US Dollar Index

The US dollar traded roughly stable near Friday's close. The US market was closed on Monday due to the Labor Day holiday. The US dollar index was in the higher 101.00 area. The US dollar finally saw a glimmer of light last week, rebounding from the last recorded level of mid-July 2023 near 100.50 before Wall Street closed last Friday to the area above the 101.00 mark. Despite the rebound in the second half of last week, the outlook justifies the Fed's rate cut as inflation declines and economic activity stabilizes. But the continued downward pressure on the US dollar mainly stems from the market's growing expectations that the Federal Reserve may begin to reduce the Federal Reserve Funds Target Range (FFTR) in September. However, the PCE results may not be dovish enough to convince the central bank to start cutting interest rates by 50 basis points, and the possible size of this move remains uncertain and depends almost entirely on the upcoming data. In addition, the US personal consumption expenditures (PCE) price index for July, released last Friday, was unexpectedly negative, further indicating that US inflation seems to be continuing to move towards the Fed's 2% target.

Analysis from recent trends. On the upside, technical trends suggest that the US Dollar Index has the potential to recover. The 14-week relative strength index (RSI) is trending upwards, while the moving average convergence divergence (MACD) is showing lower red bars. If the US Dollar Index holds above the 101.50 level, it could trigger a rally to 102.00 {round-number mark}, followed by the key 102.65 {50.0% Fibonacci rebound from 104.79 to 100.51}, and the 9-week moving average of 102.85. If this area is broken, the US Dollar Index has the potential to climb to 103.15 {61.8% Fibonacci rebound}. On the downside, the probability of continued downward pressure on the US Dollar Index increases. A break below the 101.50 level would point to the area above the 101.00 mark. Then there is the 2024 low of 100.51 (hit on August 27), and a breakout towards 100.38 {200-week moving average}, and the psychologically important 100.00 level.

Consider shorting the US dollar index around 101.80 today, stop loss: 101.90, target: 101.40, 101.30

WTI spot crude oil

WTI spot crude oil prices rebounded slightly yesterday and traded at around $73.80 per barrel during the Asian session on Monday. The decline may be related to the plan of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to increase production in the next quarter. OPEC+ is ready to push forward with its oil production increase plan starting in October. Weak demand from China and the United States, the world's two largest oil consumers, may put downward pressure on WTI prices. An official survey showed that China's manufacturing activity fell to a six-month low in August, and factory gate prices fell sharply. This has prompted Chinese policymakers to push ahead with plans to increase household stimulus. Downside growth is likely in 2025, driven by economic challenges in both China and the US. OPEC may have to delay phasing out voluntary production cuts if it wants to achieve higher prices.

The fate of crude oil prices in the near term seems to be in tandem with the US dollar index, with technical factors leading to either a recovery or further downturn. For crude oil, key levels of $72.10 {August 5 low}, and $72.08 {67.79 to 87.84 78.6% Fibonacci retracement} need to be defended in order to still be able to retest upside levels. On the upside, $75.44 {61.8% Fibonacci retracement}, and $75.43 {10-day moving average} are key short-term resistance areas, above which the price will target $77.81 {50.0% Fibonacci retracement}, and the 200-day simple moving average (78.04) levels.

Today, consider going long on crude oil around $74.60, stop loss: 74.40; target: 75.80; 75.90

Spot gold

Gold prices continued to fluctuate around $2,500 on Monday, struggling to find direction. Later this week, key macroeconomic data released by the United States, including the August PMI data and the employment report, could trigger the next major move in gold prices. In early Asian trading, gold prices fell to around $2,500, pressured by a stronger dollar. However, the downside for gold may be limited as the prospect of a rate cut by the Federal Reserve in September remains. The U.S. Commerce Department reported on Friday that the U.S. PCE price index rose 0.2% month-on-month in July, in line with market expectations. Investors have shifted their focus to unemployment data, which further confirms that the Federal Reserve may cut interest rates in September. The market's firmer expectations for a rate cut by the Federal Reserve may support gold prices in the short term, as lower interest rates reduce the opportunity cost of holding zero-yielding assets. Any signs of escalation in tensions in the Middle East may boost safe-haven demand and benefit gold prices. However, concerns about physical gold demand and a sluggish Chinese economy may limit the upside for precious metals, as China is the world's largest gold buyer.

At the beginning of the week, although gold prices fell below $2,500 at one point, they were still biased to the upside, but the "head-and-foot" technical chart pattern loomed. The 14-day relative strength index (RSI), a technical indicator, showed mixed readings, but sellers dominated in the short term, although the RSI fell slightly but was in bullish territory. If the gold price closes below the short-term support at the $2500-2494/oz area (psychological level and last Friday's low, respectively), the next support will be $2479.00/oz {20-day moving average}, and the August 22 low of $2,470. On the contrary, if the gold price continues to stay above $2,500, the next resistance will be the historical high of $2,531.70 on August 20, which will be confirmed, and continue to rise to $2,544 {the central axis of the upward channel on the daily chart}. Once the gold price channel is above this level and confirms it as a support level, it may target the $2578.20/oz {176.4% Fibonacci rebound level from 2,531.70 to 2,470.80} level.

Consider going long on gold today before 2,496.00, stop loss: 2,492.00; target: 2,515.00; 2,520.00

AUD/USD

AUD/USD put aside Friday's pullback and moved towards the 0.6800 area with a fairly firm pace, which is always in response to the renewed weakness of the US dollar despite poor fundamentals in China and lower commodity prices. AUD/USD extended its losses after the release of key economic data on Monday. However, as market expectations for a dovish Fed continue to heat up, the strengthening risk sentiment may limit the downside for the risk asset AUD. Australia's July building permits surged 10.4% on the month, rebounding sharply from a 6.5% drop in June, marking the strongest growth since May 2023. The annual rate of building permits reached 14.3%, a sharp rebound from the previous -3.7%. In addition, China's Caixin Manufacturing Purchasing Managers' Index rose to 50.4 in August from 49.8 in July, which is particularly noteworthy given China's close trade relationship with Australia. The US dollar is under downward pressure following the market's expectations of a 25 basis point rate cut by the Federal Reserve in September. Traders may now focus on the upcoming US employment data, including the non-farm payrolls (NFP) data for August, to further understand the potential magnitude and pace of the Fed's rate cuts.

From the daily chart analysis, the Australian dollar traded above 0.6770 at the beginning of the week. AUD/USD is below the rising trend line, suggesting that the bullish tendency may weaken. However, the 14-day relative strength index (RSI) of the technical indicator is still above 63, continuing to support the overall bullish trend. As for resistance, the AUD/USD pair may retest the immediate resistance of the seven-month high of 0.6798 and 0.6800 {market psychological barrier}, followed by the immediate barrier of 0.6848 {upper line of the upward channel}, which will further approach the high of 0.6871 on December 28 last year. If it breaks through this level, it may strengthen the current bullish bias and lead the AUD/USD to rise near the psychological level of 0.6900. On the downside, the AUD/USD pair may find support near the market psychological level of 0.6700. A break below this support level may weaken the bullish bias and increase the downward pressure, which may push the currency pair to 0.6675 {weekly horizontal channel middle axis} support, and then further decline may fall to 0.6635 {30-day moving average} support.

Consider going long on AUD before 0.6775 today, stop loss: 0.6760; target: 0.6820; 0.6830.

GBP/USD

GBP/USD moved sideways to below 1.3150 in the second half of Monday. US financial markets remained closed for the Labor Day holiday, not allowing the currency pair to make a decisive move in either direction. In early Asian trading on Monday, GBP/USD fluctuated higher to around 1.3130, ending a three-day losing streak. With no major economic data from the UK this week, USD volatility will be the main driver of GBP/USD. US non-farm payrolls (NFP) for August will be in focus on Friday. The Fed's accommodative policy outlook remains a pressure on the dollar. Fed Chairman Powell signaled last week that a rate cut was imminent, citing labor market concerns. This Friday's key US employment data will help determine whether the dollar can continue to rebound. If the results are weaker than expected, it could raise concerns about a slowdown in the US economy and drag the dollar lower. On the other hand, investors are confident that the Bank of England will gradually implement a policy easing cycle for the rest of the year, which may boost the pound.

GBP/USD correction extended below 1.3150. The GBP/USD exchange rate fell after failing to rise around 1.3200. However, the near-term appeal of the GBP/USD pair remains firm. If the bullish momentum continues, GBP/USD is expected to rise to the 1.3300 round number and the 1.3350 psychological level after breaking through the two-and-a-half-year high of 1.3266. While the 14-day relative strength index (RSI) oscillates in the bullish range of 61-62, indicating strong upward momentum. Nonetheless, it may increase the possibility of a pullback. On the downside, the July 17 high of 1.3045 will be challenged initially. Failure to sustain above this level may trigger a new leg of decline to the 1.30 psychological level, which is a key support for bulls.

Today's recommendation is to go long GBP before 1.3125, stop loss: 1.3110, target: 1.3175, 1.3180

USD/JPY

A stronger dollar led to a rise in USD/JPY as traders became more optimistic about the outlook for the US economy. The US employment data released this week will be key to their assessment and could affect the currency pair. The yen remains supported by a series of positive data and expectations that the Bank of Japan will soon raise interest rates. On Monday, Japanese companies reported a 7.4% increase in capital expenditures in the second quarter. In addition, the manufacturing PMI for August was revised up to 49.8 from 49.5, indicating a stabilizing trend. The yen remained stable after the release of US personal consumption expenditures (PCE) index data for July last week, which led traders to scale back expectations of a sharp interest rate cut by the Federal Reserve in September. According to the CME FedWatch tool, the market fully expects the Federal Reserve to cut interest rates by at least 25 basis points at its September meeting. Traders may now focus on upcoming U.S. employment data, including August non-farm payrolls, to further understand the potential size and pace of the Fed's rate cuts.

Although USD/JPY rose sharply last week due to U.S. Treasury yields. The 10-year Treasury yield rose four and a half basis points to 3.909%, supporting USD/JPY to break through 146.00 for the first time, but it is still biased to the downside. The 14-day relative strength index, a technical indicator, shows unclear momentum. The indicator is in the bearish zone, but the target is upward. Short-term buyers are dominant, but bulls must push USD/JPY above the 146.47 {23.6% Fibonacci rebound from 161.95 to 141.69} and 146.53 {25-day moving average} area to have a chance to challenge 148.89 (34-day moving average), followed by the latest cycle high of 149.39 reached on August 15, and 149.42 (38.2% Fibonacci rebound) area. On the other hand, if USD/JPY falls below the range near the conversion line, it will hit the latest cycle low of 143.44, which is the low of August 26. If the decline continues, it may target August 5 to 141.69.

Today, it is recommended to short the US dollar before 147.05, stop loss: 147.25; target: 146.20, 146.00

EUR/USD

Against the backdrop of a weaker dollar and higher German bond yields, EUR/USD shook off three days of losses and rebounded from lows near 1.1050 to revisit the 1.1070-80 area. EUR/USD closed further lower late last week, falling for the third consecutive day, dragging EUR/USD down to around 1.1050. EU inflation data released earlier on Friday did not impress investors particularly, and interest rate market expectations for the Fed's first 50 basis point rate cut on September 18 remained firmly at 30%, with the remaining 70% leaning towards a 25 basis point cut by the Fed. ECB Governing Council member Francois Villeroy de Galhau said on Friday that the central bank had "good reasons" to consider cutting its key interest rate in September. And suggested that action should be taken at the upcoming meeting on September 12, noting that deciding on a new rate cut would be both fair and prudent.

From the daily chart, the EUR/USD fell for the third consecutive day in late last week, and the EUR/USD turned into a bearish correction. Although the 14-day relative strength index (RSI) of the technical indicator is currently at 53.50, it has tested the 50.00 low from the 68.50 overbought zone, and the risk is biased to the downside. Once the EUR/USD price trend falls below 1.1000, there is a chance to fall to 1.0950 {180-week moving average}, and then fall to the 1.0900 {round mark} area. At this stage, the resistance of the EUR/USD is 1.1100 {round mark} and 1.1140 {August 29 high}. If the latter is clearly broken, it will face the critical points of 1.1200 {market psychological barrier} and 1.1201 {last week's high}.

Today it is recommended to go long on USD before 1.1055, stop loss: 1.1040, target: 1.1105, 1.1110.

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.