US Dollar Index

On Thursday, September 28th, the latest economic data released in the United States showed mixed performance: the US economy maintained a relatively strong growth rate in the second quarter, remaining unchanged at 2.1%; initial jobless claims for the week ending September 23rd increased by 2,000 people but remained at a low level; US existing home sales in August plummeted by a significant 7.1%, marking the largest decline in nearly a year. Meanwhile, there were new developments regarding the government shutdown and the impeachment of President Biden. The US Dollar Index, which had been strong in recent days, reversed from its high and fell just above the 106 level.

As US bond yields continued to rise, the US dollar remained stable above 106.00, reaching a 10-month high of 106.83. Since the Federal Reserve meeting last week, the market has been overshadowed by the stance of "keeping high interest rates for a longer period," causing risk assets and US dollar-denominated assets to be in a state of turmoil. The potential risk of a US government shutdown and the deteriorating global economic data suggest a possible slowdown in growth, providing additional support for the US dollar. As the attractiveness of the US dollar as a safe haven increases, the high-interest rates associated with holding the US dollar will continue to drive its appreciation. The uncertainty surrounding the Chinese real estate industry also contributes further to the US dollar's safe-haven appeal. Over the past four years, the US dollar has appreciated against currencies from Eastern Europe, Western Europe, and emerging markets. All indications suggest that this trend will continue.

From a daily chart perspective, the US Dollar Index broke above the important previous resistance of 105.88 and further crossed 106.00 (the PowerShift Central Pivot Line) to reach the 10-month high of 106.83. Currently, the RSI (Relative Strength Index) of the US Dollar Index is in overbought territory. However, due to the continued strength of the US dollar, any technical retracements are short-lived. The current macroeconomic backdrop is expected to continue to support the US dollar. In addition, on the daily chart, the 20-day moving average (106.23) crossed above the 300-day moving average (105.98) from below, forming a bullish "golden cross" pattern. From a technical perspective, this is a sign of accumulating upward momentum. It is expected that next week, the US Dollar Index may target 107.20 and 107.99 (last November's high). On the downside, significant support levels to watch include the previous high in March at 105.88 and 106.00 (a psychological market level and the PowerShift Central Pivot Line). If these supports are breached to the downside, more downside risk may be triggered towards the 105.40 level (lower channel line).

Today, it may be considered to short the US Dollar Index near 106.35, with a stop-loss at 106.50 and targets at 105.85 and 105.75.

WTI Crude Oil

On Thursday, September 28th, the market expected major Western economies to maintain high interest rates to combat stubborn inflation, which led to a decline in crude oil prices. The situation in the US Cushing region's crude oil inventories was critical. Midweek, the US Energy Information Administration (EIA) released inventory data for the week ending September 22nd, showing a larger-than-expected drop in EIA crude oil inventories. Commercial crude oil inventories, excluding strategic reserves, decreased by 2.169 million barrels to 416 million barrels, a decrease of 0.52%, against an expectation of -320,000 barrels. WTI crude oil benefited from this and surged by 3.14% to a daily high of $93.23, hitting a new high of over a year since the end of August 2022. Concerns in the market include the start of the fall maintenance season and the decline in gasoline profit margins, which could lead to a slowdown in refinery capacity. A decrease in supply will push oil prices further upward, but with the continued rise in energy prices, consumers will face greater pressure, potentially leading to an economic slowdown. Since the Federal Reserve's interest rate decision in September, both European and American stock markets have experienced significant corrections. It is foreseeable that as inflation rebound risks increase in the second half of the year and interest rates remain high for a longer period, European and American stock markets will face further downward pressure. If high interest rates eventually lead to larger-scale financial risks, it is expected to limit the upward potential of oil prices.

WTI crude oil experienced a back-and-forth battle around the $90 level after the bulls and bears contended, ultimately choosing an upward direction, with the bulls currently in control in the short term. At this stage, it is in a strong uptrend with two pivotal points, and it is not advisable to prematurely call a top. From a medium-term perspective, the break above $92.23 in WTI crude oil indicates that the medium-term trend has turned positive, and it is expected that WTI crude oil will subsequently form its third pivotal point near $96 (the upper channel line) since the low in May. There is a possibility of challenging the $100 level. In the short term, on the downside, consideration can be given to $90.00 (a psychological market level), with attention to $88.78 (the 20-day moving average) if it is breached.

Today, it may be considered to go long on crude oil near $90.40, with a stop-loss at $90.00 and targets at $91.90 and $92.20.

Spot Gold

Due to the continued rise in the US dollar and US Treasury yields, pressure has been mounting on this non-yielding metal. On Thursday, gold prices showed weakness, falling to their lowest level in nearly six months at $1,857.80. Against the backdrop of rising US Treasury yields and increasing investment risks, gold prices hit a new cyclical low midweek. The surge in US Treasury yields and the threat of a US government shutdown exacerbated the already deteriorating sentiment, pushing gold prices lower. Gold extended its decline for the fourth consecutive trading day, as bets on the Federal Reserve's continued maintenance of high interest rates eroded its attractiveness. Investors are now turning their attention to the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge and is set to be released on Friday. Expectations for US interest rates have prompted investors to seek refuge in the US dollar, making gold more expensive for overseas buyers. US bond yields also remain near 16-year highs, further dampening investor interest in gold. As long as rates remain high for an extended period, they will continue to pressure precious metals. Additionally, gold prices breaking below the psychological level of $1,900 triggered technical selling. If inflation data continues to strengthen, it will be another factor continuing to weigh on gold prices.

Gold prices failed to hold above the $1,950-$1,953 range after testing it before and after the Federal Reserve's rate decision, and they have once again breached the support zone around $1,930-$1,931, attracting further short interest and accelerating the decline below $1,900. The behavior at the end of the converging pattern becomes crucial. In the overall situation, the market remains cautious. There are not enough conditions for a short-term reversal, so the risk of a decline towards $1,800 is very high. Yesterday, it broke below the crucial level of $1,870.20 (the 76.4% Fibonacci retracement level of the move from $1,804.80 to $2,081.90). The downside risk has sharply increased. Once the break below $1,970 is confirmed, the bears will target $1,859.20 (the 300-day moving average) and $1,849.30 (the 50% Fibonacci retracement level of the move from $1,616.80 to $2,081.90), with the next level being the psychological level of $1,800. In the short term, there may be a potential for a bottom around $1,859.20-$1,849.30, but the strength of any rebound in this bearish trend is uncertain. If there is a stabilization above these support levels for several consecutive trading days, then the focus can shift to a potential rebound aiming to reclaim $1,900, which would further strengthen if it reaches $1,910.60 (the 61.8% Fibonacci retracement level of the move from $1,804.80 to $2,081.90). In summary, if gold cannot rebound above $1,930-$1,931, it still faces significant downside risk.

Today, it may be considered to go long on gold around $1,862, with a stop-loss at $1,858, and targets at $1,875 and $1,878.

AUDUSD

On Thursday, September 28th, Australia's retail sales for August were reported to have grown by approximately 1.5% year-on-year and by approximately 0.2% month-on-month. The lackluster growth in August retail sales reflects consumers becoming more cautious about purchasing non-essential items in the context of high inflation. On Wednesday, September 27th, Australia's August Consumer Price Index (CPI) recorded a year-on-year increase of 5.2%, ending the trend of continuous declines over the past three months. Australia's August CPI also showed a month-on-month increase of 0.8%, surpassing July's 0.3%. There is no doubt that the resurgence of inflation in Australia in August has increased the likelihood of the Reserve Bank of Australia (RBA) raising interest rates at its decision next Tuesday (October 3rd). In contrast, the US economy is more resilient, which has led the market to bet that the Federal Reserve still has further room to raise interest rates to combat inflation. After the Fed's September rate decision, market expectations for rate cuts in 2024 were lowered by 50 basis points, and the 10-year US Treasury yield benefited from this, reaching 4.64% this week, its highest level in 15 years since October 2007. Meanwhile, the widening interest rate differential between the US and Australia implies that the overall downtrend of the Australian Dollar/US Dollar has not been reversed.

The daily chart shows that the Australian Dollar/US Dollar has been in a downtrend since 2021. From a trend analysis perspective, this downtrend is still ongoing. It has experienced two central extensions and one central expansion during this period, indicating that the Australian Dollar/US Dollar may not have truly bottomed out yet. The future trend tends to further decline to 0.6272, the November 2022 low, and a breach could test the previous low at 0.6170 (October low). In the short term, the Australian Dollar/US Dollar is consolidating around 0.6400, but the bears currently have the upper hand. If the exchange rate cannot effectively recover above 0.6485 and 0.6522 levels, the downside risk for the Australian Dollar/US Dollar will increase further.

Today, it may be considered to go long on the Australian Dollar near 0.6405, with a stop-loss at 0.6375 and targets at 0.6470 and 0.6475.

GBPUSD

Recent data shows that the situation of UK businesses in September is worse than expected, with increasing risks of unemployment and economic recession. Market sentiment suggests that the Bank of England has already completed its interest rate hikes in the face of economic deterioration and cooling inflation in the UK. The downward revision in expectations for the terminal interest rate highlights the unfavorable factors for the British Pound. This Friday, the UK will also release data such as consumer credit and mortgage approvals. If the data continues to show weakness, it is likely to further weigh on the British Pound, causing GBP/USD to slide even further. In the next stages, the British Pound is unlikely to break free from its ongoing downward trend unless there is surprising news of economic growth in the UK.

From a technical perspective, the British Pound against the US Dollar is still constrained by the downtrend resistance line that began in July, extending from the high of 1.3143. It is currently around the 1.2470 level, and there are currently no signs of breaking free from the weak downward trend. The exchange rate needs to decisively break through this zone to have a tendency for a bottoming rebound. The nearest resistance levels are estimated at the 10-day and 250-day moving averages at 1.2266 and 1.2309, respectively. Currently, the 10-day and 250-day moving averages are forming a "death cross," so the British Pound would need to slide to 1.2078 (the 38.2% Fibonacci retracement level of the move from 1.0354 to 1.3143) to find its first support level, with key references at 1.2010 (March 15th low) and 1.2000 (psychological market level).

Today, it is suggested to go long on the British Pound near 1.2168, with a stop-loss at 1.2135 and targets at 1.2250 and 1.2270.

USDJPY

In the early Asian session yesterday, the US Dollar/Japanese Yen pair dipped slightly to around 149.30, with the bulls maintaining their strength, briefly approaching the 150 handle. Once this threshold is crossed, it implies that the Bank of Japan is very likely to intervene in the foreign exchange market, or even take more significant actions to address the depreciation of the Japanese Yen. There is a divergence in the monetary policies of the Federal Reserve and the Bank of Japan, and a tug-of-war between hawks and doves is underway. From a technical analysis perspective, the 150 level could make traders more cautious. Although the threat of intervention always exists, the continued depreciation of the Japanese Yen is an undeniable fact, and the dovish monetary policy outlook of the Bank of Japan continues to resonate with the hawkish bets of the Federal Reserve. Bank of Japan Governor Haruhiko Kuroda has stated that wage growth and demand-driven inflation are needed to move away from negative interest rates. While the Japanese Yen still faces pressure, intervention to boost the yen could come at the 150 level, and the threat of intervention may limit the upside potential before the US session.

From a technical perspective, the US Dollar/Japanese Yen broke above the upper resistance line of the "ascending wedge" (149.00) and reached a high of 149.70, reaffirming the bullish price signal seen since October of the previous year. If the US Dollar returns to 150 against the Japanese Yen, it will support a move towards the previous resistance high at 151.94. However, falling below 149 will bring into play the support levels at 148.45 (lower support line of the ascending wedge) and the 14-day moving average at 148.05, with selling pressure potentially intensifying towards the level below 147.13 (30-day moving average). The current resistance levels are expected to be 150 (psychological market round number) and 151.94 (high from October of the previous year).

Today, it is suggested to go short on the US Dollar near 149.60, with a stop-loss at 149.90 and targets at 148.50 and 148.30.

EURUSD

Midweek, the yield on the benchmark 10-year US Treasury continued to rise, reaching its highest level since October 2007. Consequently, investors continue to bet that the US economy will outperform its competitors in a high-interest-rate environment, driving sustained buying pressure on the US Dollar. Meanwhile, the European Central Bank (ECB) indicated midweek that the year-on-year growth in lending to the corporate sector in August was only 0.6%, lower than the 2.22% growth in July, and lending to households also slowed from 1.3% to 1%. Increasing evidence suggests that the ECB's historic rate hikes are restraining economic activity. Therefore, the ECB's room for further rate hikes is likely to become extremely limited. In terms of interest rate differentials and economic growth prospects, the Euro appears to be at a disadvantage relative to the US Dollar. The current trading of this currency pair is likely to enter a short-term minor adjustment pattern while continuing its downward pace.

On the weekly chart, the Euro/US Dollar is currently testing a support zone formed by the lows of January (1.0480) and March (1.05160) this year. In the context of a clearly downward trend, this support may have a hard time halting the downward momentum. If this level is breached, it may pave the way for a further decline towards 1.0405 (the 50% Fibonacci retracement level of the move from 0.9535 to 1.1275). Further declines could target 1.0368 (the high from August of last year). On the other hand, a bullish scenario for the Euro/US Dollar would require a break above 1.0600 (a psychological market level) and 1.0610 (the 38.2% Fibonacci retracement level). If these levels are breached, the pair could retest 1.0717 (the 100-day moving average) and the high from September 20th (1.0735). Before that, the path of least resistance remains to the downside.

Today, it is suggested to go long on the Euro near 1.0530, with a stop-loss at 1.0500 and targets at 1.0625 and 1.0640.

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.