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Last week, the Federal Reserve's decision was the most crucial factor in the market. With the release of the dot plot and a hawkish signal from Federal Reserve Chairman Powell, the US dollar continued its recent strong performance, ending the week with a ten-week winning streak. The US Dollar Index, which tracks the dollar against six major currencies, rose by 0.19% last week, closing at 105.58, marking its tenth consecutive weekly gain and the longest upward trend in nearly a decade. On the other hand, the Bank of England unexpectedly kept interest rates unchanged, putting pressure on the British pound. The Bank of Japan did not provide a clear signal of a policy shift, leading to continued depreciation pressure on the yen. Japan issued warnings about intervention in the foreign exchange market several times last week, and investors need to be cautious of intervention risk this week. Additionally, the upcoming week will see a significant amount of economic data releases in the United States, which could impact the US dollar, gold, and stocks. Key data points include US GDP and PCE inflation data.
Powell maintained a hawkish stance last week, stating that interest rates would have to remain in a restrictive range in the foreseeable future, which strengthened the US dollar. However, gold managed to resist the pressure from the strong dollar, ending the week with a slight gain of 0.06% at $1924.80.
In the coming months, global oil reserves are expected to decrease, which could help stabilize domestic fuel costs or lead to an increase in barrel prices. OPEC+ oil-producing countries continue to consider production cuts. Last week, oil prices initially rose to a 10-month high of $92.23 but ended the week down by 0.50% at $89.88.
US stocks closed lower on Friday. All three major indices recorded significant declines last week as investors focused on the Federal Reserve's policy stance, the risk of a US government shutdown, and the developments in the strike by US auto workers. The Dow Jones Industrial Average (Dow) fell by 1.89% to close at 33,963.84 points, the S&P 500 index dropped 0.23% to 4,320.06 points, and the Nasdaq Composite fell 0.09% to 13,211.81 points.
Looking ahead to this week, key data points to watch include Germany's September IFO Business Climate Index, US August seasonally adjusted annualized new home sales, US September Conference Board Consumer Confidence Index, API and EIA crude oil inventory changes as of September 22nd, August durable goods orders in the US, initial jobless claims in the US for the week ending September 23rd, Japan's September CPI, and the Eurozone's September CPI. Events to watch include speeches by ECB President Lagarde, Minneapolis Fed President Kashkari, and the release of minutes from the Bank of Japan's July monetary policy meeting.
Here's an overview of important events for the week (Beijing time):
Monday (September 25th): Germany's September IFO Business Climate Index, speech by ECB President Lagarde, and speech by Bank of Japan Governor Kuroda
Tuesday (September 26th): US August seasonally adjusted annualized new home sales, US September Conference Board Consumer Confidence Index, speech by Minneapolis Fed President Kashkari
Wednesday (September 27th): API and EIA crude oil inventory changes in the US as of September 22nd, August durable goods orders in the US, release of minutes from the Bank of Japan's July monetary policy meeting
Thursday (September 28th): Initial jobless claims in the US for the week ending September 23rd
Friday (September 29th): Japan's September CPI, Eurozone's September CPI
The US Dollar Index
The US Dollar Index marked a ten-week consecutive increase in its weekly performance.
Following the Federal Reserve's September interest rate decision last week, the US Dollar Index reached a new high of 105.78, the highest level since March 9th. This was characterized as a "hawkish pause" meeting, meaning that the Federal Reserve announced a pause in rate hikes but sent hawkish signals. If the Federal Reserve surprises with a more hawkish stance, the US Dollar Index may continue to set new recent highs. Ultimately, the dollar bulls got their way. However, the economic outlook may not be as optimistic as the Federal Reserve predicts, leading to uncertainty in the future of the US dollar. Meanwhile, nominal and real bond yields in the United States have also risen to levels not seen in decades, adding downward pressure on risk assets. This reflects the market's acceptance of the Federal Reserve's high-interest-rate policy, further reducing the probability of a rate cut by the Federal Reserve in the first half of 2024. If Powell explicitly supports maintaining high policy rates and continues to avoid discussing a timeline for rate cuts in the remaining interest rate meetings this year, the period of volatility in US bonds may extend, and the period of US dollar strength may also be prolonged.
The combined effect of the Federal Reserve's interest rate decision statement and Powell's speech last week strengthened the hawkish stance, resulting in the US Dollar Index closing with a ten-week consecutive gain and reaching its highest level in six months at 105.78. The daily chart shows that after breaking above the critical support level (104.50-104.70) last week, the new support area has moved to 105.00. This support area consists of the lower boundary of the upward channel (105.00) and the PowerStats mid-level (104.67). The future trend may continue to move repeatedly within the upward channel. If expectations are met, the next upward targets for the US dollar could be 105.88 (March high) and 105.95 (PowerStats mid-level). Breaking through these levels could lead to a further target of 106.80 (PowerStats upper channel boundary). However, if the US dollar weakens, attention should be paid to the critical support level at 104.67 (PowerStats mid-level). Holding steady would maintain the bullish outlook. In the event of an "unexpected" development, if the US Dollar Index falls below 104.14 (250-day moving average), it could open up further downside potential, targeting the 103.32 level (PowerStats lower channel boundary).
Conclusion for this week: The US Dollar Index is likely to continue its upward trend within the upward channel. If expectations are met, the next targets for the US Dollar Index are 105.88-95 and the PowerStats upper channel boundary at 106.80.
Expected range for this week: 104.00—105.88.
Strategy for this week: It is recommended to buy the US Dollar Index on dips.
WTI Crude Oil
Short-term Oil Price Consolidation Around $90.
Global oil prices are poised for their fourth consecutive monthly increase, but after three weeks of gains, last week ended with a "doji" candlestick pattern. The international benchmark Brent crude oil price has breached $90 per barrel, reaching a 10-month high. US WTI crude oil prices have also risen by nearly 30% since July. The surge in oil prices is a response to production cuts by the world's largest oil-producing countries, including Saudi Arabia and Russia, who aim to maintain oil price stability. Meanwhile, a strong US economy has also boosted demand for oil. On the other hand, fundamental factors still favor WTI crude oil prices, despite a correction in the trend after reaching a more than 10-month high. Currently, even though the supply and demand fundamentals are relatively clear, short-term corrections should be noted. Firstly, WTI crude oil prices saw a noticeable retreat this week after reaching new highs, and the trend may enter a corrective overbought phase, given that the rally that began in June has resulted in an increase of up to 36% to this week's high. Another significant market change to watch is a pronounced deterioration in risk appetite, which may persist for some time, potentially dragging down oil prices.
From a technical standpoint, WTI crude oil prices rebounded above the $90 level for five consecutive trading days last week, indicating the possibility of further upside. However, during these five trading days, there were three days when prices briefly rose but closed below $90.0. The weekly chart ended with a "doji" candlestick pattern, indicating short-term consolidation around $90.0, with a focus on downside risks. WTI crude oil has closed below the $90 level for two consecutive days, suggesting significant selling pressure from above. Short-term further retracement is not ruled out. The key support level to watch is the lower boundary of the upward channel at $89.00. If it falls below $89.0, the next level to watch is around $86.77, formed by the PowerStats mid-level. If this support area is breached, further downside could target the vicinity of $84.51 (August high). If oil prices reclaim and maintain levels above $90.0 this week, there is still potential for further upside, challenging levels at $92.20 (mid-level of the upward channel) and $93.20 (upper boundary of the PowerStats channel), with a possible attempt at $94.60 (upper boundary of the upward channel).
Conclusion for this week: US WTI crude oil prices have risen by nearly 30% since July. Short-term corrections should be noted as the trend may enter a corrective overbought phase.
Expected range for this week: $86.77—$93.20.
Strategy for this week: Consider selling oil on rallies this week.
Bearish Sentiment Likely to Prevail in the Market.
Following the Federal Reserve's September interest rate decision last week, Federal Reserve Chairman Powell maintained a hawkish stance this week, stating that interest rates will have to remain in a restrictive range in the foreseeable future. However, due to the uncertainty supporting gold, the gold market remains neutral. Currently, despite the strong performance of the US dollar and the relatively positive stance of the Federal Reserve towards rising US inflation, the US government is facing the risk of a shutdown amidst the backdrop of strong economic data. This has created some market panic and has, in turn, limited the appreciation of the US dollar while boosting the safe-haven appeal of gold. Presently, even though gold is trading in a narrow range, it has held up against major resistance levels, especially as the 10-year US Treasury bond yield reached a 16-year high of 4.5%. Meanwhile, the US dollar closed at its highest level since November 2022. Economic uncertainty continues to support gold as a safe-haven asset.
Although gold has held its ground, it is challenging for gold to make significant rebounds in the current environment. Over the past four reporting weeks, net long positions have plummeted by nearly 75%. In this context, gold is undoubtedly finding it difficult to break free from its defensive posture in the near term. Nevertheless, market sentiment is currently very bearish, and it won't take much effort to trigger a price rebound.
The daily chart shows that the gold price is currently testing the $1925 level, 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 target the key resistance zone composed of $1935 (midline of the upward channel) and $1936 (downward resistance trendline stretching from the July high of $1987.50). The next levels to watch for gold are $1948.00 (upper boundary of the upward channel) and $1953.00 (early September high). On the other hand, doubts about a gold price rebound persist due to the continued strength of the US dollar. Additionally, the bearish "pregnant with a six-pack" candlestick pattern seen in last week's closing price suggests that gold may retest the low of $1914 from last week. If this level is breached, it could open the door for gold to fall towards $1901.10 (September low) and $1900.00. Looking further down, the next key support for gold is at $1884.90 (previous low).
Conclusion for this week: Unless gold makes a rebound breakthrough above the $1935-$1936 key resistance zone and maintains above it, the bearish sentiment is likely to prevail.
Expected range for this week: $1900—$1948.
Strategy for this week: Consider selling gold on rallies.
Silver has shown resilience in recent times.
Last week, following the Federal Reserve's interest rate decision, silver faced some downward pressure, reversing from its highs and dropping below $23.00. Federal Reserve Chairman Powell essentially hinted at maintaining high-interest rates for a longer period, leading to a recalibration of terminal rate pricing in financial markets and further delaying expectations of rate cuts. Consequently, US bond yields and the US dollar both rose, putting pressure on precious metals. However, silver prices reversed course and moved upwards. Silver appears to have successfully rebounded, maintaining a strong upward trend within the week. Silver tested around $22.80 in the days leading up to last week, rebounding significantly and reaching a weekly high of $23.76. Silver prices could continue to strengthen above $24.00. Currently, traders are likely to maintain long positions.
From the daily chart, silver continued to close with gains for several days at the end of last week. It tested the support of the ascending trendline at $23.14 and the 10-day moving average at $23.11 during the week. Technical indicators, including the KDJ indicator in the sub-chart (which is in overbought territory) and the MACD indicator (with a bullish crossover), suggest upward pressure. Key resistance levels to watch above include $23.64 (50-day moving average) and $23.66 (the 50% Fibonacci retracement level of the move from $25.00 to $22.11). If silver can break above these levels, it may move towards $24.37 (the 76.4% Fibonacci retracement level). Silver had previously declined and approached the key support level of $23.00 per ounce. It briefly dropped below $23.00 but quickly recovered all lost ground. It's worth noting that if silver falls below $23.00 again, it could put the expected uptrend on hold, turning the outlook bearish, with initial support around $22.81 (last week's low). Additionally, silver has received support around $22.50 on three occasions since late June, indicating the importance of this level for the bulls. It's not ruled out that the medium-term correction has ended and the trend could turn upwards.
Conclusion for this week: Silver has shown resilience in recent times. After a selloff following the Fed's decision, silver quickly found support from some buyers and may revisit the upper boundary of the upward channel dating back to August 2022.
Expected range for this week: $22.50—$24.55.
Strategy for this week: Consider buying silver on dips.
Last week, the Australian dollar rebounded to a monthly high of 0.6511.
Last week, Australia did not release any significant economic data. Therefore, the AUD/USD exchange rate was mainly influenced by the decisions of the Federal Reserve. After the latest Federal Reserve interest rate decision last week, the AUD/USD pair briefly fell below 0.64, reaching a low of 0.6385, just a step away from the September low of 0.6357. By the weekend, it moved back above the 10-day moving average of 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, forming an uptrend. It also retested the upper part of the channel and the volatility high of September 1st at 0.6521. It briefly touched a peak of 0.6511 during the week. Currently, the AUD/USD currency pair is still trading in a narrow range last week as markets react to important economic data from the United States, China, and Australia. Despite the US dollar index surging to its highest level in months, the AUD/USD currency pair attempted to rebound last week, reaching a high of 0.6511, the highest level since September 1st.
The AUD/USD pair tested around 0.6357 multiple times at the beginning of the month without breaking below it. Furthermore, technical indicators like RSI and stochastic oscillators are rising, indicating that the AUD/USD may be showing signs of a bottoming and rebounding tendency. Over the past month and a half, the AUD/USD has been oscillating within the range of 0.6357 to 0.6520. The AUD/USD needs to hold above 0.6420 to continue its recovery since the beginning of the month. If it successfully breaks above this upper limit, it could strengthen the bullish momentum and open the door to levels like 0.6600 (a psychological level) and 0.6616 (the high of 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). Conversely, if market sentiment turns in favor of the bears, leading to selling pressure, the initial support would be the previous low of 0.6357. Further support could be seen at 0.6272 (the low of November 3rd last year), with a key level at 0.6170 (the low of October 2022).
Conclusion for this week: The neckline resistance for this double bottom in the AUD/USD is at 0.6521 - 0.6522. If it successfully breaks above this level, it could strengthen the bullish momentum and open the door to levels around 0.6600-60.
Expected range for this week: 0.6357-0.6600.
Strategy for this week: Consider buying the Australian dollar on dips.
The overall trend for the USD/JPY pair remains biased towards the upside.
Last week, the Bank of Japan (BOJ) announced its decision to maintain its ultra-loose monetary policy, keeping the benchmark interest rate unchanged at the historic low of -0.1%. The BOJ also maintained its target for the 10-year government bond yield around 0% and kept forward guidance unchanged, which was in line with expectations. Additionally, Japan's overall CPI in August increased by 3.2% year-on-year, while core CPI rose by 3.1% year-on-year. Overall, due to the high uncertainty regarding economic and inflation outlook, the BOJ expressed its commitment to patiently implement ultra-loose monetary policy and noted that the risks of overestimating inflation outweigh the risks of underestimating it. However, the BOJ is unlikely to counter the weakening yen by raising interest rates or implementing other monetary policy measures. The comments from BOJ Governor Haruhiko Kuroda did not provide new support for the yen, and the USD/JPY continued its upward momentum from the previous week. Despite Japan's Finance Minister Shunichi Suzuki mentioning the urgency of curbing the yen's decline, the BOJ is unlikely to counter the weakening yen through rate hikes or other monetary policy measures.
Looking at the recent technical trends, while the upward momentum of the USD/JPY pair has slowed down in recent weeks, it is far from over. The USD/JPY pair has been steadily rising within an "ascending wedge" since July, pushing it to its highest level since October last year at 148.46. The overall trend remains biased towards the upside, with a short-term bullish target towards 150.00 (a psychological level) and the high from last October at 151.94. If it further breaks through this level, it could lay the foundation for a move towards the 1990 high at 160.35. Some market views suggest that the 150 level is a trigger point for Japan to take intervention measures. Additionally, the probability of the BOJ normalizing its monetary policy in the long term is increasing. Therefore, the upside potential for the USD/JPY pair in the near future is limited. From a technical perspective, the USD/JPY pair has struggled to break through the 149-150 resistance zone, so there is a higher possibility of a pullback from these levels. Initial support levels are seen at 147.50 (lower support line of the ascending wedge) and 147.32 (5-week moving average). If it breaks below these levels, the next support levels are at 146.40 (midline support of the weekly ascending channel) and 145.15 (10-week moving average).
Conclusion for this week: Some market views suggest that the 150 level is a trigger point for Japan to take intervention measures, so the upside potential for the USD/JPY pair in the near future is limited, possibly opening a bearish trend in the medium to long term.
Expected range for this week: 146.40-150.00.
Strategy for this week: Consider buying the US dollar on dips.
This week, be cautious of the risk of oversold rebounds.
Last week, the Bank of England (BOE) announced its September interest rate decision, unexpectedly keeping the policy rate unchanged at 5.25%, ending the streak of 14 consecutive rate hikes. This dovish move by the BOE seems to signal the end of the interest rate hike cycle for the pound, and the attractiveness of the pound with high interest rates will likely diminish entirely. Going forward, poor economic data from the UK could continue to weigh on the pound. Following the BOE's decision to keep rates unchanged at 5.25%, the GBP/USD continued its downward trend, falling to a 6-month low. The pair has been forming a series of lower highs and lower lows since July, indicating a short-term bearish bias. The policy statement emphasized the significant rise in international oil prices since the last rate decision, which suggests the potential for sustained inflationary pressures in developed economies. Last week, the inflation rate dropped to 6.7%, and the core inflation rate also fell to 5.2%, both lower than expectations at the time of the August rate decision. However, inflation in service sector prices may remain elevated in the short term. Comments from Governor Bailey are seen as leaving room for further rate hikes later in the year. However, if the UK's economic growth remains weak, the BOE may halt its rate hike pace.
From a technical perspective, the GBP/USD pair saw a significant sell-off from the highs around 1.3143 in mid-July to the low of 1.2231 before the weekend (-912 pips), leaving a strong impression on the market. With the market now betting that there is little chance the BOE will raise rates again by the end of the year, the pound seems to have lost support once again. It fell to a 6-month low of 1.2231 last week. Next, if the GBP/USD effectively breaks below 1.2231-30, the next potential support levels to watch would be 1.2120 (76.4% Fibonacci retracement level of the move from 1.1804 to 1.3143) and 1.2115 (lower support line of the descending channel). Further downside could target 1.20 (a psychological level). However, technical indicators, including RSI and MACD, suggest that the GBP/USD may see a moderate recovery in the short term (possibly as soon as next week). Nevertheless, the long-term trend for GBP/USD remains intact, with no signs of any significant slowdown. Short-term resistance continues to be around 1.2315 (61.8% Fibonacci retracement level). If the exchange rate stays above this level, the downward trend may temporarily ease, and it could test higher levels around 1.2435 (200-day moving average) and 1.2449 (5-week moving average).
Conclusion for this week: Initial resistance is currently seen around the May low of 1.2309, and further upside targets can be seen around the 200-day moving average at 1.2432. If the exchange rate stays below this level, the downward trend is likely to continue.
Expected range for this week: 1.2115-1.2435.
Strategy for this week: Consider buying the pound on dips.
Last week, after the Federal Reserve's September interest rate decision, the US dollar index reached another recent high at 105.78. The unexpected hawkishness of the Federal Reserve, which clearly indicated expectations of further rate hikes in 2023 and only two rate cuts in 2024, resulted in a strong rally of the US dollar. This was reflected in the decline of the euro, which reached a six-month low at 1.0614. Market expectations that the European Central Bank (ECB) has reached the peak of its interest rate policy added to concerns about further deterioration in the economic outlook for the Eurozone. Given the economic prospects and interest rate outlook differences 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, in the medium to long term, the euro still faces downward pressure. Despite this medium to long-term downward pressure, the euro's relative strength against other currencies is not particularly pronounced, as the US dollar continues to strengthen. A key technical factor is the strong support zone around the 1.0600 level, which includes a series of support levels such as the recent low at 1.0614, the 38.2% Fibonacci retracement level of the move from 0.9535 to 1.1275 at 1.0610, and the psychological level of 1.0600.
On the weekly chart, EUR/USD recorded a ten-week decline from the recent high of 1.1275 in mid-July to the low of 1.0614 last Friday, totaling 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 1.0600 level. EUR/USD is currently testing a very strong support zone, which includes the recent low at 1.0614, the 38.2% Fibonacci retracement level of the move from 0.9535 to 1.1275 at 1.0610, and the psychological level of 1.0600. The oversold condition implies that EUR/USD may keep the aforementioned support zone intact, at least attempting to do so as seen on Thursday and Friday last week. However, unless EUR/USD can successfully reclaim some ground, including levels like 1.0700 (downward resistance trendline from the high of 1.1275 in mid-July) and 1.0822 (9-week moving average), the overall technical bias towards a range-bound decline is unlikely to change. Once below the 1.0600-1.0604-1.0610 support, the next significant support to watch is the 65-week moving average at 1.0553, and 1.0405 (50% Fibonacci retracement level).
Conclusion for this week: Unless EUR/USD can successfully reclaim some ground (including 1.07; 1.08), the overall technical bias towards a range-bound decline is unlikely to change.
Expected range for this week: 1.0405-1.0822.
Strategy for this week: Consider selling the euro on rallies.
Despite the Federal Reserve's decision to pause rate hikes last week, the hawkish signal from Federal Reserve Chairman Powell, who indicated the possibility of further rate hikes, still exerted downward pressure on the Chinese yuan (CNY) exchange rate. However, the foreign exchange market did not witness a significant wave of speculative shorting of the yuan. Behind this, there may be the strong emphasis by the Director of the Monetary Policy Department of the People's Bank of China (PBOC) on "firmly correcting unilateral and pro-cyclical behaviors and resolutely preventing the risk of exchange rate over-depreciation" on September 20. This has deterred forex market participants from shorting the yuan for arbitrage purposes. This move has been effective in curbing the depreciation of the yuan exchange rate, especially as expectations of further rate hikes by the Federal Reserve have widened the interest rate differential between China and the United States to 174 basis points. Quantitative investment funds overseas also seem to be less inclined to technically short the yuan, considering the risk of new exchange rate stabilization measures from Chinese authorities that could cause their yuan shorting strategies to fail.
From a technical perspective, due to the strengthening US dollar, the yuan weakened below the 7.3 level in the latter part of last week. In the two weeks prior, the yuan rebounded after touching 7.35 against the US dollar. Last week, positive economic data from China, along with signals of strong stabilization from the People's Bank of China (PBOC), pushed the yuan to its strongest level around 7.26 against the US dollar. The USD/CNH closed just below 7.30 last week. Currently, its exchange rate is hovering just above the 7.2938 level (10-day moving average) and the 7.2860 level (upward support trendline originating from the April low of 6.8304). If these levels are breached, the downside could test the 7.2650 level (lower boundary of the horizontal channel) and the 7.2150 level (89-day moving average). On the other hand, if the exchange rate rises above 7.30 in the future, attention could turn to the 7.3225 level (midline of the horizontal channel), with the next level at 7.3494 (high from August 17th).
Conclusion for this week: Focus on the key resistance at 7.30 this week. Once broken, the downside may test the 7.2650 level (lower boundary of the horizontal channel) and the 7.2150 level (89-day moving average).
Expected range for this week: 7.2150-7.3225.
Strategy for this week: Consider selling the US dollar on rallies.
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