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US Dollar Index

On Tuesday, September 26th, the United States released disappointing data on consumer confidence and new home sales. However, Federal Reserve official Kashkari and JPMorgan CEO Dimon both made hawkish statements. As a result, the US Dollar Index continued to climb, reaching a daily high of 106.26. Influenced by the Fed's firm stance last week, traders increased their positions betting on a December interest rate hike, which further strengthened the US dollar. So far this week, the US Dollar Index briefly surpassed the 106 level, reaching its highest point since December of the previous year. Given the current market momentum, the US dollar still has the potential to maintain its upward trajectory. However, after more than two months of continuous gains, US dollar bulls need to remain cautious of potential risks.

The longer the Federal Reserve maintains high interest rates, the greater the economic risks become. There is a high risk of a global recession or even a depression in the coming months, and the United States may not be immune to this. Uncertainties in economic growth, coupled with the risk of a government shutdown, raise the possibility that the Fed's desire to continue raising interest rates this year may be overstated. In the short term, the US dollar appears to have the momentum to continue rising. However, due to the significant uncertainty in the economic outlook, there are considerable variables in the medium to long term. It is not impossible that a selling trend could re-emerge at some point.

The US Dollar Index broke above the 106.00 level earlier this week, reaching a high of 106.26, the highest since December of the previous year. If it stabilizes above the 105.88 level (the previous high in March), it would provide more encouragement for the bulls. The next move could be towards levels around 106.80 and 107.20. However, the KDJ technical indicator suggests the market is overbought, and there is a risk of a reversal if prices fall below 105.50. Key support lies at 105.40 (the 10-day moving average), and if this level is breached, it could trigger further selling. The next levels to watch are 104.90 (the Pivot Point central axis) and 104.60 (the low point on September 20th). If the US Dollar Index continues to trade above the previous high of 105.88 for the remainder of this week, the first target could be around 106.30 (the upper channel line of the Bollinger Bands), with further potential towards 106.80 (the upper channel line).

Consider going long on the US Dollar Index near 106.05 today, with a stop-loss at 105.80 and targets at 106.45 and 106.50.

WTI Spot Crude Oil

Anticipated tightening of crude oil supply and uncertain economic prospects have raised concerns about demand. Additionally, crude oil continues to face a double blow from the strengthening U.S. dollar and expectations of interest rate hikes, offsetting the rapid supply tightening effects due to market investors' preference for low-risk assets with higher interest rates in the long term. WTI crude oil closed higher in the spot market yesterday. At the beginning of the week, the yield on the 10-year U.S. Treasury bond exceeded 4.50%, reaching its highest level since 2007. The U.S. dollar index rebounded to touch a high of 106.20, raising concerns of increased risk in the pullback of WTI crude oil prices, which fell below the psychological level of $90.00 at the start of the week. Despite WTI crude oil's cumulative rise of 37% since the end of June and briefly surpassing the $90.00 mark, institutions have raised their oil price forecasts, pointing to the $100.00 mark. It can be foreseen that as the lagging effects of monetary tightening in Europe and the United States further manifest, concerns about demand from the demand side will arise. Meanwhile, uncertainties remain regarding "gray rhinos" such as the U.S. government shutdown, the ongoing strike by U.S. auto workers, and the recovery of the Chinese economy, limiting the further potential for oil price increases. In summary, WTI crude oil may struggle to effectively break through the $90.00 mark this week, while caution should be exercised regarding the possibility of further deepening of oil prices in an environment of increasing market risk aversion, with a key focus on the $85.00 support level below.

In the short term, oil prices will continue to be impacted by factors such as rising interest rates, a stronger U.S. dollar, and concerns about the global economy. Until global economic concerns are alleviated, market sentiment in the oil sector is likely to be bearish. From a technical perspective, the MACD indicator has just crossed below the signal line, indicating an expected continuation of the corrective trend in oil prices. The first target is set at 87.62 (the Pivot Point central axis), with a break potentially leading to 86.61 (the 38.2% Fibonacci retracement level from 77.54 to 92.23) and 86.01 (the 25-day moving average). The initial resistance level is expected at 90.00 (a psychological level in the market), with the major resistance level anticipated to be in the region of 92.23 (last week's high) to 92.53 (the upper channel line of the Bollinger Bands). If it can effectively stabilize, there is still potential for further upward movement, challenging 94.60 (the upper channel line of the rising channel).

Consider going long on crude oil near 89.60 today, with a stop-loss at 89.30 and targets at 90.70 and 90.90.

Spot Gold

On Tuesday, September 26th, gold prices declined in trading due to renewed prospects of interest rate hikes reiterated by Federal Reserve officials. Gold faced continued pressure from a stronger U.S. dollar and rising bond yields, falling to $1,900 per ounce. Despite rising interest rates, the U.S. economy remains resilient, and the U.S. dollar index continued its upward trend, reaching over a ten-month high at 106.10 and rising for the fifth consecutive trading day, putting downward pressure on gold, erasing the rebound from the previous weekend. The yield on the U.S. ten-year Treasury bonds continued to climb to 4.53%, marking multi-year highs. Precious metals continue to be closely tied to the performance of the interest rate market, with one prominent factor affecting gold prices being the fluctuation in interest rates, where the bond market plays a pivotal role. The prospect of higher long-term interest rates in the United States has become a major driver of the strengthening U.S. dollar, thus dragging down gold prices. The outlook for gold is bearish. Technical indicators lean toward the downside, with gold prices well below the key moving averages. The final line of defense for gold is $1,884.90 per ounce.

Currently, gold prices are being held below the key resistance level of $1,924, which is the convergence point of the 20-day moving average ($1,924.30) and the 205-day moving average ($1,924.10). Last week, gold prices briefly challenged $1,930 but failed to breach it, as gold sellers reappeared at $1,931.00 (resistance trendline extending from the July high of $1,987.50) and $1,931.50 (September 21st high), suppressing the rebound in gold prices. The RSI technical indicator has also returned to the negative zone (44.00), below the 50 level, indicating that the reasons for the decline in gold prices remain more convincing. The psychological level of $1,900 will be a key short-term support, and if it breaks below this level, it will open up further downside potential. The next support for gold is at the $1,884.90 level. The next level to watch is $1,867 (the low point on March 13th).

On the upside, short-term resistance for gold is located at $1,910 (the support trendline extending from the August low of $1,884.90). Gold needs to continue breaking through the convergence point of the 21-day moving average and the 200-day moving average at $1,924 to once again target the $1,931.00 to $1,931.50 levels.

Consider going short on gold before $1,905 today, with a stop-loss at $1,909 and targets at $1,888 and $1,885.

AUDUSD

The Australian dollar faced renewed pressure at the beginning of the week, primarily due to a decline in commodity prices amid concerns about China's vast but troubled real estate sector. China's Evergrande, mired in a severe debt crisis, issued an announcement stating that its subsidiary, Evergrande Real Estate Group, is under investigation, rendering the group ineligible for the issuance of new bonds. This news further deteriorated sentiment related to China and had a negative impact on the Australian dollar. On Wednesday, the Australian monthly Consumer Price Index (CPI) report will be released, with economists expecting the overall inflation rate for August to accelerate from 4.9% to 5.2%. Given signals from central banks globally to maintain higher interest rates for a longer period, market participants widely anticipate that the Reserve Bank of Australia (RBA) is almost certain to raise interest rates once again early next year to control inflation, ruling out the possibility of a rate cut next year.

From a technical standpoint, the Australian dollar has attempted a rebound within a recent downtrend, but it faces significant resistance. Firstly, there is the level of 0.6485 (a resistance trendline extending from the July high of 0.6895). Additionally, the level of 0.6520 (the upper boundary of a sideways channel) has proven to be a major barrier for the AUD/USD pair and may continue to hinder further upside. The Australian dollar is currently in a volatile state and requires caution. A successful break above 0.6520 could potentially reverse the recent weakness in the Australian dollar, with the target potentially aiming for the psychological level of 0.6600. Conversely, a key level to watch on the downside is 0.64, a psychologically significant number that has previously provided strong support and is now a focal point for traders. If the level of 0.64 is breached, there may be a noticeable increase in buying activity around the 0.6357 level (previous lows). Breaking below this level could result in a significant decline for the AUD/USD pair, with the target potentially heading towards 0.6272 (the low point on November 3rd).

Consider going short on the Australian dollar before 0.6415 today, with a stop-loss at 0.6435 and targets at 0.6350 and 0.6345.

GBPUSD

The GBP/USD pair continues to face significant pressure. The recent unexpected decision by the Bank of England to maintain interest rates unchanged had a substantial negative impact on the GBP/USD pair. It reached a low point of 1.2152 yesterday. The Bank of England's decision to keep interest rates unchanged last week was the first time since December 2021, and it was due to signs of economic growth slowing down. Market pricing ahead of this meeting reflected an expectation that even if a 25 basis point hike wasn't delivered at this meeting, it was almost certain that there would be another 25 basis point hike before the end of 2023. However, at the beginning of this week, the market's expectation for another hike this year was only about 40%. This suggests a reversal of the trend seen earlier this year when the pound was boosted by expectations that the Bank of England would raise rates ahead of the European Central Bank and the Federal Reserve. If more economic data confirms that the UK economy is stagnating or even heading into recession, it will completely reverse bets on further rate hikes for the pound. The reassessment of the Bank of England's rate outlook will continue to weigh heavily on the battered pound.

The GBP/USD pair has been on a downward trajectory since reaching a 15-month high of 1.3143 in July, and the decline appears to be accelerating, which is understandable from a fundamental perspective. On the daily chart, the pound has breached the 23.6% Fibonacci retracement level at 1.2485, which is drawn from the low of 1.0354 in September 2022 to the high of 1.3143 in July. After multiple attempts, it finally broke below this level on September 13th, leading to a substantial drop to a six-month low of 1.2152. It is currently holding above the next significant low at 1.2120, which is the 76.4% Fibonacci retracement of the move from 1.1804 to 1.3143. If this level is breached, the next downside targets are 1.2078 (38.2% Fibonacci retracement of the move from 1.0354 to 1.3143), 1.2010 (low point on March 15th), and 1.2000 (psychological support level). Currently, the RSI indicator for the exchange rate is in oversold territory, diverging from the near-30 level, which may lead to a moderate rebound towards the 10-day moving average at 1.2331 and 1.2485 (23.6% Fibonacci retracement of the move from 1.0354 to 1.3143) later this week.

It is advised to short the pound before 1.2180 today, with a stop-loss at 1.2210 and targets at 1.2105 and 1.2100.

USDJPY

USD/JPY finally rose above the 149.00 level to reach 149.18 yesterday as traders continue to focus on the overall strength of the US dollar. The Bank of Japan has not intervened, and it seems the central bank won't take any action until USD/JPY reaches the important psychological level of 150.00. The broad-based strength of the US dollar since mid-July has been a major driver of the USD/JPY rally. The Bank of Japan's interest rate decision last Friday kept the benchmark rate at historic lows, with the Governor reaffirming a commitment to "patiently implement accommodative monetary policy." This decision removed concerns about a USD/JPY uptrend, and the USD/JPY pair is currently hitting highs not seen since October of last year, reaching 149.19. The risk of Japanese authorities intervening in the forex market does not appear significant, as there have been no warnings to prevent yen depreciation, reducing the risk of a sudden attack on USD/JPY. It's also worth noting that due to the weakened safe-haven status of the yen, worsening short-term market risk appetite is further boosting the safe-haven US dollar, potentially accelerating the rise of USD/JPY.

On the daily chart, USD/JPY is breaking above an upward resistance line that extends from the June swing high at 145.07 (currently at 148.70). Currently, the exchange rate has briefly risen above 149.12 (top of the Bollinger Bands channel), and this break could trigger an accelerated rise, with a possible challenge to the 150.00 level, which, if successful, could target around last year's swing high near 151.94. However, if attempts to break above the upward resistance line at 148.70 and 149.12 prove unsuccessful, indicating a pullback below 147.40 (centerline of the Bollinger Bands channel), caution should be exercised regarding further downside risks. Initial support below could be found at 145.68 (bottom of the Bollinger Bands channel) and 145.08 (50-day moving average), with a break potentially reversing the recent strength of USD/JPY.

Today's recommendation is to go long on the US dollar around 148.75 with a stop loss at 148.40 and targets at 149.60 and 149.80.

EURUSD

EUR/USD tested new lows as traders bet that the Federal Reserve will be more hawkish than the European Central Bank. It's worth noting that the RSI recently entered oversold territory on the daily chart, so the risk of a rebound is increasing. The hawkish rate outlook from the Federal Reserve is pushing up U.S. bond yields, continuing to boost demand for the U.S. dollar, with the U.S. dollar index reaching its highest level since November 30th at 106.26. The euro dropped to its lowest level against the U.S. dollar since March 16th at 1.0562. With the belief that the European Central Bank is unlikely to hike rates further, the euro has softened. The Federal Reserve remains highly data-dependent and takes a meeting-by-meeting approach, while the European Central Bank has essentially signaled that they are now in a terminal phase. Therefore, even slight changes in their tone are enough to temporarily anchor EUR/USD. Going forward, it remains to be seen which major economy can sustain higher interest rates for a longer period without hurting economic growth. For now, the U.S. dollar remains in the lead. Germany's IFO Business Climate report, released on Monday, showed that the business climate index fell from 85.8 in August to 85.7 in September, continuing to indicate a sluggish economic environment in the eurozone. This has encouraged traders to maintain a bearish stance on the euro.

On the daily chart, EUR/USD remains below the 250-day moving average (1.0705) and the descending trendline (1.0700) that has been extending downward since mid-July, suggesting an overall bearish bias. After breaking below the key support area formed by the May 31st low (1.0635) and the 5-day moving average (1.0630) yesterday, there is a short-term potential for further decline to the March 15th low (1.0516). If this level is breached, it could pave the way for a move down to 1.0405 (50% Fibonacci retracement of the move from 0.9535 to 1.1275). On the upside, the initial target to consider is the 1.0635-1.0628 area, and if broken, it may open the path towards 1.0700 (the descending trendline extending downward since mid-July).

Today's suggestion is to go short on the euro around 1.0590 with a stop loss at 1.0620 and targets at 1.0535 and 1.0520.

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.