Stay informed with our timely forex analysis
On Tuesday, September 19th, data released by the United States showed that due to persistently high mortgage costs, the annual rate of new housing starts in August dropped significantly by 11.3%. This week, as the market awaited monetary policy decisions from major central banks, including the Federal Reserve, the Dollar Index hit a low of 104.81 after declining. At the beginning of the week, the Dollar Index briefly rose to 105.36 but quickly declined, approaching the 105 level. The preference for risk and the fluctuation of U.S. Treasury yields may be factors suppressing the upward movement of the dollar. The three major U.S. stock indices demonstrated short-term V-shaped reversals during the trading session, reflecting signs of increased risk appetite. Meanwhile, multi-period U.S. Treasury yields quickly retreated after reaching multi-year highs. Changes in market sentiment and the performance of U.S. Treasury yields during this period both suggest a situation: investors may not be willing to bet excessively on the Fed's tightening expectations for this week's rate decision, and there is suspicion of profit-taking opportunities. In addition, the Dollar Index recorded an impressive nine consecutive weekly gains, and bullish positions in the dollar may already be quite crowded, so it is reasonable for some dollar bulls to take profits before the Fed's rate decision. The upcoming Fed rate decision is likely to be a "hawkish hold," but this may not provide substantial support for the dollar, as the market has probably already fully priced in this expectation. Unless the institution brings a "hawkish surprise," the Dollar Index is not likely to continue its upward trend.
The daily chart shows that the Dollar Index has maintained its upward momentum intact since July, breaking through the previous week's oscillation high of 105 to reach 105.43 last week, opening up further upside potential with targets at 105.77 (the upper Bollinger Band) and 105.88 (the high on March 8th). If it retraces, key support levels below are at 104.77 (14-day moving average), 104.50 (an upward support trendline extending from the low point of 99.57 in July), and 104.45 (the midline of Bollinger Bands). If it falls below, the next support to watch is at 104.04 (23.6% Fibonacci retracement level from 99.57 to 105.43). In summary, the technical outlook for the Dollar Index is bullish for now, unless it retraces and falls below 104.04-104.00, at which point the outlook would turn bearish.
Today, it may be considered to short the Dollar Index near 105.32, with a stop loss at 105.55 and targets at 104.80 and 104.75.
WTI Crude Oil
WTI crude oil started the week with its fifth consecutive day of gains and briefly reached a recent high of $91.26, closing above the $90 mark. With the RSI continuously in the "overbought" territory and the Federal Reserve's September interest rate decision approaching, investors' views on the oil price outlook have become more divided. It's worth noting that the latest data from the Joint Oil Data Initiative (JODI) shows that Saudi Arabia's crude oil exports in July declined by 792,000 barrels per day to 6.012 million barrels per day, hitting a two-year low. Additionally, Saudi crude oil inventories decreased by 2.962 million barrels to 146.731 million barrels in July. The market generally believes that with Saudi Arabia and Russia extending their additional production cuts until the end of the year, inventories will further tighten, and oil prices are expected to continue to rise, potentially targeting the $100 mark. In summary, after experiencing over three months of significant gains, the adjustment risks for WTI crude oil are increasing, although this may not affect the medium-term upward trend in WTI crude oil. Investors should pay close attention to the Federal Reserve's September interest rate decision and the potential risk of a pullback in the US stock market this week.
From a technical standpoint, the US Dollar Index has been rising for nine consecutive weeks since July, while WTI crude oil has seen a gain of over 20% in just three months. The adjustment risks for WTI crude oil are increasing after experiencing over three months of significant gains, although this may not affect the medium-term upward trend in WTI crude oil. Investors should focus this week on the Federal Reserve's September interest rate decision and the potential risk of a pullback in the US stock market. If WTI crude oil continues to adjust downward, the first target is $90.00 (a psychological round number level) and $88.51 (10-day moving average). The next level of support would be around $85.24 (20-day moving average). If oil prices remain above $90 this week, there is still a potential for a medium-term challenge to the $93.00 and even $100.00 levels.
Today, it may be considered to go long on crude oil near $90.15, with a stop loss at $89.80 and targets at $91.35 and $91.50.
There is a general consensus in the current market that the Federal Reserve is likely to remain unchanged in its interest rate adjustments this week, which may briefly boost gold prices. Since rising to around $2,000 per ounce in March to May of this year due to safe-haven demand (concerns about the stability of US and European banks), gold prices have been on a downward trend. According to data from the World Gold Council (WGC), global gold demand in the first half of this year decreased by about 5% year-on-year, primarily due to a decline in investor demand for ETFs, while gold supply has slightly increased. Gold demand is expected to further decrease as the demand for gold as a hedge against severe economic recession and high inflation eases. It is expected that, after a 1% year-on-year decline in the first half of the year, high gold prices and the weakening of Asian currencies against the US dollar will continue to weigh on gold jewelry demand in the second half of the year. Finally, historically high gold prices should also continue to stimulate supply. Therefore, overall, market forecasts suggest that gold prices will fall from the current level of around $1,918 to $1,800 by the end of the year.
However, economic data since September has shown accelerated economic growth in the United States, easing inflation, and continued growth in the job market, laying the foundation for Federal Reserve officials to release a series of updated forecasts this week, which may reflect their increasing confidence in the prospect of a soft landing for the economy. A survey of economists shows that the resilience of the US economy will lead the Federal Reserve to raise interest rates once again in 2023 and keep rates at peak levels longer than previously expected next year. Given the resilience of the US economy and high inflation levels, investors are still finding it difficult to determine whether US interest rates have reached their peak. Prolonged high US interest rates will undoubtedly continue to weaken the attractiveness of gold as an investment product.
From a technical perspective, the gold price is trending towards a converging pattern, and any unexpected stance by the Federal Reserve and Powell could stimulate a breakout in gold. From a weekly perspective, gold prices have recently risen and are trading below the upper trendline of the descending wedge pattern that has been in place since June. After confirming a breakout from the descending wedge pattern, the bulls will be encouraged further. Subsequent resistance will be at the potential reversal level at $1,953.00 (high on September 1st). If gold prices further break through this resistance, the next target would be $1,976.00 (38.2% Fibonacci retracement level from $1,804.80 to $2,081.90), opening the door for further bullish technical tendencies. On the other hand, if it breaks below the 200-day moving average at $1,924.20 and the Monday low at $1,922.50 proves that the early-week rebound was false, attention will return to the 61.8% Fibonacci retracement level at $1,910.50, followed by the August consolidation low at $1,884.90.
Today, it may be considered to go long on gold near $1,927 with a stop loss at $1,924 and targets at $1,938 and $1,942.
The Reserve Bank of Australia (RBA) decided to keep interest rates unchanged at its September meeting, but the meeting minutes revealed that the committee had considered raising the cash rate by 25 basis points at the September meeting and also considered maintaining stability. However, ultimately, they believed that the reasons for keeping rates unchanged were more compelling. Recent data has shown no significant changes in the economic outlook. The meeting minutes indicated that if Australian inflation is proven to be more persistent than expected, further monetary policy tightening may be necessary. The committee recognized that more time is needed to observe the full impact of past tightening policies. Policy measures will be guided by economic data and risk assessment. The AUD/USD had limited fluctuations after the release of the RBA meeting minutes. This week is a super financial week, and the Federal Reserve's September interest rate decision is expected to be announced early on Thursday. The market anticipates that they will keep rates unchanged. If the Federal Reserve takes unexpected actions, it could bring significant volatility to the financial markets, with the AUD/USD being directly affected.
Looking at the price trend, the AUD/USD appears to be forming a "double bottom" pattern, which typically signals the end of selling pressure and the possibility of a strong recovery. Short-term resistance is focused on the neckline of the double bottom pattern near 0.6522. If the AUD/USD can successfully break above this resistance range, there is potential for a short-term rebound to 0.6626 (50% Fibonacci retracement level of the move from 0.6895 to 0.6357) and around 0.6620 (30-week moving average). Conversely, if the AUD/USD reverses lower again, short-term support is focused on 0.6357 (the "double bottom"). If it breaks below this level, it could intensify the downside pressure, with downside targets around 0.6275, which would imply a failure of the double bottom pattern.
Today, it may be considered to go long on the Australian Dollar (AUD) near 0.6430 with a stop loss at 0.6400 and targets at 0.6480 and 0.6490.
GBP/USD traded quietly at the beginning of the week with limited market volatility. It fell below 1.2370, reaching its lowest level since June. Traders were waiting for several central bank interest rate decisions later in the week that could shake the forex market. Traders expect the Bank of England to raise interest rates by 25 basis points to 5.5% on Thursday, which could be the last rate hike in this tightening cycle. On the other hand, regarding the United States, due to its better economic performance compared to most other countries, trend traders have a strong consensus that even if interest rates between the pound and the dollar are on par, the attractiveness of the U.S. dollar will likely overshadow the pound. Since mid-July, GBP/USD has fallen by nearly 6%. In addition to watching the Bank of England's interest rate decision on Thursday, the market is also focused on the UK inflation data to be released on Wednesday, which could have an impact on the pound ahead of the Bank of England's decision. CPI is expected to increase by 7.1% year-on-year.
On the daily chart, the GBP/USD exchange rate continues to move lower along the lower Bollinger Band channel (1.2328), and there is no sign of a short-term rebound or consolidation. It seems that GBP/USD may not escape the trading rhythm of being sold on rallies. In terms of technical trends, GBP/USD is still constrained by a downward trendline that has extended from the high of 1.3143 in July, currently located at 1.2555, and 1.2538 (the midline of Bollinger Bands). There is currently no clear sign of a departure from the bearish downward trend. The exchange rate would need to clearly break through this area to suggest a tendency for the pound to bottom out and rebound. Subsequent resistance is estimated at 1.2750 (the upper Bollinger Band channel). As for support levels, they will refer to the low of May 25th at 1.2308 and the 250-day moving average at 1.2279, with the next key level being the 1.20 mark.
Today, it is advisable to go long on the pound (GBP) near 1.2365 with a stop loss at 1.2345 and targets at 1.2443 and 1.2450.
The Federal Reserve (Fed) and the Bank of Japan (BoJ) will announce their latest monetary policy decisions early Thursday and Friday, respectively, in the GMT+8 time zone. Both central banks are expected to keep interest rates unchanged. However, these two decisions could still impact the market, with the BoJ's reaction potentially being harder to predict. The BoJ is likely to maintain interest rates unchanged, but BoJ Governor Kuroda recently indicated that the BoJ may end its negative interest rate policy by the end of the year, which will make traders closely watch for comments following the decision. Due to the widening interest rate differential between the US and Japan, USD/JPY has seen a significant rally in 2023. While the Fed has raised interest rates to multi-year highs, the BoJ has kept bond yields in negative territory to stimulate inflation and economic growth. The yen has been used as a funding currency for carry trades, including against high-yield currencies such as the South African Rand and the Mexican Peso.
From a technical perspective, the daily chart of USD/JPY still suggests a potential for further upside. The currency pair is supported by three simple moving averages, including the 10-day (147.40), 34-day (145.80), and 45-day (144.70) moving averages. This month, the exchange rate has formed an "ascending triangle" pattern, with resistance around 147.95. Currently, USD/JPY has touched just below 148.00 several times and faced resistance, which serves as a warning signal that traders are becoming increasingly cautious about the possibility of the BoJ or the Ministry of Finance issuing notifications about closely monitoring the yen's movement. If the BoJ once again turns dovish after its monetary policy meeting on Friday, there may be further upside potential for USD/JPY. The targets would be 148.80 and, if it continues to rise, the bulls could aim for the important psychological level of 150.00. Presently, 146.72 (5-week moving average) and 145.90 (last week's low) play crucial support roles, and holding above these key support levels would imply that USD/JPY continues to follow an upward trajectory.
Today, it is advisable to go long on the US Dollar (USD) near 147.40 with a stop loss at 147.10 and targets at 148.40 and 148.50.
The market traded quietly this week as traders awaited interest rate decisions from the Federal Reserve, the Bank of England, and the Bank of Japan. The EUR/USD continued to edge up slightly but remained below 1.07. The resilience of the U.S. economic growth has driven a recent rebound in the U.S. dollar, but this uptrend may face tests from a series of data releases and the Federal Reserve's interest rate decision on Wednesday. Data on Monday showed that U.S. homebuilder confidence for September declined for the second consecutive month due to high interest rates, with optimism reaching its lowest level since April. This data could potentially keep the Federal Reserve on hold at this week's rate meeting. Some analysts suggest that while the dot plot suggests a slightly dovish bias, it should not significantly impact the long-term bullish trend of the U.S. dollar because the forex market is clearly focused on relative growth dynamics, and the United States remains the best-performing country among the G10 nations so far.
Currently, the EUR/USD only shows a consolidation in an overbought trend. Observing the daily chart, it appears to be forming a descending flag pattern, indicating that without major positive news, there is a higher probability that the EUR/USD will continue its downward trend. The EUR/USD rebounded this week to just below 1.07. From a technical perspective, the descending trendline formed since July is currently located at the 1.0790 level. If the exchange rate can break above this level, there is a possibility that the EUR/USD will stabilize and move toward the 200-day moving average at 1.0826. However, the MACD indicator is currently breaking above the signal line, and if the exchange rate fails to hold above the 1.0633 level reached on May 31st, the euro may have a tendency to weaken further. Key support below would be around 1.0580 (the midline of the descending channel), and if this level is broken, it could pave the way for a further decline towards 1.0405 (50% Fibonacci retracement level of the move from 0.9535 to 1.1275).
Today, it is advisable to go long on the Euro (EUR) near 1.0660 with a stop loss at 1.0640 and targets at 1.0725 and 1.0745.
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.