US dollar index

The US Dollar Index, which measures the value of the dollar against six major currencies, has relinquished the gains from the previous two trading sessions, trading around 103.00 during the Asian session on Thursday. The dip in the Dollar Index might be attributed to escalating market expectations that the Federal Reserve will initiate more aggressive rate cuts starting in September. Anticipations of further rate reductions are likely to exert short-term pressure on the dollar. Concerns over a potential U.S. recession have been amplified by weak employment data for July. The data released on Friday showed that the Non-Farm Payrolls (NFP) were weaker than expected. Concurrently, the U.S. unemployment rate in July rose to its highest level since November 2021. Additionally, a decline in U.S. Treasury yields has also contributed to the downward pressure on the dollar, with the yields on 2-year and 10-year Treasury notes at approximately 3.94% and 3.90%, respectively. Conversely, heightened safe-haven demand due to escalating tensions in the Middle East may increase demand for the dollar as a safe-haven currency.

From a technical perspective, the outlook for the Dollar Index is showing signs of improvement. Both the 14-day Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators are currently in the red. The RSI remains below the 50-level but is pointing upward, and the MACD continues to print lower red bars. Nonetheless, the index remains below the 20-day (103.95), 100-day (104.87), and 200-day (104.22) moving averages, confirming a firmly bearish outlook. Given this, the current support levels are at the March 8 low of 102.35 and this week's low of 102.16. Resistance levels are noted at 103.56 (50.0% Fibonacci retracement from 100.61 to 106.51) and 104.00 (psychological market level).

Today, selling the Dollar Index around 103.35 might be considered, with a stop loss at 103.45 and targets at 103.05 and 103.00.

AUD/USD

AUD/USD maintains its bullish momentum, nearing the key 0.6600 level. The pair surged over 1% driven by a slight rise in the US dollar and a modest recovery in commodities. By midweek, AUD/USD successfully resumed its upward trend, rising above several-day highs of 0.6574, further rebounding from the yearly low near 0.6347 reached on Monday. The weekly chart has turned bullish. The significant midweek rebound in AUD contrasts sharply with the renewed declines in copper and iron ore prices, which have maintained their downward trend for several weeks. Nevertheless, AUD posted its second consecutive day of gains, despite further gains in the US dollar and weak data from China, where the July trade balance showed a narrowing deficit from $99.05 billion to $84.65 billion. Furthermore, investors believe the Reserve Bank of Australia maintained a hawkish stance at its meeting on Tuesday, which continues to support AUD. The potential easing policy by the Federal Reserve in the midterm, contrasted with the likely prolonged restrictive stance of the Reserve Bank of Australia, may provide support for AUD/USD in the coming months.

AUD/USD has been bearish over the past few trading days, but the bears seem to be taking a breather. The immediate support and resistance levels appear to be at 0.6464 (76.4% Fibonacci retracement from 0.6362 to 0.6798) and around the 0.6600 psychological level, respectively. The technical indicator, the 14-day Relative Strength Index (RSI), hovered near neutral territory after touching the oversold area in the previous trading day. However, the widespread decline in value indicates a downtrend. Similarly, the Moving Average Convergence Divergence (MACD) indicator shows a series of gradually shrinking red bars, indicating weakening bearish momentum, consistent with the bearish price action on the chart. Downside targets are 0.6464 (76.4% Fibonacci retracement level) and the 0.6400 (round number) area. On the upside, watch for 0.6641 (50-day moving average) and the 0.6600 psychological level.

Today, consider going long on AUD at 0.6576 with a stop loss at 0.6560; target: 0.6630; 0.6640.

GBP/USD

After failing to test the 200-day moving average, GBP/USD reversed higher during the North American session. Buyers stepped in, boosting the pair above major trading levels to around 1.2740, marking an increase of over 0.40%. GBP/USD tested highs mid-week but closed below the 1.2700 level. Last weekend, a series of US data fell short of expectations, reigniting concerns over a sharp US economic downturn. Although investors have rebalanced, the recovery remains limited with GBP still oscillating.

For the remainder of the week, key economic data remain limited, and investors are placing their hopes on a 50 basis point rate cut by the Federal Reserve in September. GBP traders will be eyeing next week's UK labor data and the latest US Producer Price Index (PPI) inflation figures. Given the current rate cut magnitude, rate traders see approximately a two-to-one chance of the Fed cutting rates by 50 basis points on September 18. It is also anticipated that there will be two more cuts throughout the remainder of 2024.

From the daily chart, GBP/USD continues to hold above the 200-day moving average at 1.2654, but bulls find it hard to gain traction. Additionally, the 4-day Relative Strength Index (RSI) remains in negative territory, decreasing the likelihood of a bullish reversal. GBP/USD has dropped nearly 3% from its 12-month high set in mid-July. Short-term targets include the 200-day moving average at 1.2654, 1.2612 (June 27 low), and the psychological level at 1.2600. On the upside, resistance levels to watch are 1.2777 (61.8% Fibonacci retracement from 1.2612 to 1.3045) and 1.2785 (50-day moving average). A break above could see the pair move to 1.2800 (psychological level).

Consider going long at 1.2725, with a stop-loss at 1.2710, targeting 1.2770 and 1.2780.

EUR/USD

Despite the dollar losing momentum late on Wall Street, the EUR/USD fell for the third consecutive day, touching a weekly low near 1.0880. Midweek, the EUR/USD fluctuated narrowly above the 1.0900 mark, as euro traders recovered from recent volatility triggered by last week’s underwhelming key U.S. data. The EUR/USD encountered resistance in its bullish push towards 1.1000, exhausting the bulls. For the remainder of the week, significant economic data releases are limited, with market direction primarily driven by Federal Reserve rate cut bets. Next Tuesday will see the release of the U.S. Producer Price Index (PPI) inflation data, followed by the European Gross Domestic Product (GDP) growth data and U.S. Consumer Price Index (CPI) inflation data on Wednesday. The interest rate market has priced a 2-to-1 likelihood of a 50 basis point rate cut by the Fed on September 18, anticipating two more rate cuts by the Fed throughout the remainder of 2024. According to the CME FedWatch Tool, there is an 83% probability that the Fed's benchmark federal funds rate will reach 425-450 basis points by the end of December.

The daily chart shows that EUR/USD encountered resistance in its attempt to rise to the 1.1000 level and has retreated from there. Price action is likely to fall back into a descending channel. Since the beginning of the year, the EUR/USD has been in a volatile range between 1.0600 and 1.1000. Although it briefly tested the 1.10 psychological level recently, this trend seems poised to continue with short-term momentum turning bearish again. The short-term outlook targets 1.0880 (20-day moving average) and around the 200-day moving average (1.0830), seeking to break below this level and test the major low under 1.0800. On the upside, the next levels to watch are 1.0963 (Monday's high), followed by 1.10 (market psychological threshold), and 1.1009 (this week's high).

Today's recommendation: Short the euro at 1.0905, stop loss at 1.0890, targets: 1.0940, 1.0945.

USD/JPY

Amid broad risk-on sentiment, a further rise in the USD, and higher U.S. yields across the curve, the USD/JPY maintains a constructive bias, reclaiming ground above the 147.00 threshold. The summary of opinions from the Bank of Japan's monetary policy meeting on July 30-31 indicated that several members believed economic activities and prices were aligning with the BOJ's expectations. The members set "at least around 1%" as a neutral rate target over the medium term. After a BOJ official stated that rates would not rise in an unstable market, the USD/JPY surged over 240 points late in the US session midweek. The Yen extended its losses against the USD on Thursday, with intraday gains retracing. Reports tied the Yen's fall to BOJ Deputy Governor Shinichi Uchida's comments, stating, “We won’t raise rates when markets are unstable.” With rising tensions in the Middle East, increased risk aversion might limit the downside for the safe-haven Yen. The USD faces challenges as traders anticipate further rate cuts by the Federal Reserve in September. According to the CME FedWatch tool, the probability of a 50 basis points cut by the Fed in September stands at 72.0%, up from 11.8% a week ago.

Despite a fleeting rebound on Tuesday, remarks from BOJ officials turned USD/JPY downward, closing below 144.20 while marking the largest surge since March 2023. Should the USD/JPY's gains intensify above 148.00, it could test the conversion line at 148.45, and 148.53 (61.8% Fibonacci retracement from 140.25 to 161.95). The next target would be near 148.90 (a trendline extending rightward since March last year). Further gains aim for the psychological level of 150.00. On the downside, if bears press USD/JPY below the August 6 high of 146.37, it would pave the way for a correction. The next support levels are at 146.00, then 145.00. Further targets fall to the August 6 low of 143.61.

Today's recommendation: short USD at 147.50, stop loss at 147.80; targets: 146.50, 146.30.

Spot Gold

Gold prices surged on Thursday, breaking above $2,420, potentially ending a five-day losing streak. Despite the resurgence of the stronger dollar and rising U.S. yields, gold seemed to attract technical buyers after breaking the $2,400 level. In early European trading on Thursday, gold prices attempted a mild rebound below $2,400, pausing the five-day decline, with the resumption of selling pressure on the dollar and U.S. Treasury yields. Even though market sentiment remains cautious, the re-emergence of geopolitical tensions in the Middle East keeps the dollar generally subdued. The pullback in U.S. Treasury yields further weighed on the dollar. Reinvested risk funds lifted demand for U.S. government bonds, lowering yields while boosting gold prices. Going forward, traders will closely monitor developments surrounding potential Iranian strikes against Israel. Meanwhile, U.S. weekly jobless claims data will bring market excitement and provide new insights into the country's labor market, influencing both the value of the dollar and gold price trends.

From the daily chart perspective, gold prices have been testing above the $2,400 psychological resistance level. The daily close below this level suggests the potential for a downside breakout from the seven-week symmetrical triangle pattern. The 14-day Relative Strength Index (RSI) is progressing toward the 50 level from a downward trend, indicating a risk of continued rebound in gold prices. Gold buyers have reclaimed the support-turned-resistance level of the 21-day simple moving average at $2,415, and $2,418.50 (Tuesday's high) may eliminate the recent bearish outlook. Further targets for buyers include $2,433.70 (61.8% Fibonacci retracement from $2,483.70 to $2,353), $2,453 (July 25 low), and the historical high of $2,477.70 (last week's high). Short-term support is located at $2,400 (psychological level), and a break below this level will test $2,381 (Thursday's low).

Consider going long on gold before $2,416.00. Stop loss: $2,412.00. Targets: $2,435.00 and $2,440.00.

WTI Spot Crude Oil

Geopolitical tensions have heightened supply concerns, pushing WTI prices higher. The EIA reported a crude oil inventory drop of 3.728 million barrels, marking the sixth consecutive week of decline. On Thursday, during the Asian trading session, the US WTI crude oil price struggled to build on the strong gains of the previous day, fluctuating narrowly. The commodity is currently trading slightly above $76.40, showing little change for the day. It appears the recovery from this week's lowest point since January has stalled. Investors remain worried about the economic downturn and slowing demand in China, the world's largest oil importer. Additionally, impending weak US macroeconomic data suggest that the slowdown in the world's largest economy is faster than initially expected, which is anticipated to further dampen fuel demand. This hinders traders from making aggressive bullish bets on crude prices and limits the upside, despite geopolitical risks potentially acting as a driving force.

WTI crude oil rose over 3% in the middle of the week, rebounding from the low of $72.10 in February, following data that showed US crude inventories fell more than expected. However, concerns about weak Chinese oil demand persist. Given the recent global turbulence, short-term oil prices are expected to experience continued volatility. Support levels are anticipated at $73.05 (a trendline extending rightward from the low of February 5 at $71.32) and $72.80 (the lower boundary of a descending channel). The next support level is expected to be $72.10 (the week's initial low), potentially sliding further to $71.32 (the low of February 5). Resistance levels are observed at $77.85 (the high of August 2) and the 200-day moving average level of $78.40.

Today, consider going long on crude oil near $76.20, with a stop-loss at $76.00; targets are set at $77.20 and $77.40.

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