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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.
Disclaimer:
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.
Disclaimer: 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.
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.
XAUUSD
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.
XAGUSD
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.
AUDUSD
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.
USDJPY
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.
GBPUSD
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.
EURUSD
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.
USDCNH
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.
Disclaimer:
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.
Daily Recommendation 26 Sep 2023
Published at 09-26-2023
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.
Disclaimer:
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.
Weekly Outlook 2023.09.25-2023.09.29
Published at 09-25-2023
Disclaimer: 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.
Weekly Forecast 9.25-9.29
Published at 09-25-2023
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.
XAUUSD
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.
XAGUSD
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.
AUDUSD
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.
USDJPY
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.
GBPUSD
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.
EURUSD
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.
USDCNH
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.
Disclaimer:
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.