US Dollar Index

The US dollar fell to 100.51, the lowest since July last year, against major currencies at the beginning of the week, and then rebounded in late last week to stabilize near the one-week high of 101.70 as traders eased expectations of a sharp interest rate cut by the Federal Reserve. The dollar ended its five-week decline as the US job market and GDP data showed that the US economy will achieve a soft landing. On the other hand, the US inflation rate in July remained unchanged at 2.5%, measured by the change in the personal consumption expenditure (PCE) price index. The core personal consumption expenditure price index (PCE), which excludes volatile food and energy prices, rose 2.6% over the same period, the same as the increase in June, but lower than the market expectation of 2.7%. The core personal consumption price index rose 0.2% month-on-month, in line with expectations. The market's reaction to the US personal consumption expenditure inflation data failed to trigger a significant reaction from the US dollar. The US dollar index remained unchanged at a high level. This may affect the market's expectations of the speed of the Fed's interest rate cuts. Federal Reserve Chairman Powell previously said that it is time to revise the policy. The way forward is clear, and the timing and pace of rate cuts will depend on the incoming data, the changing outlook, and the balance of risks.

From last week's trend, the US dollar index may be trading in a flashback moment of July 2023. The US dollar index at that time also experienced a difficult few weeks, and even briefly fell below 100.00 to 99.57. The following week was a strong rebound to a high of 107.34 for 11 consecutive weeks of gains. In order to achieve recovery, the US dollar index faces a long road. First, 102.00 {market psychological level}, and 102.14 {38.2% Fibonacci rebound level of 104.79 to 100.51} are the levels for recovery. The next level will look to 102.65 {50.0% Fibonacci rebound level}, and 102.78 {30-day moving average} area. The very high psychological resistance around 104.00 not only holds key technical value, but also bears the weight of the 200-day simple moving average (103.95) as a second limit to price action. On the downside, 101.14 {9-day moving average}, and 101.00 {round mark} try to hold support. If broken, 100.61 (low of December 28 last year) will be the final level to watch out for. Once this level falls back, the US dollar index will head straight for the market psychological level of 100.00.

Today, consider shorting the US dollar index around 101.90, stop loss: 102.00, target: 101.50, 101.40

WTI spot crude oil

After soaring in the middle of last week, crude oil prices are hovering around $75.00 again before the weekend. The market is watching the political unrest in Libya, which could lead to an unexpected shortfall of about 1 million barrels per day in the short term. Meanwhile, Houthi rebels released footage of their attack on a Greek ship still burning in the Red Sea. On the other hand, crude oil prices closed below the $75.00 level last week after Reuters cited several OPEC sources as saying that OPEC will increase supply from October. The news ruled out the possibility of a delay in the planned cancellation of production cuts that were scheduled for October. This means that the supply outlook is growing again, with more supply online than demand. The US dollar index, which tracks the performance of the US dollar against a basket of currencies, is recovering above 101.00. The release of the personal consumption expenditures (PCE) price index for July did not reveal any new elements but confirmed a soft landing. Core personal consumption expenditures is the Fed's favorite measure of inflation performance, and under current conditions, it gives the green light for a rate cut in September.

Last week, WTI oil prices showed a chaotic situation of rising, then correcting and then rebounding. After a strong recovery rebound in late last week, it rose sharply by more than 3% before the weekend close and was repeatedly suppressed by short sellers before the 200-day simple moving average of $78.07, failing to further challenge $79.90 {61.8% Fibonacci rebound level from $84.73 to $72.10} and $80.00 {market psychological barrier}. The 14-day relative strength index (RSI) of the technical indicator remains below the 44 level, but it is not clear whether this is enough to weaken WTI crude oil prices across the board. However, the downward momentum has clearly increased. Therefore, if the subsequent weakness falls below the key support level of $74.88 {last week's low}, it will increase the downside risk. The first downside target will be $73.21 {August 21 low}, and if it breaks, it will fall back to the $72.10 {August 21 low} level. For crude oil, the key level to hold is $75.50 to still be able to retest the upside. From this perspective, the double level of $77.55 is consistent with the downtrend line and the 200-day simple moving average (78.07).

Today, consider going long on crude oil around 74.35, stop loss: 74.20; target: 75.60; 75.80

Spot gold

Last week, the price of gold closed slightly lower by less than 0.40%, but still held the $2,500/ounce mark. This week, investors will release the US ISM data and non-farm payrolls report that will excite the market, which is expected to trigger a major move in the gold market. The price of gold briefly fell below $2,500/ounce last week due to the overall recovery of the US dollar. Gold rose and fell last week, and the price of gold fell slightly to around $2,500 after the release of US inflation data such as the US July personal consumption expenditure (PCE) index. Precious metals weakened slightly as sentiment turned positive after the release of unexpectedly upbeat data from the US, suggesting a hard landing for the economy is unlikely. Monthly data showed a 0.2% rise in prices, in line with expectations and up from 0.1% in June, according to the US Bureau of Economic Analysis. Investors would normally consider lower-than-expected results as supportive for gold, as it suggests that US interest rates will fall, thereby reducing the opportunity cost of holding a non-interest-bearing asset. The technical outlook shows that the bullish trend for gold remains intact in the short term. The release of key US data this week, including non-farm payrolls, could trigger the next major move in gold prices.

From the short-term technical outlook for gold, the bullish trend has changed sharply. While the 14-day relative strength index (RSI), one of the technical indicators on the daily chart, remains around 57, gold prices continue to trade in the upper half of the upward channel since mid-February. Short-term support for gold prices is in the $2,500-2,494/oz area (psychological level - last Friday's low). Subsequent support is at $2,475/oz, which is also where the 20-day simple moving average (SMA) is located. If the gold price closes below $2,474.50/oz {20-day SMA} on a daily basis, it may open the door to a further decline to $2,450.20 (previous historical high on May 20). On the upside, a break above the historical high of $2,531.70 on August 20 will confirm continued gains to $2,544 {the central axis of the upward channel on the daily chart}. Once the gold price channel is above this level and confirms it as support, it may target the $2,578.20/oz {176.4% Fibonacci rebound level from 2,531.70 to 2,470.80} level.

Consider going long on gold today before 2,500.00, stop loss: 2,496.00; target: 2,518.00; 2,522.00

AUD/USD

Last week, AUD/USD briefly regained its upward momentum, once again breaking through the key 0.6800 level, but gave up sharply before the weekend to close at the all-week low. Despite the US dollar's gains, the pair's upward momentum is very strong, boosted by the recent break above the 200-day moving average of 0.6613, which leads to a clearly bullish short-term outlook for AUD/USD. The recovery wave throughout August was mainly supported by the weakness of the US dollar and the improvement in the conditions of risk-related assets. In addition, copper and iron ore prices both rose slightly, but strongly contributed to the significant upward momentum. The recent monetary policy developments have driven the rise for several weeks. In fact, in this month's event, the RBA decided not to change the current OCR of 4.35%, and continued domestic inflationary pressures, and did not show a clear explanation for easing policy in the short term. The hawkish tone of the RBA minutes last week further supplemented the bullish sentiment for the Australian dollar. Nonetheless, given the Fed’s rate cuts in the near future and the RBA’s expected long-term restrictive pattern, AUD/USD is more likely to strengthen in the coming months. However, as the recovery of the Chinese economy is gradual and slow, the gains of the Australian dollar may be limited.

From the weekly chart, AUD/USD seems to be testing the upper line of its ascending channel at 0.6848, which suggests that the bullish bias may be strengthened. However, the 14-week relative strength index (RSI) of the technical indicator remains slightly below 60, which continues to support the ongoing bullish trend. This suggests that the path of least resistance for the AUD/USD pair is to the upside and supports the prospect of extending the recent strong recovery from the year-to-date low of 0.6347 hit earlier this month. Regarding resistance, AUD/USD is testing the immediate barriers of 0.6823 {last week’s high}, and 0.6848 {upper line of the ascending channel}, which, if broken, will bring it closer to the 0.6871 high of December 28 last year. A break above this level could open the way for the pair to target the psychological barrier of 0.6900. On the downside, AUD/USD may find support at 0.6728 near the 134-week moving average. A break below this average could weaken the bullish bias and exert downward pressure, which could lead the pair to test the retracement level of 0.6700 (round number), followed by the central axis of the ascending channel at 0.6675.

Today, consider going long on AUD before 0.6750, stop loss: 0.6735; target: 0.6800; 0.6810.

GBP/USD

In the recent month, buying interest in GBP/USD remained unabated, pushing GBP/USD to a 29-month high of 1.3266 before sellers regained control in the second half of last week. GBP/USD continued its upward momentum from the previous week, recording a 29-month high of 1.3266 as the dollar's downward momentum strengthened at the beginning of this week. Fed Chairman Powell's dovish remarks at the Jackson Hole Symposium on August 23 continued to heat up dovish expectations around possible rate cuts later this year, exacerbating the dollar's decline. The US dollar index still hit a 13-month low last Tuesday. The escalating geopolitical tensions between Israel and Iran also failed to boost safe-haven demand for the dollar. Safe-haven funds flowed into the US dollar, triggering a correction in GBP/USD from its near multi-year highs. The upward revision of the US second quarter GDP and US core personal consumption expenditures (PCE) data also prompted renewed optimism in the US dollar, and GBP/USD lost the 1.3200 mark.

The weekly chart shows that the GBP/USD pair is still expected to rise further, but after the continuous rise this month, a short-term correction may occur. If the correction extends into this week, the high of 1.3045 on July 17 will be challenged initially. Failure to maintain above this level may trigger a new round of decline towards 1.3000 {market psychological level}, and the 5-week simple moving average of 1.2965. The next relevant support level is the top of March 8 at 1.2894, which coincides with the central axis of the weekly chart's ascending channel at 1.2895, which is a key support level. Only a decisive break below the latter will accelerate the decline to the level around 1.2762 {61.8% Fibonacci rebound level from 1.4250 to 1.0356}. However, with the 14-day relative strength index (RSI) of the technical indicator still well above the 62 level, any corrective pullback in GBP/USD may be seen as a good "buy on dip" opportunity. On the upside, GBP/USD is retesting the 1.3200 {round mark}, and a break below will see the 29-month high of 1.3266. Further up, GBP buyers will target the 1.3300 round mark and the 1.3350 psychological mark.

Today, it is recommended to go long GBP before 1.3105, stop loss: 1.3095, target: 1.3160, 1.3170

USD/JPY

Last week, USD/JPY showed a pattern of falling first and then recovering. The rise was due to Japan's second quarter gross domestic product (GDP) growth exceeding expectations, supporting the argument that the Bank of Japan may raise interest rates in the near future. Japan's Minister of Economic Revitalization Yoshitaka Shindo said that the economy is expected to recover gradually as wages and incomes improve. Shindo also added that the government will work closely with the Bank of Japan to implement flexible macroeconomic policies. However, the USD/JPY pair was supported by the strengthening of the US dollar amid rising US Treasury yields. Before the weekend, USD/JPY finally broke above the nearly two-week high near 146.25, and the yen was supported by Tokyo's annual CPI data, which stimulated hawkish expectations from the Bank of Japan. However, the recent strength of the US dollar and improved sentiment have buffered the downside of the currency pair. However, the potential for further gains in the US dollar may be limited by the increasing expectations that the Federal Reserve will cut interest rates by at least 25 basis points in September. Traders prefer a more moderate rate cut of 25 basis points, with a 60% probability, while a 50 basis point rate cut is still under consideration.

From a technical perspective, USD/JPY is still trending down despite a technical rebound due to profit taking last week. The 14-day relative strength index (RSI) shows that sellers are in the driver's seat despite the short-term rebound of the pair last week. If USD/JPY fails to decisively clear the 21-day moving average of 145.96 and 146.47 {23.6% Fibonacci rebound from 161.95 to 141.69} in the short term, it opens the door for a move to the multi-month low of 143.44 {26th low of this month} and 141.69. On the other hand, buyers are gathering momentum at this stage. In order to continue the bullish trend, USD/JPY needs to break through 145.96 {21-day moving average} and 146.47 {23.6% Fibonacci rebound}. Once above the above zone, the next resistance will be 148.18 (30-day moving average), followed by the latest cycle high of 149.39 reached on August 15, and 149.42 (38.2% Fibonacci rebound level). If these levels are broken, buyers may retest the psychological level of 150.00.

Today, it is recommended to short the dollar before 146.50, stop loss: 146.75; target: 145.50, 145.30

EUR/USD

Last week, EUR/USD failed to conquer the 1.1200 mark and entered a downward spiral correction after hovering around this level at the beginning of last week, which led the pair to close the week low of 1.1042. The US dollar has been under pressure in the early part of last week, and the low market sentiment stimulated demand, which was then fueled by optimistic macroeconomic data. In the second half of the week, the US reported second quarter GDP growth at an annualized rate of 3%, higher than the 2.8% previously expected. In addition, the PCE price index for July, at 2.5%, was slightly lower than the expected 2.6%. In line with expectations. Not only did these data meet expectations, but they also had no impact on speculation about how much the Fed will cut interest rates at its September meeting. The data did not reveal whether US policymakers will choose to cut interest rates by 25 basis points or 50 basis points, which is the only unresolved uncertainty in speculative interest. The recovery of the US economy may not be surprising, but it is indeed welcome news. In fact, speculative interest has combined rate cuts with optimistic macroeconomic results, which boosted demand for the US dollar currency at the end of last week.

The weekly chart shows that EUR/USD is currently struggling to stay above the 200-week simple moving average (1.1060) after breaking above it for the first time in more than a year last week. The 20-week {1.0844} and 100-week {1.0650} remain bullish well below current levels, limiting the potential for a deeper decline. At this stage, the technical indicator 14-week relative strength index (RSI) has moved down from the 71.60 overbought zone to slightly below 60, with the risk bias to the downside. The daily chart of EUR/USD shows that the downward momentum is increasing. Technical indicators are firmly moving lower, retreating from extremely overbought levels, but still holding above the mid-line. The bullish 20-day simple moving average is located near 1.1042, and a loss of this area will further support the bearish extension to the key psychological level of 1.1000. If it falls below 1.10, the currency pair may fall to 1.0950 {180-week moving average} and then to 1.0900 {round number} area. On the other hand, resistance is at 1.1100 and 1.1145. If the latter is clearly broken, it will face the critical points of 1.1200 {market psychological barrier}, and 1.1201 {last week's high}.

Today, it is recommended to go long on the dollar before 1.1030, stop loss: 1.1015, target: 1.1070, 1.1080.

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