US Dollar Index

After a rather turbulent week, the US dollar has unmistakably reaffirmed its dominant position. The Federal Reserve once again made it clear that US interest rates will remain at elevated levels for a longer period. This, due to interest rate differentials, has propelled the US dollar higher against most other currencies. Following the Monday market opening in the US, the US Dollar Index surged, breaking through the 106 level. In addition to the hawkish signals from the Federal Reserve's decision and the anticipation of rate hikes, comments from two Fed officials during the week also contributed significantly to the dollar's ascent.

Boosted by strong buying interest, the US dollar challenged the 105.88 level (previous high). Last week, Powell unveiled a hawkish pause in rate hikes, reaffirming the US dollar's dominance. The Fed's statement benefited the US dollar as investors sought safety in the safe-haven currency amid concerns. Currently, although the US Dollar Index has been oscillating at record highs and maintaining a strong position for 10 weeks, the overall direction is still not entirely clear. As we enter the new trading week, the US Dollar Index is expected to continue exerting its strong upward momentum and challenge the 106.80 high.

From the weekly chart, it is evident that the US Dollar Index has been on the rise for 10 consecutive weeks, spanning nearly two and a half months, indicating a relatively extended trend cycle. From a technical perspective, the US Dollar Index on the weekly chart is expected to maintain its bullish trend. Currently, it faces resistance around 106.00, and the probability of a breakthrough is relatively high. Moreover, the stochastic indicator on the weekly chart has formed a bullish golden cross and is in a pullback golden cross category, signaling a potential new high. Therefore, in the coming period, the US Dollar Index is likely to remain above 105.50, and once it effectively breaks through the 106.00-106.20 range, the next target would be around 106.50, further extending towards the vicinity of 106.80 (upper channel line of the Bollinger Bands).

Early this week, pay attention to the pressure around the 106.00-106.20 area, with support levels considered at 105.50, 105.00 (psychological level), and 104.67 (mid-channel line of the Bollinger Bands).

Consider going long on the US Dollar Index near 105.75 today, with a stop loss at 105.50 and targets at 106.30 and 106.50.

XTIUSD

On Monday, September 25th, crude oil prices initially rose but then retreated as investors focused on the tightening supply outlook following Russia's temporary fuel export ban. At the same time, there was cautious sentiment regarding the possibility of further interest rate hikes that could potentially dampen demand. After the Federal Reserve's interest rate decision last week, the yield on the 10-year US Treasury bond continued to rise, reaching a level of 4.509%, the highest since November 2007. Despite market expectations, WTI crude oil briefly dipped below $88.10 last week but quickly recovered above the $90 per barrel mark. However, the weekly closing saw a decline, ending three consecutive weeks of gains.

The short-term strength of oil prices is still supported by the global economic outlook, thanks in part to supply-side factors such as Saudi Arabia and Russia extending their additional production cuts through the end of the year. Crude oil prices may potentially surpass $100 per barrel in the near future. From another perspective, the main factor supporting international oil prices at the moment is still the supply side, indicating that the upward momentum of oil prices is not entirely secure. Additionally, investors need to be wary that if the Federal Reserve misjudges the US economy due to lagging effects of monetary tightening and inflation rebounds, it could eventually lead to the possibility of the Fed "over-hiking" interest rates, which could exert downward pressure on oil prices.

From a technical perspective, the WTI crude oil market is currently at a juncture around the $90 level, and while short-term corrections are possible, the overall upward trend remains intact. Investors should pay attention to the critical support level at $87.28, which is the mid-channel line of the Bollinger Bands, with the next level of support near the 25-day moving average at $85.68. If it can stabilize effectively, there is still potential for further upside, targeting $92.23 (last week's high) and $93.00 (upper channel line of the Bollinger Bands). Breaking through these levels could lead to further gains, potentially reaching $94.60 (upper channel line of the rising channel).

Today, it may be considered to short crude oil near $89.70, with a stop loss at $90.00 and targets at $88.50 and $88.30.

Gold Spot

As the US dollar and US bond yields rebounded, spot gold retraced over $10 to trade at $1915 yesterday evening. Last week, gold prices briefly touched $1947.40 but faced resistance around $1950.00 and $1953.00. The weekly candlestick chart formed a long upper shadow doji, indicating a restrained bullish momentum. The US Dollar Index received another boost, marking its tenth consecutive weekly gain, while gold experienced a pullback.

However, if the US economy falters, the Federal Reserve may be pressured to change its hawkish stance, which could potentially drive market demand for gold. Historical experience suggests that there is a very high risk of a global economic recession or even depression in the coming months, and the United States may not be immune to it. In such a scenario, the Fed is likely to enter a period of monetary easing, making gold once again a favored asset in the market. Perhaps gold's short-term outlook may still face pressure from the Federal Reserve, but the medium to long-term prospects are expected to be quite optimistic. In recent days, the US Dollar Index has frequently refreshed recent highs, while gold has not revisited recent lows and has held above the $1900 level. This may suggest that some astute investors have begun to deploy medium to long-term buying strategies for gold, but this will require further observation in the future.

Looking at the daily chart for gold, the current price is testing the resistance trendline at 1936, which started from the high point of $2081.90 in July and the midpoint of the upward channel at 1935. If this barrier is successfully breached, the bullish trend could test $1947.40 (last week's high) and the upper boundary of the upward channel at $1948. A breakout near the $1947-48 region could provide further encouragement to the bulls, potentially targeting the high point of $1953 from earlier this month. On the downside, initial support is seen around $1914 (September 21st low), and if this level is breached, it could open up more downward space. Keep an eye on $1901 (this month's low) and $1900 (a psychological level). If $1901-1900 continues to be violated, the bearish sentiment could target lower support around $1884.90 (August 21st low).

Today, it may be considered to short gold around $1919, with a stop loss at $1923 and targets at $1908 and $1905.

AUDUSD

At the beginning of the week, the AUD/USD exchange rate saw a continuous battle between bulls and bears around the 0.6400 level. Australia's Treasurer, Josh Frydenberg, stated that the government's position on full employment is not inconsistent with a non-accelerating inflation rate of around 4.5%, which is approximately the NAIRU (Non-Accelerating Inflation Rate of Unemployment). Bringing the unemployment rate down to as low as possible is a key goal in the new roadmap for Australia's labor market set by the federal government. NAIRU is used by both the Reserve Bank of Australia and the Treasury to measure the unemployment level that won't lead to an increase in inflation. Frydenberg mentioned, "We've seen it come down in recent years. The Treasury's target is around 4.25%, hoping to push that number as low as possible. And we want the unemployment rate to come down, and inflation to be moderate, which are all objectives of the Reserve Bank of Australia." Against the backdrop of a weakening US dollar, the AUD/USD pair attempted to break above 0.65 last week, reaching a recent high of 0.6511. However, the pullback in US bond yields limited the dollar's gains. Additionally, the private sector in Australia resumed growth in September, providing some support for the Australian dollar.

Last week, the AUD/USD pair initially rose to a high of 0.6511, continuing its attempt to form what appears to be a double bottom pattern at 0.6357-0.6360. However, its rebound was capped around 0.6520 (the upper boundary of a horizontal channel on the daily chart) and it briefly retraced below 0.64. Currently, the exchange rate is oscillating near the 0.64 low, and market momentum is shifting in favor of the bears. In this case, the initial support would be in the double bottom area of 0.6357-0.6360. While the AUD/USD pair may consolidate near this region during a pullback, a break below 0.6357 and 0.6360 could lead to a significant decline, paving the way towards 0.6272 (the low from November 3rd last year). If this scenario unfolds, it would imply the failure of the double bottom pattern.

On the other hand, if the AUD/USD exchange rate moves in the opposite direction, the initial resistance would be around 0.6485 (the resistance trendline starting from the high of 0.6895 in July). A breakout above this level would target the recent high of 0.6511, with the next levels to watch at 0.6600 (a psychological level) and 0.6616 (the high from August 10th).

Today, it may be considered to go long on the Australian dollar near 0.6405, with a stop loss at 0.6385 and targets at 0.6470 and 0.6475.

GBPUSD

The British pound continued to decline due to weak business activity and retail data, and after the Bank of England kept interest rates unchanged last week, traders reduced their bets on future rate hikes. The Purchasing Managers' Index (PMI) survey published before the weekend showed that the weakness in British businesses in September far exceeded the expectations of most economists. The initial reading of the September services PMI fell from 49.5 in August to 47.2, marking the lowest level since the January 2021 COVID-19 lockdowns. Additionally, UK retail data showed that consumer spending partially recovered in August, increasing by 0.4% on a monthly basis, but it fell slightly below economists' forecasts. Friday's data indicated a significant slowdown in the UK economy in September, likely teetering on the edge of a recession. Coupled with the Bank of England's decision to pause interest rate hikes last week, investors began to significantly reduce their long positions in the pound, leading GBP/USD to exhibit a substantial retracement and a softer trend. The downside momentum still appears significant, and the main focus should continue to be guarding against the risk of GBP/USD probing lower.

From a technical standpoint, the US dollar remains bullish against the British pound. After breaking below 1.2474 (the 50% Fibonacci retracement level of the move from 1.1804 to 1.3143), GBP/USD continued its decline to a six-month low of 1.2194 yesterday. Like the euro, the pound has also confirmed a break below the 200-day moving average at 1.2432, opening the door for further downside in the exchange rate. Key support levels are at 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). If the price continues to decline, 1.2010 (the low from March 15th) and 1.2000 (a psychological level) will be the pound's short-term last lines of defense. However, technical indicators such as RSI and MACD suggest a potential mild recovery for GBP/USD in the short term (possibly as early as next week). If GBP/USD experiences a rebound and moves higher, watch for levels around 1.2313 (the 61.8% Fibonacci retracement level) and 1.2382 (the 5-week moving average).

Today, it is advisable to go short on the British pound near 1.2235, with a stop loss at 1.2260 and targets at 1.2160 and 1.2145.

USDJPY

On Monday, September 25th, USD/JPY reached its highest level since November 2022, hitting 148.96, marking the start of a new trading week. Last Friday, the Bank of Japan (BOJ) maintained its ultra-loose monetary policy unchanged, and despite elevated inflation, it continued to hold a dovish stance. The BOJ opted to keep interest rates in negative territory and reiterated its commitment to supporting the economy until it is confident that inflation will remain at the 2% target level. The BOJ's lack of action on monetary policy has been perceived by the market as a dovish move, which naturally keeps the Japanese yen under pressure. However, Japanese Finance Minister Toshimitsu Motegi cautioned that he would not rule out any options and warned that a sharp depreciation of the yen could harm Japan's trade-dependent economy. This has led to heightened vigilance among traders regarding potential BOJ intervention, causing some caution among yen bears. Otherwise, the USD/JPY pair is highly likely to target the 150 level that it approached last Friday. Moving forward, USD/JPY still has the potential to continue its upward trajectory as it tests the Japanese government's tolerance level.

USD/JPY is currently within the range it was in during the intervention in 2022. Skeptics may argue that unless other currencies turn bullish on the yen, the intervention measures may temporarily halt the yen's decline but may not completely reverse the bearish outlook for the yen. From a technical perspective, USD/JPY appears to be struggling to extend its upward trend. Nevertheless, USD/JPY continues to stand firm above critical support levels. Looking at the daily chart, USD/JPY has been trading above the 100-day moving average of 142.55 since April. If the exchange rate falls below 147.72 (the 5-week moving average) and the 147.50 region (support trendline of the ascending wedge), the next target could be around 146.40 (the midline of the weekly ascending channel) and the mid-September low of 146.00. This could serve as a warning that the uptrend of the past two months is reversing and may put bullish prospects in jeopardy. Conversely, if the exchange rate continues to rise, the next resistance levels to watch are 149.30, with short-term bullish targets aiming for 150.00 (a psychological round number) and the high from October last year at 151.94.

Today, it is advisable to go short on USD/JPY at 149.25, with a stop loss at 149.60 and targets at 147.80 and 147.60.

EURUSD

In the US market on Monday, September 25, the US Dollar Index reached a six-month high, rising above the 106 level. Meanwhile, the EUR/USD currency pair tested new lows as traders reacted to the German Ifo Business Climate report. The report indicated that the business sentiment index declined from 85.8 in August to 85.7 in September. New data on global business activities highlighted the relatively stronger performance of the US economy compared to other major economies. The impact of the divergence in interest rate prospects between the Eurozone and the United States, with the market generally expecting the European Central Bank to have reached the peak of its policy interest rates while the Federal Reserve is likely to raise rates by another 25 basis points by the end of the year, may further contribute to the softening of the EUR/USD pair. This downward trend in EUR/USD is expected to continue in the coming months. The EUR/USD has been trending lower since mid-July, recording consecutive declines for ten weeks as of the closing on Friday, September 22. However, there is still uncertainty in the market regarding whether the Federal Reserve will raise interest rates again this year. Currently, the focus in the forex market is increasingly shifting to which central bank will maintain its policy interest rates at their terminal levels for the longest time. Although the technical indicators for the EUR/USD pair on the daily chart are beginning to show signs of bottoming out, the euro is still lacking short-term stimulus for a rebound. Hence, caution is needed to guard against the risk of the euro continuing to explore new lows.

On the weekly chart, the EUR/USD dropped to a six-month low of 1.0575 yesterday. Currently, the levels of 1.0700 (resistance trendline originating from the mid-July high of 1.1275 and 100-week moving average at 1.0718) are serving as dynamic resistance, attracting selling interest in the short term and aligning with continued selling pressure. Additionally, momentum indicators remain firmly to the downside within the negative territory, while the Relative Strength Index (RSI) continues to hover around 40, favoring the downside risks for the EUR/USD pair. On the daily chart, the EUR/USD is trading below all of its long and short-term moving averages, including the 10-day (1.0676), 100-day (1.0873), and 200-day (1.0829) moving averages, maintaining its bearish bias. Momentum indicators have returned to their downtrends below 100, and the RSI continues to trend lower toward 36, making it favorable for the EUR/USD to break below last week's double-bottom support at 1.0617-1.0615. The next downside targets and support levels for the EUR/USD would be at 1.0515, the low point from March. Once this level is breached, the EUR/USD may extend its decline toward 1.0405, which corresponds to the 50% Fibonacci retracement level of the upswing from 0.9535 to 1.1275. On the upside, the 1.0700-1.0718 area represents strong resistance, and a breakthrough in this area would set the EUR/USD's sights on 1.0781, corresponding to the 9-week moving average.

Today, it is recommended to short the EUR/USD at 1.0620, with a stop loss at 1.0650 and targets at 1.0555 and 1.0540.

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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.