is recommended to short before 144.05, stop loss: 144.30; target: 143.00, 142.80
EUR/USD
The EUR/USD pair tested the 1.1200 threshold again last week, but eventually closed around 1.1160, holding on to a small gain. The pair has been trying to conquer this barrier since mid-August in anticipation of the Fed's monetary policy statement. The Fed cut interest rates by 50 basis points, kicking off a new policy cycle in an aggressive manner. The dollar fell sharply as a result, although Fed Chairman Jerome Powell subsequently poured enough cold water to avoid panic action in various financial sectors. The Fed's key interest rate is currently between 4.75% and 5%. It is worth noting that the European Central Bank has already lowered its interest rates, and the current base rate for the deposit mechanism is 3.5%. Despite the Fed's aggressive measures, it is still better to hold dollars than euros. In addition, European data continues to disappoint. The German ZEW survey showed a sharp contraction in economic sentiment, which fell to 3.6 and 9.3 in Germany and the eurozone in September, respectively. The assessment of the current situation in Germany deteriorated from -77.3 to -84.5. In addition, the EU confirmed that the Harmonized Index of Consumer Prices (HICP) for the year ended August increased by 2.2% year-on-year, while the monthly increase was revised down to 0.1%.
The weekly chart shows that EUR/USD is bullish in the short term, although the bullish momentum has weakened. The 14-week relative strength index (RSI) of the technical indicator has extended the upward slope within positive levels, maintaining the upward momentum (last reported at 64.65). At the same time, the pair met buyers around the flat 200-week simple moving average (1.1051), which provides dynamic support. Meanwhile, the 20-week (1.0907) and 100-week (1.0792) moving averages are moving upwards below the longer-term simple moving averages, reflecting an increase in buying interest. The EUR/USD pair needs to clear the 1.1200 barrier to confirm what the technical analysis suggests: that buyers are in control of the market. Once 1.1200 and 1.1210 (61.8% Fibonacci retracement of 1.2245 to 0.9536) are broken, the pair could head towards 1.1280 (upper line of the weekly horizontal channel) and 1.1300 (market psychological barrier), with a longer-term target of 1.1605 (76.4% Fibonacci retracement). On the downside, 1.1068 (last week's low) and 1.1051 (200-week moving average) are in focus. If it breaks, the psychological level of 1.1000 and the high of 1.0950 on July 17 will be the main support area.
Today, it is recommended to go long before 1.1150, stop loss: 1.1135, target: 1.1190, 1.1200.
Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
