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Last week, after the Federal Reserve's September interest rate decision, the US Dollar Index hit a new monthly high at 105.78 and reached its highest level since March 9th. This was seen as a "hawkish pause" meeting, meaning that the Federal Reserve announced a pause in rate hikes but sent hawkish signals. If the extent of the hawkishness from the Federal Reserve surprises the market, the US Dollar Index may continue to reach new recent highs. From the final outcome perspective, the US Dollar bulls got what they wanted. However, the economic outlook may not be as optimistic as the Federal Reserve predicted, and the future of the US Dollar may face uncertainty.
Meanwhile, nominal and real bond yields in the United States are also rising to levels not seen in decades, adding downward pressure on risk assets. This reflects the market's acceptance of the Federal Reserve's commitment to maintaining high-interest rates, reducing the probability of a rate cut by the Fed in the first half of 2024. In the remaining interest rate meetings this year, if Jerome Powell explicitly supports keeping policy rates high and continues to keep discussions about rate cuts vague, the period of high volatility in US bonds and the strength of the US Dollar may extend.
The combined effect of last week's Federal Reserve interest rate decision statement and Powell's speech has strengthened the hawkish stance, leading to the US Dollar Index closing on a weekly basis with ten consecutive gains, also reaching a six-month high at 105.78. The daily chart shows that after breaking above the key support level (104.50-104.70) last week, a new support zone has moved up to 105.00. This support zone is composed of the lower channel line (105.00) and the Powell Pivot (104.67). The future trend may continue to move upward within this channel. If it goes as expected, the upside target for the US Dollar will be towards levels like 105.88 (March high) and 105.95 (Powell Pivot). If it breaks through, the next target could be 106.80 (upper channel line). However, if it goes downward, keep an eye on the key support at 104.67 (Powell Pivot), and if it holds, the bullish outlook remains intact. If an unexpected event occurs, the US Dollar may drop below 104.14 (250-day moving average), opening up further downside potential, with the next target being around 103.32 (lower channel line).
Today, you may consider shorting the US Dollar Index near 105.75 with a stop loss at 105.95 and targets at 105.20 and 105.15.
WTI Spot Crude Oil
Global oil prices are expected to rise for the fourth consecutive month, but after three weeks of gains on the weekly chart, they closed last week with a "doji" candlestick pattern. The international benchmark Brent crude oil price has surged above $90 per barrel, reaching a 10-month high. The US WTI crude oil price has also risen nearly 30% since July. The spike in oil prices is a response to the largest oil-producing countries in the world, including Saudi Arabia and Russia, cutting their supply in an effort to maintain stability in oil prices. Meanwhile, the strong US economy is also stimulating demand for oil.
On the other hand, despite the positive fundamentals supporting the WTI crude oil price last week, the trend started to retreat and adjust after reaching a 10-month high. Currently, although the supply and demand fundamentals are relatively clear in favor of oil prices, there should be some caution regarding short-term pullback risks. Firstly, after WTI crude oil prices refreshed their highs this week, they have clearly retreated, indicating a potential correction from overbought levels, considering that the increase from June to this week's high has been as much as 36%. Another significant market change to watch is a noticeable deterioration in risk appetite, which may persist for some time and drag down oil price performance.
From a technical perspective, WTI crude oil prices rebounded above the $90 level for five consecutive trading days last week, suggesting the possibility of further upside. However, out of these five trading days, three saw intraday highs followed by declines below $90.0, and the weekly chart closed with a "doji" candlestick pattern. This indicates that oil prices may be consolidating near $90.0 in the short term, and downward risks should be observed. WTI crude oil has closed below the $90 level for two consecutive days, implying significant selling pressure above, and a short-term further correction cannot be ruled out. The key support level below is at $89.00, which is the lower channel line. If it falls below $89.00, the next level to watch is around $86.77, which is composed of the Powell Pivot. If this support area is breached, further downside may target around $84.51, near the August high. If oil prices manage to rise above and consistently close above $90.0 this week, there is still potential for further upside, with targets around $92.20 (the midline of the upward channel) and $93.20 (the upper channel line), and a more significant attempt at $94.60 (the upper boundary of the upward channel).
Today, it may be considered to short oil near $90.20, with a stop loss at $90.60 and targets at $89.00 and $88.70.
After last week's Federal Reserve interest rate decision in September, Federal Reserve Chairman Powell maintained a hawkish stance this week, stating that interest rates would need to remain in a restrictive range in the foreseeable future. However, due to lingering uncertainty, the gold market remains neutral. Currently, despite the strong performance of the US dollar and the relatively positive attitude of the Federal Reserve towards rising US inflation, the US government is facing the possibility of a shutdown despite the outstanding economic data. This, relatively, has caused market panic and further limited the rise of the US dollar, instead boosting the safe-haven attributes of gold. At present, although the price of gold is trading in a narrow range, it has held up against major resistance levels, even as the yield on the 10-year US Treasury bonds reached a 16-year high of 4.5%. Meanwhile, the US dollar closed the week at its highest level since November 2022. Economic uncertainty continues to support gold as a safe-haven asset.
Despite gold holding its ground, it is challenging for gold to make a significant rebound in the current environment. In the past four reporting weeks, net long positions have dropped by nearly 75%. In this context, gold is undoubtedly finding it difficult to break out of its defensive position in the short term. That said, market sentiment is currently very pessimistic, and it wouldn't take much effort to trigger a price rebound.
On the daily chart, the price of gold is testing the $1925 level in the short term, which is the intersection of the 21-day (1925) and 200-day (1926.20) moving averages. Gold needs to firmly break above this level to further rise towards the key resistance zone composed of 1935 (the midline of the upward channel) and 1936 (the downward extension resistance trendline starting from the July high of 1987.50). The next levels to watch for gold would be 1948.00 (the upper boundary of the upward channel) and 1953.00 (the early September high). On the other hand, due to the ongoing strength of the US dollar, it has raised doubts among investors about a gold rebound. Additionally, the closing price at the end of last week formed a bearish "doji" pattern, so it's not out of the question that gold may retest the low of last week at $1914. If it breaks below that level, it could open the path for gold to decline towards $1901.10 (the September low) and $1900.00. Looking further down, the next key support for gold is at $1884.90 (a previous low).
Today, you may consider shorting gold before $1928, with a stop loss at $1932 and targets at $1916 and $1914.
Last week, Australia did not release any significant economic data. Therefore, the Australian Dollar to US Dollar (AUD/USD) exchange rate was primarily influenced by the decisions of the Federal Reserve. Following the latest interest rate decision by the Federal Reserve last week, the AUD/USD pair briefly fell below 0.64, reaching a low point of 0.6385, just a step away from the September low of 0.6357. Towards the end of the week, it moved back above the 10-day moving average at 0.6432.
The AUD/USD currency pair has been in a slow upward trend for the past few weeks. During this period, it gradually rose from this month's low of 0.6357 to a high of 0.6511. The currency pair may have formed an uptrend and retested the upper boundary of the channel and the volatility high of September 1st at 0.6521. It briefly touched the peak of 0.6511 midweek. Currently, the AUD/USD currency pair is still trading in a narrow range due to market reactions to important economic data from the United States, China, and Australia. Despite the US Dollar Index rising to its highest level in months, the AUD/USD currency pair attempted a rebound last week, reaching a high of 0.6511, the highest level since September 1st.
The AUD/USD pair tested near 0.6357 multiple times earlier this month without breaking it. Additionally, technical indicators such as RSI and stochastic are in the process of rebounding, suggesting that the AUD/USD pair may be showing signs of a bottoming and rebounding trend. Over the past month and a half, the AUD/USD has been oscillating within the range of 0.6357 to 0.6520. To continue its recovery momentum from early this month, the AUD/USD needs to hold above 0.6420. Successfully breaking through this upper limit may strengthen the bullish momentum, potentially opening the door to levels like 0.6600 (a psychological level) and 0.6616 (the high from August 10th). The next level to watch would be 0.6660 (the 61.8% Fibonacci retracement level of the move from 0.6846 to 0.6357). On the contrary, if market sentiment turns in favor of the bears and leads to selling pressure, the initial support level to watch would be the previous low of 0.6357. Further downside could target 0.6272 (the low from November 3rd of the previous year), with a key focus on the 0.6170 level, the October 2022 low.
Today, you may consider going long on the Australian Dollar around 0.6415, with a stop loss at 0.6385 and targets at 0.6480 and 0.6485.
Last week, the Bank of England announced its September interest rate decision, surprisingly keeping the policy rate unchanged at 5.25%, ending the streak of 14 consecutive rate hikes. This dovish move by the Bank of England seems to signal the end of the interest rate hike cycle, and the attraction of high-interest rates for the British Pound will likely be completely diminished. Next, if economic data from the UK concerning economic growth is unfavorable, it will undoubtedly continue to put pressure on the British Pound. Following the Bank of England's decision to maintain the rate at 5.25%, the GBP/USD continued its downtrend, reaching a six-month low. A series of lower highs and lower lows recorded since July continue to suggest a short-term bearish bias for the GBP/USD pair. The monetary policy statement emphasized the significant increase in international oil prices since the last rate decision, which could keep inflation pressures high in developed economies. Inflation for the past week dropped to 6.7%, and core inflation dropped to 5.2%, both below expectations from the August rate decision. However, service price inflation may still remain high in the short term. Bailey's speech is seen as leaving room for further rate hikes for the remaining part of the year. However, if the UK's economic growth remains weak, the Bank of England may pause its rate hike pace.
From a technical perspective, the GBP/USD has experienced a substantial sell-off from its high of 1.3143 since mid-July to the recent low before the weekend at 1.2231 (a drop of 912 pips), leaving a significant impression on the market. With the market now betting on a very small chance of the Bank of England raising rates again by the end of the year, the British Pound seems to have lost support once again. It dropped to a six-month low of 1.2231 last week. Going forward, if the GBP/USD effectively breaks below 1.2231-30, the next potential support levels to watch would be 1.2120 (the 76.4% Fibonacci retracement level of the move from 1.1804 to 1.3143) and 1.2115 (the lower boundary of the downward channel). Further down, the focus could shift to 1.20 (a psychological level). However, technical indicators like RSI and MACD suggest that the GBP/USD may see a mild recovery in the short term, possibly as soon as next week. Nevertheless, the long-term trend for the GBP/USD remains intact, with no signs of any significant slowdown. Short-term resistance continues to be at 1.2315 (the 61.8% Fibonacci retracement level). If the exchange rate stays above this level, the downward trend may temporarily ease, and further upside testing of 1.2435 (the 200-day moving average) and 1.2449 (the 5-week moving average) could be expected.
Today, it is advised to go long on the British Pound before 1.2215, with a stop loss at 1.2190, and targets at 1.2285 and 1.2295.
Last week, the Bank of Japan announced its interest rate decision, keeping its ultra-loose monetary policy unchanged. The central bank maintained the benchmark interest rate at a historical low of -0.1% and kept the target for the 10-year government bond yield near 0%, as well as unchanged forward guidance, as expected. Additionally, Japan's overall CPI for August grew by 3.2% year-on-year, and core CPI increased by 3.1% year-on-year. Overall, due to the high uncertainty surrounding the economic and inflation outlook, the Bank of Japan will continue to patiently implement its ultra-loose monetary policy and believes that the risks of overestimating inflation are greater than underestimating it. Of course, the Bank of Japan cannot address the weakening yen by raising interest rates or other monetary policy measures. The speeches of Bank of Japan Governor Kuroda did not bring new support to the yen, and the USD/JPY continued its upward momentum from the previous week. Despite Japanese Finance Minister Suzuki mentioning the urgency of curbing the yen's decline, the Bank of Japan cannot address the weakening yen by raising interest rates or other monetary policy measures.
From a recent technical perspective, although the upward trend of the USD/JPY has slowed in recent weeks, it is far from over. The USD/JPY has been gradually rising within an "ascending wedge" since July, pushing it to a high not seen since October last year at 148.46. The overall trend is biased towards the upside, with a short-term bullish target towards 150.00 (a psychological level) and last year's high of 151.94. If it further breaks through this level, it will lay the foundation for future gains towards the 1990 high of 160.35. Some market views suggest that the 150 level is a trigger point for Japan to take intervention measures, and the probability of the Bank of Japan normalizing its monetary policy in the long term is increasing. Therefore, the upside potential for the USD/JPY is limited, and from a technical standpoint, the USD/JPY has struggled to break through the 149-150 area resistance, making the possibility of a pullback after the rally more likely. Initial support levels are seen at 147.50 (the lower boundary of the ascending wedge) and 147.32 (the 5-week moving average). If it falls below, the next support levels are seen at 146.40 (the midline of the weekly ascending channel) and 145.15 (the 10-week moving average).
Today, it is recommended to go short on the USD/JPY before 148.65, with a stop loss at 148.98 and targets at 147.70 and 147.50.
Last week, after the Federal Reserve's September interest rate decision, the US Dollar Index reached a new monthly high of 105.78. The unexpectedly hawkish stance of the Federal Reserve, which explicitly stated expectations of further rate hikes in 2023 and only two rate cuts in 2024, led to a strong rally in the US dollar. This was reflected in the decline of the euro, which touched a six-month low of 1.0614. The market is betting that the ECB's policy rates have peaked, intensifying concerns about the deteriorating economic outlook in the eurozone. Given the divergence in economic and central bank rate outlook between the Eurozone and the United States, the overall fundamental pressure on EUR/USD has not changed. In the short term, the market is still digesting the impact of the Federal Reserve's rate meeting, and EUR/USD is consolidating near recent lows. However, from a medium to long-term perspective, the euro still faces downward pressure. Although there is a medium to long-term downtrend, the euro's relative strength is not significant because the US dollar is rising against other currencies. As a key technical factor, there is still a series of support levels around the psychological level of 1.0600.
On the weekly chart, EUR/USD has experienced a ten-week decline, dropping from the high of 1.1275 in mid-July to the low of 1.0614 last Friday, a decline of 661 pips. In the short term, the market is still digesting the impact of the Federal Reserve's rate meeting, and EUR/USD is consolidating near the recent low of 1.06. EUR/USD is testing strong support, including the low of 1.0614 from last Friday, the 38.2% Fibonacci retracement level of the rise from the low of 0.9535 to the high of 1.1275 at 1.0610, and the psychological level of 1.0600. Currently, oversold conditions suggest that EUR/USD may have the potential to hold onto the above-mentioned support area, at least to attempt to do so as seen last Thursday and Friday. However, unless EUR/USD can successfully regain some ground, including 1.0700 (a downward resistance trendline from the high of 1.1275 in mid-July) and 1.0822 (the 9-week moving average), it is difficult for the overall bearish technical bias to change. Once below the support levels of 1.0600-1.0604-1.0610, the next important support to watch is the 65-week moving average at 1.0553 and 1.0405 (50% Fibonacci retracement level).
Today, it is suggested to go long on the euro before 1.0620, with a stop loss at 1.0600 and targets at 1.0695 and 1.0710.
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