Stay informed with our timely forex analysis
U.S. Dollar Index
Yesterday, the U.S. Dollar Index continued its downward trend for the second consecutive trading day, closing at 105.07. The strong performance of the U.S. economy may prolong expectations of future interest rate hikes. It is expected that the U.S. will maintain its current interest rate levels this week. Bearish divergence suggests the possibility of a short-term weakening of the U.S. dollar.
In the past week, with a mix of good and bad U.S. CPI, PPI, and retail sales data released successively, the U.S. dollar seemed to be on a rollercoaster ride. These data maintained the assessment that the U.S. economy is still strong and implied potential inflationary pressures. Although the tendency for "long-term inflation" still exists and appears to be more persistent, the Federal Reserve is likely to announce a pause in interest rate hikes this week. As hinted by Federal Reserve spokespersons, market pricing reflects the possibility of another rate hike if necessary, but a continuously rising interest rate environment may sustain the strength of the U.S. dollar. Additionally, considering that the Euro exchange rate accounts for 57.6% of the U.S. Dollar Index, a weakening Euro could provide more upside potential for the U.S. Dollar Index.
From the daily chart, the 89-day (103.00) moving average and the 180-day (102.89) moving average have formed a "golden cross" bullish pattern. There is a greater likelihood of another push higher to 105.88 than a pullback to the support levels of 104.00 (psychological level) and 104.09 (245-day moving average). However, it is important to be cautious as the RSI (Relative Strength Index) suggests a bearish divergence for the U.S. Dollar Index (where prices make higher highs while the RSI makes lower highs, often leading to price declines). This could occur if the market perceives the Federal Reserve's forward guidance as dovish. In that case, a short-term technical correction for the U.S. Dollar Index to 104.45 (upward support trendline from the July low of 99.57) and 104.09 (245-day moving average) cannot be ruled out. On the upside, the U.S. Dollar Index is currently attempting to test resistance levels at 105.35 (double top from February 22 and 23) and 105.70 (upper channel boundary).
Today, it may be considered to short the U.S. Dollar Index near 105.24, with a stop loss at 105.45, and target levels at 104.80 and 104.65.
WTI Crude Oil
On Monday, September 18th, crude oil prices surged and then retraced but held firmly near this year's high. Closing at a new recent high of $90.85 per barrel, WTI crude oil recorded a 4.5% gain last week, trading above $90.00 per barrel, marking its highest level of the year and marking three consecutive weeks of gains. Market expectations of a 3 million barrels per day global oil supply shortfall in the fourth quarter, due to Saudi Arabia and Russia's extension of additional production cuts in early September, have driven concerns of supply shortages. This has propelled WTI crude oil to break through two key resistance levels at $83.50 and $87.00, attracting profit-seeking capital. In fact, the current strong uptrend in WTI crude oil is not without reason, as a solid bottom has been established, and the commodity nature of oil is expected to dominate the market for some time. Despite the possibility of a global inflation rebound in the second half of the year, which could exacerbate the risk of economic downturn in Europe and the United States, it is unlikely that the upward trend in oil prices will reverse before that.
From a technical perspective, the U.S. Dollar Index has recorded nine consecutive weeks of gains since mid-July, while WTI crude oil has risen by more than 20% during this period. Given that oil is priced in U.S. dollars, this situation is not common in the market. Concerns about supply shortages have driven WTI crude oil to break through two major key resistances at $83.50 and $87.00, finally pushing oil prices above $90.00. The current strong uptrend in WTI crude oil is not without reason. Despite the RSI (Relative Strength Index) indicating that oil is in overbought territory, oil prices have been building a base since March and broke through $83.50, confirming a "double bottom" pattern. According to the minimum measurement range of this pattern, there is a medium-term challenge for oil prices to test the $100.00 resistance level. On the downside, key levels to watch include $88.00 (lower boundary of the upward channel) and $86.15 (14-day moving average). As for the upside, keep an eye on levels such as $91.50 (upper boundary of the upward channel) and $93.00.
Today, it may be considered to go long on crude oil near $90.45, with a stop loss at $90.00 and target levels at $91.65 and $91.80.
In the U.S. market session on Monday, September 18th, spot gold saw a slight increase due to strong physical demand for gold in China, providing support to gold prices. Additionally, market expectations for the Federal Reserve to maintain interest rates this week also contributed to the modest uptick in spot gold prices. Last week, at the beginning of the week, gold prices weakened as economic indicators in the U.S., such as the CPI, PPI, and retail sales, showed stronger-than-expected inflation. Gold prices approached the $1,900 mark during this period. However, a corrective rebound started in the latter half of the week as a series of economic data releases caused gold prices to rise significantly, briefly touching $1,930. During this time, gold also experienced a rebound triggered by the European Central Bank's decision. Despite the ECB raising interest rates by 25 basis points to a historic high, there are signs that this may be the last interest rate hike in the current tightening cycle, which led to market reactions, pushing down the euro and eurozone yields. This had a positive impact on gold and helped it stay above $1,900.
Next, the Federal Reserve meeting on Wednesday of this week will be a focal point for the precious metals market. If the tone of the Federal Reserve unexpectedly shifts slightly towards a less hawkish or dovish stance, and if it becomes evident, as with the ECB, that the endpoint of the rate-hiking cycle has been reached, then U.S. bond yields may significantly decline, providing a boost to gold.
Despite the U.S. Dollar Index repeatedly hitting recent highs and recording nine consecutive weekly gains, gold ultimately exhibited a pattern of initial suppression followed by a rebound last week. Gold prices rebounded after holding the $1,900 level and, in the last two trading days of the week, saw consecutive gains, briefly breaking above the $1,930 level. Gold has been on an upward trajectory since hitting a low of $1,885 on August 21st, reaching a high of $1,953 on September 1st before experiencing some downward pressure and dropping to a low of $1,901.10 on September 14th. It found support and rebounded around the $1,900 psychological level and the $1,903.50 level (38.2% Fibonacci retracement from $1,614.90 to $2,081.90). After breaking through the downtrend line dating back to $1,915, the market appears to have reached a bottom. However, on the upside, it faced resistance again at the "double top" levels of $1,930.50-$1,930.60 and $1,931.30 (23.6% Fibonacci retracement from $2,081.80 to $1,884.90), and the upper trendline of the descending wedge at $1,935 also acted as a barrier. If a significant breakthrough occurs, it may encourage the bulls further, with higher resistance at $1,953 (previous high). However, caution is needed for the possibility of a pullback to $1,915 under the pressure of long upper shadows in candlestick patterns and overbought correction needs indicated by the KDJ indicator. If the $1,901-$1,900 level is breached, the downside target could extend to $1,885. If the downward trend continues, further support can be found at the $1,870 level.
Today, it may be considered to go long on gold before $1,930, with a stop loss at $1,926 and target levels at $1,943 and $1,945.
The Australian dollar stabilized earlier last week but later retreated. In the foreign exchange market, the US dollar gained ground against other major currencies. The Australian dollar exchange rate continues to be under pressure globally, even as other risk assets generally rise. However, if there are unexpected developments from the Federal Reserve this week, it could potentially change the direction of the AUD/USD pair. One recent characteristic of the market is that the volatility of many asset classes has decreased. The widely followed VIX index continues to hover near its lowest levels since February 2020 (just before the pandemic), and volatility indices often exhibit a negative correlation with growth-oriented assets like the Australian dollar.
Last week, Australia's unemployment rate for August reached 3.7%, with the addition of 65,000 jobs. However, out of these new jobs, 62,000 were part-time positions rather than full-time. The participation rate in employment increased from 66.7% to 67.0%. Looking ahead, the minutes of the Reserve Bank of Australia's meeting will be released on Tuesday. However, the key event for the market will be the U.S. FOMC meeting early Thursday morning.
From a weekly chart perspective, the AUD/USD exchange rate is still operating within a "downward channel." Although the exchange rate closed above 0.64 last Friday, the previous week failed to break above the 0.6488-0.6500 range despite favorable conditions. This may indicate some uncertainty in the current trend of the Australian dollar against the U.S. dollar. If it falls below 0.6400 this week, it could strengthen bearish momentum towards the previous low of 0.6357. Further levels to watch include 0.6315 (upward support trendline from the February low of 0.6563), and the next level would be 0.6207 (lower boundary of the downward channel). At present, the AUD/USD has repeatedly tested the 0.6357-60 level in the past two weeks without breaking it, forming a "double bottom." Moreover, technical indicators like the RSI and Stochastic oscillator are recovering from oversold conditions, suggesting a potential bottoming and rebound for the AUD/USD pair. The initial key resistance is at the neckline of the double bottom at 0.6522. If this level is broken, the next targets would be 0.6626 (50% Fibonacci retracement level from 0.6895 to 0.6357) and 0.6620 (30-week moving average).
Today, it may be considered to go long on the Australian dollar near 0.6415, with a stop loss at 0.6400 and target levels at 0.6470 and 0.6480.
Although the inflation rate in the UK remains above 6%, one of the highest among developed countries, the economic situation in the UK is less favorable. In July, the economy contracted, with GDP declining by 0.5% following a 0.5% growth in the previous month. Industrial production in the country also fell by 0.7%, slightly below the expected 0.6%. Construction output dropped by 0.5% in July, and the house price index experienced its fastest decline in years. Therefore, the challenge facing the Bank of England is how to address this stagflationary situation. The Bank of England is also set to hold a rate meeting next week, and there is still a reasonable expectation in the market that the Bank of England may raise rates by 25 basis points. If the Bank of England does indeed proceed with a 25-point rate hike, it may provide a brief boost to the British pound, alleviating its recent sharp decline. However, if the meeting reveals, as the European Central Bank did, that the September meeting will be the last rate hike in this cycle, the positive impact on the pound may be limited.
In the short term, watch for the possibility of an oversold correction. The initial strong resistance is near 1.2555 (140-day moving average), and if it can be broken, there may be further room for a rebound, with the target pointing towards the 100-day moving average (currently near 1.2650). On the contrary, if resistance is encountered at the aforementioned levels, it may be difficult to prevent the GBP/USD from continuing its downward journey. From a technical perspective, the GBP/USD exchange rate appears to be constrained by the resistance of the central axis of the downward channel, currently at the 1.2410 level, and there is no sign of breaking away from the bearish trend at the moment. The exchange rate seems to have a tendency to continue exploring lower levels. The next support is estimated to be at the May low of 1.2308, with the next level targeting 1.2275 (250-day moving average).
Today, it is suggested to consider going long on the British pound before 1.2360, with a stop loss at 1.2335 and target levels at 1.2440 and 1.2450.
Despite recent positive economic data in Japan, with GDP growth significantly exceeding expectations in the second quarter and CPI continuing to rise, the Bank of Japan's steadfastly dovish stance has made it difficult for economic data to effectively boost the yen's performance. The USD/JPY exchange rate continues to follow the fluctuations in US bond yields, approaching the 148.00 integer mark. This week, Japan's major economic data and events are concentrated on Friday when August CPI and September PMI data will be released. If the data performs well, it may briefly boost the yen's performance. At the same time, on Friday of this week, the Bank of Japan will hold its monetary policy meeting for September. It is highly likely that the current accommodative monetary policy will be maintained in this meeting, and in the short term, the yen is expected to continue its weak trend. It should be noted that if the yen rapidly depreciates again, there is a possibility of verbal intervention by the Japanese government. The long-term trend of the yen may depend more on adjustments in monetary policy. If economic and inflation data continue to exceed expectations, it will accelerate the Bank of Japan's exit from accommodative monetary policy and reverse the yen's long-term decline.
From a technical standpoint, investors and traders are still expected to continue trying to push the USD/JPY towards higher levels above 150 until it triggers a thunderous intervention by the Bank of Japan, or until it puts a stop to this relentless upward trend in the USD/JPY. Although the USD/JPY closed last week with little change, the strength of the yen exchange rate that emerged in the first half of last week had already been reversed by the weekend, highlighting the widespread upward technical bias in the USD/JPY. Currently, the USD/JPY on the weekly chart is oscillating near the top resistance line of the "rising wedge" at 148.40 and formed a bullish "hammer" candlestick pattern at the end of last week. At present, 146.72 (5-week moving average) and 145.90 (last week's low) play crucial roles as key support levels. Holding above these key support areas signifies that the USD/JPY will continue its upward trajectory. On the daily chart, it's worth noting that the technical indicator RSI has consistently shown overbought conditions, and signs of bearish divergence have been persistent. This implies that upward momentum is waning, and sometimes it's a precursor to a reversal to the downside. Constant vigilance is required for the risk of a reversal. In the short term, resistance is focused on the 61.8% Fibonacci retracement level, around 148.27. If it breaks, further attention will be on 148.80. If the upward momentum continues, the bulls may aim to attack the important psychological level of 150.00, which is also the level where the upper boundary of the upward channel that began in early March is situated.
Today, it is recommended to consider going long on the US dollar before 147.30, with a stop loss at 147.00 and target levels at 148.20 and 148.30.
Under the continued pressure of weak economic fundamentals and a strong US Dollar Index, the Euro has continued its downward trend for the ninth consecutive week, falling below the 1.07 integer mark, even after the European Central Bank unexpectedly raised interest rates by 25 basis points. On one hand, the ongoing high-interest rate environment has put the Eurozone economy in a difficult position. Last week, the European Central Bank lowered its economic growth expectations for the next three years, further deepening concerns about an economic recession in the market. On the other hand, inflation levels in the United States have not receded, with both August CPI and PPI exceeding market expectations. Meanwhile, recent economic data has shown strength, with retail sales in August rising by 0.6% month-on-month, well above market expectations. With data support, the Federal Reserve may continue its high-interest rate policy, boosting the US Dollar Index to maintain its strength. Looking ahead, the market will continue to focus on the damage caused by excessive rate hikes to the European economy. If the economic outlook fails to improve, the divergence in economic conditions between Europe and the United States will continue to suppress the Euro's performance, with the risk of the Euro falling further to the year's low of 1.05.
As Euro interest rates are expected to peak, the weakening trend of the Euro against the US Dollar is likely to continue. In the short term, the EUR/USD may seek consolidation, but on the daily chart, it remains pressured below various moving averages, including the 10-day (1.0704), 100-day (1.0890), and 200-day (1.0827) moving averages. Although technical indicators show oversold conditions, there are no signs of correction, indicating that the Euro is maintaining a downward bias. On the daily chart, the EUR/USD has now fallen to the 38.2% Fibonacci retracement level (1.0610) of the range from the September 2022 low of 0.9535 to the July 2023 high of 1.1275, with the next level at 1.0632. If the price falls below this significant support, it could trigger more selling and pave the way for further declines to 1.0405 (50% Fibonacci retracement level of the range from 0.9535 to 1.1275). On the other hand, if the trend stabilizes and rebounds, the immediate resistance may be at 1.0755 (downward resistance trendline starting from the July high of 1.1275), followed by the 200-day moving average at 1.0827.
Today, it is recommended to consider going long on the Euro before 1.0670, with a stop loss at 1.0645 and target levels at 1.0735 and 1.0755.
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.
Risk Disclosure:Derivatives are traded over-the-counter on margin, which means they carry a high level of risk and there is a possibility you could lose all of your investment. These products are not suitable for all investors. Please ensure you fully understand the risks and carefully consider your financial situation and trading experience before trading. Seek independent financial advice if necessary before opening an account with BCR.