DXY

After comments from former New York Fed President William Dudley on Bloomberg TV regarding the current Fed outlook, the U.S. dollar strengthened ahead of the U.S. trading day. Dudley stated that, based on current economic data, a 25-basis-point rate cut would be the healthiest path forward, reducing the likelihood of a larger rate cut by the Fed in November. The U.S. Dollar Index (DXY) rose for the third consecutive day, supported by rising U.S. Treasury yields and escalating geopolitical tensions in the Middle East, climbing to a three-week high near 101.94. The broad market risk sentiment has been dampened by geopolitical concerns, particularly with the ongoing conflict in the Middle East, while solid U.S. employment data further subdued expectations of a significant rate cut from the Fed.

From a technical perspective, while the U.S. Dollar Index has recently bounced back, the overall trend remains relatively modest. The index is still hovering below the key psychological level of 102.00. Since the dollar peaked near 106.50 at the beginning of 2024, dollar traders have faced challenging conditions. The DXY has recovered from last week's low of 100.16 to 101.80, a gain of over 1.7%, but the dollar remains down 4.5% from its 2024 peak of 106.50. In the short term, resistance is expected around 102.17 (the August 5 low) and 102.46 (the 65-day moving average). On the downside, support can be found at 101.23 (last week’s high) and the 101.00 psychological level.

Today’s recommendation is to go short on the Dollar Index around 102.05, with a stop loss at 102.15 and targets at 101.60 and 101.50.

AUD/USD

On Thursday, amid a sharp rise in the U.S. dollar, AUD/USD resumed its weekly pullback, falling below the 0.6850 support level to reach a multi-day low. Midweek, AUD/USD found buying interest once again and broke back above the key 0.6900 level, despite the dollar rallying, this time driven by escalating tensions in the Middle East. Indeed, demand for safe-haven assets remained stable on Wednesday, weighing on risk appetite for assets like the Australian dollar. However, the AUD resisted the ongoing dollar strength, supported by rising copper prices and further consolidation of iron ore prices in an upward range, all in response to China’s recently announced stimulus plans aimed at boosting its economy. In monetary policy, the Reserve Bank of Australia (RBA) kept rates unchanged at 4.35% during its September 24 meeting, as expected. While markets have priced in Fed rate cuts, AUD/USD could see further upside in 2024, though uncertainty around China's economy and its stimulus measures persists.

Midweek, AUD/USD failed to sustain its gains above 0.6900, which led to a pullback. Despite the momentum favoring buyers, the 14-day Relative Strength Index (RSI) indicates a potential short-term decline. Thus, before resuming its broader uptrend, AUD/USD appears inclined to retest lower levels. AUD/USD could test support at the 14-day moving average at 0.6843, with the next target at 0.6800 (a psychological level) if weakness continues. However, if AUD/USD can close above 0.6900, the pair could aim higher, potentially retesting the 2024 high of 0.6942 (September 30) and then challenging the key 0.7000 level.

Today’s recommendation is to go long on AUD around 0.6825, with a stop loss at 0.6810 and targets at 0.6885 and 0.6890.

EUR/USD

On Thursday, EUR/USD extended its bearish trend, marking its fifth consecutive day of decline amid dominant risk-off sentiment and the continued strength of the U.S. dollar. Midweek, EUR/USD further extended its downward correction, dropping to a low of 1.1008 as the market struggled with the uncertain outlook in the Middle East and diminishing prospects of another aggressive rate cut by the Fed in November. With the U.S. Non-Farm Payrolls report due on Friday, investors are bracing for the key U.S. employment data. Fed Chair Jerome Powell cautioned against interpreting the 50-basis-point rate cut in September as a signal for further aggressive rate adjustments. In addition to the focus on Fed rate cuts, uncertainty around U.S. domestic manufacturing, affected by port worker strikes impacting goods logistics along the East Coast and Gulf Coast, also weighs on market sentiment. The geopolitical landscape in the Middle East has worsened after Iran launched missile strikes on Israel in response to Israeli actions in Lebanon, adding further volatility.

GBP/USD

GBP/USD dropped more than 1%, trading around 1.3100, pressured by dovish comments from Bank of England (BoE) Governor Andrew Bailey, who said that if inflation eases, the central bank might become "more aggressive" with rate cuts. Meanwhile, the U.S. dollar benefited from strong PMI data. During the Asian session on Thursday, GBP/USD extended its decline to near 1.3200. In the context of escalating geopolitical tensions in the Middle East, fresh demand for the U.S. dollar lent some support to GBP/USD. On Tuesday, Iran launched over 180 missiles at Israel, marking Iran’s largest-ever direct attack on Israel. Israel and the U.S. vowed to retaliate. Signs of intensifying conflict in the Middle East and concerns about a broader war have increased safe-haven flows, supporting the U.S. dollar against the pound. The U.S. ADP employment change for September came in better than expected, with 143,000 new jobs added. The market now turns its focus to Friday’s U.S. employment data for new catalysts. The BoE’s easing cycle is expected to be weaker than that of other G-7 central banks, which may limit GBP downside potential.

The daily chart shows that the 14-day Relative Strength Index (RSI) fell sharply from a high of 63 earlier in the week to 44.10, indicating that the recent recovery attempt may just be a technical correction rather than the start of a reversal. On the downside, immediate support lies at 1.3070 (the 50-day moving average), followed by the psychological level at 1.3000. A daily close below this moving average could attract technical sellers. If GBP/USD holds above 1.3167 (the 61.8% Fibonacci retracement level), the next resistance is at 1.3218 (the 50.0% Fibonacci retracement from 1.3002 to 1.3434).

Today’s recommendation is to go long on GBP around 1.3110, with a stop loss at 1.3100 and targets at 1.3180 and 1.3200.

USD/JPY

On Thursday, USD/JPY edged higher, breaking above 147.00 for the first time since September. The escalation of the Middle East conflict drove safe-haven flows into the U.S. dollar, with traders hearing the drumbeats of war, keeping the financial market narrative unchanged. Following blunt comments on monetary policy by Japan's new Prime Minister Shinjiro Ishiba on Wednesday in a meeting with Bank of Japan Governor Kazuo Ueda, the yen continued to weaken on Thursday, dropping to a more than one-month low of 147.25. This week, Prime Minister Ishiba stated that he does not believe the current environment necessitates further rate hikes. In the previous session, the yen dropped nearly 2% against the dollar, marking its biggest one-day decline since February of last year. On Thursday, Chief Cabinet Secretary Yoshimasa Hayashi clarified that Prime Minister Ishiba did not ask the BoJ Governor about any specific details regarding monetary policy during their meeting. On Wednesday, Economy Revitalization Minister Akira Amari stated that Prime Minister Ishiba wanted the BoJ to conduct a thorough economic assessment before considering any further rate hikes.

USD/JPY traded just below 147.00 on Thursday. The daily chart analysis shows the pair is testing a breakout from the ascending channel, signaling a strengthening bullish bias. The 14-day Relative Strength Index (RSI) also rose above 59.60, a three-month high, confirming the continuation of the bullish trend. USD/JPY touched a five-week high of 147.24 yesterday, with resistance near the 60-day moving average at 147.25. A breakout above this level could support a test of the seven-week high of 149.40 (August 14 high). On the downside, USD/JPY could find support near the 50-day exponential moving average at 145.38, followed by Wednesday's low of 143.43. A break below this level could push the pair toward 139.58, marking the lowest point since June 2023.

Today's recommendation is to go short on USD around 147.00, with a stop loss at 147.20 and targets at 146.20 and 146.00.

XAU/USD

On Thursday, gold prices rebounded in the North American session after hitting a daily low of $2,641. The growing concerns over the Israel-Iran conflict and the strengthening U.S. dollar have supported gold prices. Additionally, as bets on aggressive easing by the Federal Reserve faded, U.S. Treasury yields were boosted. The dollar strengthened in the Asian session on Thursday, keeping gold prices defensive. The better-than-expected ADP employment change report from the U.S. showed a stable labor market, forcing investors to further scale back expectations for a large rate cut by the Fed in November. This pushed the U.S. Dollar Index to a three-week high, pressuring demand for the zero-yield asset, gold. However, the downside for gold seems limited as the Middle East conflict escalates, potentially continuing to support demand for safe-haven assets. Traders may also prefer to take a wait-and-see approach, holding off on aggressive bets ahead of Friday's U.S. Non-Farm Payrolls report.

From a technical perspective, after gold's strong rally to a record high of $2,685.50, this week’s consolidation near the highs could be seen as a bullish pause. Furthermore, technical indicators on the daily chart, including the 14-day Relative Strength Index (RSI), have retreated from overbought territory but remain in positive territory (66.10), favoring the bulls and suggesting that the path of least resistance remains to the upside. Initial resistance could be seen in the $2,672–$2,673 range, followed by last week’s historical high of $2,685–$2,686. A break above the key $2,700 level would be considered a new bullish trigger, setting the stage for the continuation of the multi-month uptrend. On the downside, the weekly low around $2,625–$2,624 aligns with the short-term ascending channel breakout point and will serve as a key pivot support level. A clear break below this level could trigger aggressive selling, dragging gold prices below the psychological $2,600 mark and toward the next relevant support around $2,579.20 (25-day moving average).

Today's recommendation is to go long on gold around $2,653.00, with a stop loss at $2,650.00 and targets at $2,670.00 and $2,673.00.

XTI/USD

On Thursday, crude oil prices surged over 3%, reaching a high of $73.77, as traders focused on the escalating conflict between Israel and Iran. Following Iran’s missile strikes against Israel in retaliation for the ground invasion of Lebanon, traders pushed oil prices higher. The U.S. Dollar Index also rose for the fourth consecutive day. As traders assessed the risks to Middle East oil supplies following the Iranian missile strikes earlier in the week, WTI crude oil extended its upward momentum. Israel vowed to retaliate against Iran, raising concerns among oil traders that the latest escalation in the region could disrupt market liquidity, especially if energy infrastructure or supply routes were targeted. If Israel were to launch significant attacks on Iran’s oil export capabilities, it could reduce global crude supply by 1.5 million barrels per day. This latest escalation is severe and provides justification for the sharp rise in oil prices. However, the large increase in U.S. crude oil inventories last week could limit further gains in WTI prices.

The current price action provides a textbook example of the "buy the rumor, sell the fact" wisdom when trading financial assets. Over the past few days, tensions surrounding Israel’s invasion of Lebanon have intensified. Now that the actual event seems less severe than initially feared, the risk premium that was priced in last week has been fully realized. At current levels, $72.21 remains a key focus after Wednesday’s brief false breakout. If supportive catalysts persist, prices could rise further toward $75.27 (the January 12 high) and $75.46 (the 76.4% Fibonacci retracement from $78.78 to $64.75). The 60-day simple moving average at $73.48 may provide some resistance during the rally. Once WTI surpasses the $75.27-$75.46 zone, the next resistance level would be at $77.08 (the 200-day moving average). On the downside, support is expected at the psychological level of $70.00 and the 25-day moving average at $69.50. A break below that level would target $68.06 (the 23.6% Fibonacci retracement), and further down, $64.75 (the September 10 low).

Today's recommendation is to go long on crude oil around $73.15, with a stop loss at $73.00 and targets at $74.80 and $75.00.

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.