US Dollar Index

The US Dollar Index has a negative bias for the second day in a row, but the decline seems limited. The hawkish shift of the Federal Reserve remains supportive of rising US bond yields and favors US dollar bulls. Geopolitical risks and trade war concerns may help limit losses in the safe-haven dollar. After a good start to the year, the broad-based gains of the US dollar have retreated, leaving the US Dollar Index in a consolidation mode before the weekend. In fact, the US Dollar Index is close to a two-year high driven by optimism about the expansionary policies of US President-elect Donald Trump and the hawkish outlook of the Federal Reserve. In addition, concerns about Trump's comprehensive tariffs, as well as geopolitical risks of the Russia-Ukraine war and rising tensions in the Middle East, have supported the safe-haven dollar. On the other hand, it is not surprising that the overall gains of the US Dollar have been restrained despite its strong performance in the past few weeks. The fundamentals are favorable and seasonal trends suggest that this strength may continue into the first quarter. But the gains of the US Dollar Index look excessive based on our fair value estimates based on interest rate differentials alone.

After a solid start to the new year last week, the broad gains of the US dollar have retreated, leaving the US dollar index in a consolidation mode over the weekend. At this stage, new buying at 108.97 (61.8% Fibonacci retracement of 114.78 to 99.58), and 109.00 (round mark) have become significant technical resistance. Once the index can break through the above areas, it will help to send a strong signal for buying, which will open the way for testing the psychological 110 barrier, and 111.06 level (76.4% Fibonacci retracement). In addition, once the US dollar sees a small price correction, the 108.00 (market psychological mark) area will provide initial support and extend the decline to find a solid base in the 107.54 (25-day moving average) area.

Consider shorting the US dollar index near 108.40 today, stop loss: 108.50, target: 107.90, 107.80

WTI spot crude oil

On Monday, US WTI crude oil traded near $73.00/barrel, with oil prices helped by cold weather in Europe and the United States and hopes of more economic stimulus measures from Asian powers, while the market awaits US non-farm data this week. Oil prices closed higher on Friday and also rose on a weekly basis, helped by cold weather in Europe and the United States and hopes of more economic stimulus measures from Asian powers. Forecasts show that some areas will be colder, and demand for heating oil is expected to increase, which may provide some support for oil prices. Data from energy services company Baker Hughes showed that the number of active oil drilling rigs in the United States decreased by one this week to 482, which also provided support for oil prices. This is an indicator of future production.

Last week, WTI crude oil rose more than 5%, just below the psychologically critical $75.00 round-number level, and $74.95 (200-day moving average). WTI crude oil connected to break through the bull flag resistance of the March 2022 (126.51); July 2024 (83.93); and October 2024 (77.93) highs (a bull flag pattern is a bullish chart pattern in technical analysis that looks like a flag. It is easier to see on the monthly continuous chart). Any monthly close above the high of October last year would almost complete the major bottoming since December, and now it is unlikely to be until February. After five consecutive days of gains, oil prices may see profit-taking, with targets at $72.23 (50.0% Fibonacci rebound from $77.93 to $66.53), $72.54 (November 7 high), and $71.27 (120-day moving average). The upper resistance can be considered at $74.95 (200-day moving average), and $75.24 (76.4% Fibonacci rebound from $77.93 to $66.53).

Today, consider going long on crude oil around $72.80, stop loss: 72.60; target: 74.00; 74.20

Spot gold

Gold benefited from the broad weakness of the US dollar, rebounding above $2,630 after falling to a daily low below $2,614 on Monday. Meanwhile, the benchmark 10-year U.S. Treasury yield remained above 4.6%, limiting the upside for gold prices. Gold prices struggled around $2,640 in early Asian trading on Monday. The dollar strengthened after a strong U.S. ISM manufacturing purchasing managers' index (PMI), dragging down dollar-denominated commodity prices, weighing on gold prices. All eyes will be on U.S. December labor market data due on Friday for fresh impetus. On the other hand, economic uncertainty and geopolitical tensions could boost safe-haven assets like gold. On Sunday, Israel and Hamas sparred over a deal to halt violence in the Gaza Strip and repatriate hostages, with Palestinian officials saying Israeli bombing killed more than 100 people over the weekend. Central bank buying activity could drive precious metals higher. Central banks are expected to continue net buying of about 8 million ounces in 2025, roughly the same or slightly lower than in 2024.

The daily chart shows that the 14-day relative strength index (RSI) of the technical indicator has re-crossed the 50 level, opening up space for further gains in gold prices. Before the weekend, the gold price rose above all key daily simple moving averages and closed above the key 100-day moving average of $2,627.50. If buyers regain momentum, the next relevant upside target is $2,659.60 (65-day moving average), and a break below this level will challenge the psychological level of $2,700. On the other hand, if the 100-day moving average of $2,627.50 is lost, $2,600.00 (market psychological level), and $2,602.80 (December 31 low) will become immediate supports. A daily close below $2,600-2,602 would negate the recovery momentum, initially pushing gold prices back down to the December low of $2,583.40.

Consider going long gold before 2,632.00 today, stop loss: 2,628.00; target: 2652.00; 2655.00

AUD/USD

AUD/USD briefly rebounded to just above 0.6300 on Monday after China's December Caixin Services Purchasing Managers' Index (PMI) beat expectations at 52.2. China's optimism over stimulus and a weaker dollar offset increased bets on an early rate cut by the Reserve Bank of Australia, reviving demand for the Australian dollar. AUD/USD remained volatile above 0.6240 during early Asian trading on Monday. Increased bets that the Reserve Bank of Australia will be forced to start cutting interest rates exerted some selling pressure on the Australian dollar. Investors will be keeping a close eye on the December U.S. employment data due later Friday. The report could provide some clues about the Fed's interest rate outlook for 2025. Investors will want to see confirmation that labor trends remain solid, which means the economic outlook is likely to remain firm. Australia's November consumer price index will be released on Wednesday and will be closely watched. Good/bad data could raise the possibility of a rate cut by the Reserve Bank of Australia at its February meeting, putting pressure on the Australian dollar. In addition, the prospect of a US-China trade war could weaken the Australian dollar, which has close ties with China.

At the beginning of the week, AUD/USD traded above 0.6220, maintaining a short-term bearish outlook, although it is still within the downward channel of the weekly chart, but it has returned above the central axis of the downward channel. The 14-week relative strength index (RSI) has rebounded above 30 points, indicating that despite the current downward trend, there is still a possibility of an upward correction in the short term. AUD/USD may face key resistance at 0.6261 (round number), and 0.6301 (25-day moving average), with the next hurdle at 0.6361 (Dec. 12 high) area. Regarding its support, AUD/USD may fluctuate in the area around 0.6200 (market psychological level), and 0.6179 (26-month low). Breaking this level will test 0.6150 (downward channel center axis), and 0.6100 round number.

Today, consider going long on AUD before 0.6210, stop loss: 0.6200; target: 0.6250; 0.6260.

GBP/USD

GBP/USD continues its recovery from multi-month lows set last week, trading above 1.2500. The improvement in market sentiment has eased concerns about Trump's tariffs fueling inflation, which has made it difficult for the dollar to find demand and allowed the pair to move higher. It started the new week by oscillating above the 1.2450 mark. The spot price remains close to the lowest level since April 2024 hit last week. In addition, concerns about Trump's comprehensive tariffs, as well as geopolitical risks such as the Russia-Ukraine war and rising tensions in the Middle East, supported the safe-haven dollar and posed resistance to the GBP/USD pair. Meanwhile, a series of weak data from the UK and doubts about the fiscal strategy of the newly elected Labour government have kept the sentiment on the pound weak. In addition, the Bank of England's relatively dovish stance and the split vote in December to keep interest rates unchanged may continue to put pressure on the pound. This validates the negative outlook for the GBP/USD pair.

From the 4-hour chart, the 14-hour relative strength index (RSI) indicator rebounded sharply to around 62 after falling towards 20 before the end of last week, confirming that the latest recovery attempt is a technical correction rather than the start of a reversal. On the downside, 1.2470 (25-hour moving average) serves as the first support level, followed by 1.2400 (round number). A break below this level will directly point to 1.2300 (market psychological level). On the other hand, if GBP/USD can stabilize above the "double bottom" formed by 1.2485 (November 22) and 1.2475 (December 20). Looking further up, the next obstacles are located at 1.2575 (20-day moving average), and 1.2600 (market psychological level).

Today, it is recommended to go long on GBP before 1.2510, stop loss: 1.2500, target: 1.2550, 1.2560

USD/JPY

The yen attracted new sellers at the beginning of the new week and hovered near the multi-month lows hit in December due to the dovish outlook of the Bank of Japan. In addition, the general risk-on environment is also believed to have weakened the safe-haven yen. Additionally, the strong dollar provided support to the USD/JPY pair, owing to hawkish signals from the Federal Reserve and optimism over the expansionary policies of US President-elect Trump. Meanwhile, data released earlier this Monday showed that business activity in Japan's services sector expanded for the second consecutive month in December. This, coupled with a pickup in Japanese services inflation, supports the case for a rate hike by the Bank of Japan in January. Apart from this, geopolitical risks and concerns over Trump's tariff plans have kept yen bears from making aggressive bets. Moreover, speculation that Japanese authorities may intervene to support the currency should help limit further losses for the yen.

At this stage, any subsequent gains may face some resistance around the 158.00 psychological mark, and the "double top" formed by the December highs of 158.07-158.08 (December 26 and 28 highs), or at multi-month highs. A sustained breakout would be seen as a new trigger for bullish traders and pave the way for further gains on the back of positive oscillators on the daily chart. The USD/JPY pair may aim to break through the weekly high barrier of 158.85 (July 16) and recapture the 159.00 mark. The momentum may extend further to the 160.00 psychological mark, passing through the 160.50 area, which coincides with the top of the multi-month rising channel. On the other hand, the Asian session low around the 157.00 mark now seems to protect the upcoming downside, followed by the 156.65, and 156.00 marks. Any further decline may be seen as a buying opportunity around the 155.50 area and help limit the losses of USD/JPY around the 155.00 psychological mark. The latter should serve as a strong base for the spot price and if decisively broken, it may turn the short-term bias towards bearish traders.

Today, it is recommended to short USD/JPY before 157.80, stop loss: 158.00; target: 157.00, 156.80

EUR/USD

On Monday, despite retreating from the intraday high above 1.0430, EUR/USD is still expected to achieve strong gains. As reflected by the bullish behaviour of Wall Street, the positive shift in risk sentiment forced the US dollar to remain weak and helped the currency pair to gain a foothold. In the Asian session, EUR/USD fell slightly after rising in the previous trading day, trading around 1.0300. As the market expects its exchange rate to fall further, EUR/USD faces resistance and may reach parity, mainly due to the divergence in the monetary policy outlook between the Federal Reserve and the European Central Bank. In the eurozone, ECB policymakers tend to continue the current pace of monetary easing. The market already expects a 113-basis point cut in the ECB interest rate this year, which means at least four 25 basis point rate cuts. This outlook reflects growing concerns that eurozone inflation has failed to reach the ECB's 2% target.

The 14-hour relative strength index (RSI) indicator on the 4-hour chart has rebounded sharply from the level of nearly 22 reached before the weekend to above 64.50, indicating that the bearish bias remains after the technical correction of oversold levels, but it may be in a contraction phase. On the upside, if the pair can hold above 1.0362 (34-hour moving average), 1.0400 (round mark) will serve as an immediate resistance level, followed by 1.0470 (200-hour moving average), and a break will point to 1.0500 (round mark). On the other hand, once EUR/USD falls below 1.0362 again. Looking down, the first support level is at 1.0336 (25-hour moving average), followed by 1.0300 (market psychological level).

Today it is recommended to go long on Euro before 1.0370, stop loss: 1.0360, target: 1.0420, 1.0430.

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