Dollar Pressures by Dovish Fed Remark

• Dollar trade to its lowest level in 2024 ahead of FOMC meeting minutes released tomorrow.
• The RBA's hawkish monetary policy meeting minutes bolster the Aussie dollar.
• Gold is poised at its all-time high level near $2500, awaiting for a catalyst to break the next level.

Market Summary

The Dollar Index (DXY) remains under pressure as dovish comments from multiple Federal Reserve officials suggest the possibility of a rate cut in the near future. Traders are now eagerly awaiting Wednesday’s FOMC meeting minutes for further insight into the Fed’s upcoming monetary policy moves. Meanwhile, Wall Street rallied last night, fueled by heightened speculation of a Fed rate cut, with the tech-heavy Nasdaq, which is particularly sensitive to interest rate changes, gaining over 1% in the last session.

In the forex market, the Australian dollar strengthened after the release of the Reserve Bank of Australia's (RBA) meeting minutes. The RBA indicated that it might keep interest rates at elevated levels for an extended period to mitigate inflationary risks, bolstering the Aussie dollar. The euro has also been trading strongly in recent sessions, with traders eyeing the Eurozone CPI data due later today. Expectations are for persistent inflationary pressure in the region, which could further strengthen the euro.

In the commodity market, gold prices are hovering near the $2,500 level, awaiting a catalyst to push the safe-haven asset to new highs. However, easing tensions in the Middle East have softened the bullish momentum for gold. On the other hand, oil prices continue to trend downward, with additional pressure from the Chinese central bank's decision to leave interest rates unchanged, exacerbating concerns over demand in the world's second-largest economy.

Current rate hike bets on 18th September Fed interest rate decision: 

Source: CME Fedwatch Tool

-50 bps (27.5%) VS -25 bps (72.5%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index, which tracks the US dollar against a basket of six major currencies, has slumped to a seven-month low as market participants lean towards a more dovish stance from Federal Reserve members. This week, all eyes are on Federal Reserve Chair Jerome Powell’s upcoming statement at the Jackson Hole meeting, where expectations are rising that the Fed might cut interest rates by 50 basis points during the September meeting. With a lack of significant market catalysts from the US region today, the dollar’s trend may remain subdued. Traders are advised to closely monitor any further statements from the Fed and update the US economic performance for additional trading signals.

The Dollar Index is trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 23, suggesting the index might enter oversold territory. 

Resistance level: 102.35, 103.35

Support level: 100.90, 99.75 

XAU/USD, H4

Gold prices continue to extend gains, particularly after breaking above record highs. The ongoing bullish momentum for this safe-haven asset is largely driven by expectations of rate cuts from the Federal Reserve. The US dollar’s continued underperformance against other currencies has prompted investors to shift their portfolios into gold. Additionally, recession risks persist, further bolstering gold prices as a defensive investment.

Gold prices are trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 66, suggesting the commodity might enter overbought territory. 

Resistance level: 2535.00, 2585.00

Support level: 2495.00, 2465.00

GBP/USD，H4

The British pound continues to trade strongly against the dollar, as the dollar remains under downside pressure as market conviction grows that the Fed will cut interest rates in September. Pound Sterling traders should also watch the Jackson Hole Symposium, starting Thursday, where BoE Governor Andrew Bailey is set to participate. His remarks may offer valuable insights into the Bank of England's upcoming monetary policy moves.

GBP/USD faces strong resistance at its key psychological level, 1.3000. The RSI remains in the overbought zone, while the MACD continues to edge higher, suggesting the pair's bullish momentum remains strong. 

Resistance level: 1.3065, 1.3140

Support level: 1.2910, 1.2860 

EUR/USD，H4

The EUR/USD pair has surged to its highest level in 2024, trading above the 1.0700 mark. The euro has gained strength ahead of the eurozone CPI reading due today, with expectations of an increase from the previous reading. Additionally, the pair is being supported by the weakening dollar, driven by growing expectations of a Fed rate cut in September.

EUR/USD has formed a higher high price pattern and is currently poised at its highest level in eight months, suggesting a bullish bias for the pair. The RSI remains in the overbought zone, while the MACD edges higher, suggesting that the bullish momentum remains strong. 

Resistance level: 1.1106, 1.1180

Support level: 1.1040, 1.0985

AUD/USD, H4

The AUD/USD pair has climbed to its one-month high, driven by a hawkish tone in the Reserve Bank of Australia's (RBA) recent monetary policy meeting minutes. The RBA emphasised that interest rates would remain elevated for an extended period to address inflationary risks. Additionally, the People's Bank of China's decision to keep its interest rate unchanged, as disclosed today, further supported the Australian dollar, adding buoyancy to the pair.

The AUD/USD pair is currently poised at its one-month high, with strong bullish momentum continuing to drive the pair. The RSI remains in the overbought zone, signalling sustained buying pressure while the MACD is edging higher and showing divergence, which supports the view of ongoing bullish momentum. 

Resistance level: 0.6780, 0.6850

Support level: 0.6670, 0.6610

USD/CAD, H4

The USD/CAD pair has dropped to a one-month low and is currently poised at a critical support level of 1.3620. The pair's decline is largely driven by the easing of the U.S. dollar amid heightened speculation of a potential Fed rate cut. The upcoming FOMC meeting minutes, due tomorrow, will be a pivotal factor for the pair's direction, as it may provide further insights into the Fed's monetary policy stance. Meanwhile, oil prices have been bearish, which could negatively impact the Canadian dollar, an oil-related currency. 

The USD/CAD pair has dropped to its critical support zone which may have a chance to perform a technical rebound from such level. The RSI has dropped into the oversold zone while the MACD edge is lower and is diverging, suggesting the bearish momentum remains strong. 

Resistance level: 1.3660, 1.3710

Support level: 1.3610, 1.3560

NASDAQ, H4

The US equity market remains resilient, with several analysts offering positive forecasts for its outlook. Bank of America analysts suggest that US equities are well-positioned to continue their upward trajectory, provided that economic growth remains stable. The potential for rate cuts from the Fed, coupled with stabilized and slowing inflation, continues to support the equity market. Additionally, the growth of artificial intelligence (AI) remains strong, driving further bullish momentum, particularly in the tech-heavy sectors.

Nasdaq is trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 69, suggesting the index might enter overbought territory. 

Resistance level: 20015.00, 20705.00

Support level: 19035.00, 17865.00 

CL OIL, H4

Crude oil prices have tumbled sharply, extending their losses amid prospects of easing tensions in the Middle East, which has reduced concerns over supply risks. According to Bloomberg, US Secretary of State Antony Blinken indicated that Washington’s latest diplomatic efforts to secure a ceasefire deal in Gaza may be the best and final opportunity to achieve consensus among all stakeholders. The lack of progress on potential retaliation from Iran has also calmed some investor nerves, though concerns remain. On the demand side, uncertainty over Chinese growth continues, especially with the rising demand for electric vehicles in China, which further weakens the outlook for oil.

Oil prices are trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 28, suggesting the commodity might enter oversold territory.

Resistance level: 75.20, 78.55

Support level: 72.45, 71.40