Dollar Strengthen as Inflation Data Remain High

• Last Friday, the PCE reading fueled the upward momentum for the dollar.
• Eye on Wednesday BoC’s interest rate decision with the expectation of a 25 bps rate cut.
• Oil slid on Poor Chinese PMI readings. 

Market Summary

The highly anticipated PCE reading released last Friday catalysed the U.S. dollar, pushing it above its previous resistance level of $101.00 to reach a weekly high. While the Fed's preferred inflation gauge came in lower than market expectations, it remained well above the 2% target, suggesting that the Fed may opt for a soft-landing approach. This prospect bolstered the dollar's strength. The market is now focusing on Tuesday’s U.S. PMI readings, which could directly impact the dollar's price action and provide clues ahead of the Non-Farm Payrolls data due on Friday.

In addition, traders are also watching the Canadian dollar closely, as the Bank of Canada's interest rate decision is expected on Wednesday. A potential 25 basis point rate cut could weigh on the Canadian dollar's strength.

On the commodities front, gold dropped below the crucial $2,500 psychological level in the last session as the stronger dollar exerted pressure. Meanwhile, oil prices slid following a lacklustre Chinese PMI reading that failed to indicate significant economic recovery.

In the crypto market, uncertainty persists after a bankrupt crypto mining company received approval for an unconventional financing plan to borrow funds in either U.S. dollars or Bitcoin, which has hindered BTC prices amid its recent lacklustre performance.

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

Source: CME Fedwatch Tool

-50 bps (32.5%) VS -25 bps (67.5%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index continued its gains despite the latest US inflation report slightly missing expectations. Strong US economic data have led market participants to anticipate a smaller 25 basis point rate cut by the Federal Reserve in September, rather than the 50 basis points previously expected. The US Core PCE Price Index aligned with forecasts at 0.20%, while the Chicago PMI exceeded expectations at 46.1, reinforcing the dollar's strength.

The Dollar Index is trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 67, suggesting the index might enter overbought territory. 

Resistance level: 102.35, 103.35

Support level: 101.55, 100.55

XAU/USD, H4

Gold prices retreated from their record highs following the release of the US Core PCE Price Index, which aligned with market expectations, and a better-than-expected Chicago PMI. These developments have reduced the likelihood of a 50 basis points rate cut by the Federal Reserve in September, leading to diminished demand for gold as a safe-haven asset.

Gold prices are trading lower while currently testing the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 39, suggesting the commodity might enter oversold territory. 

Resistance level: 2515.00, 2530.00

Support level: 2500.00, 2480.00

GBP/USD，H4

The GBP/USD pair has broken below a crucial fair value gap, indicating a potentially bearish signal for the pair. The U.S. dollar strengthened following the release of the PCE reading last Friday, which showed signs of persistent inflationary pressure in the country. This reading suggests that the Federal Reserve may opt for a soft-landing approach to its rate cuts, further catalyzing the dollar's strength.

GBP/USD has formed a lower-high price pattern and has broken below its crucial fair value gap, suggesting a bearish signal for the pair. The RSI is close to the oversold zone, while the MACD is about to cross below the zero line, suggesting a bearish momentum is forming. 

Resistance level:  1.3220, 1.3280

Support level: 1.3065, 1.2980

EUR/USD，H4

The bearish momentum for the GBP/USD pair appears to have strengthened after it broke below the liquidity zone. If the pair falls below its current support level at 1.1045, it could signal further downside. Meanwhile, the Eurozone CPI reading aligned with market expectations at 2.2%, and the unemployment rate showed improvement to 6.4%. These economic indicators could potentially provide some buoyancy for the pair, offsetting the bearish outlook to some extent.

EUR/USD is trading with strong bearish momentum and has declined by more than 1% in the last 3 sessions. The RSI has gotten into the oversold zone while the MACD has broken below the zero line and is diverging suggest the bearish momentum is gaining. 

Resistance level: 1.1106, 1.1175

Support level: 1.0990, 1.0985

USD/CAD, H4

The USD/CAD pair has staged a technical rebound after falling over 3% from its recent peak. The Bank of Canada's interest rate decision, due on Wednesday, is expected to result in a 25 basis point rate cut. This anticipated easing of monetary policy could weaken the Canadian dollar and potentially drive the pair higher, as traders position for a more dovish stance from the Canadian central bank.

The pair has rebounded to its critical fair value gap which may face selling pressure when it approaches such a level. The RSI has gained to above 50 level while the MACD has a golden cross and is moving upward, suggesting the bearish momentum is vanishing. 

Resistance level: 1.3520, 1.3600

Support level:1.3435, 1.3360

NASDAQ, H4

US equity markets rebounded, extending their bullish trend as investors re-entered high-growth technology stocks, driven by positive tech prospects and expectations of rate cuts. Nvidia, in particular, saw a rise along with the Nasdaq. Previously, Nvidia exceeded Q2 expectations, marking earnings and revenue growth for the fifth consecutive quarter.

Nasdaq is trading higher following the prior rebound from the support level. MACD has illustrated diminishing bearish momentum, while RSI is at 55, suggesting the index might extend its gains since the RSI stays above the midline. 

Resistance level: 20015.00, 20705.00

Support level: 19035.00, 17865.00

USD/JPY, H4

The USD/JPY pair has broken above its downtrend channel, indicating a potential trend reversal. However, it is currently facing strong resistance near the 147.00 level. The Tokyo CPI reading, which came in above market expectations at 2.4%, initially strengthened the Yen. The U.S. PCE reading later offset this, which boosted the dollar and caused the pair to rebound. Traders may now focus on Wednesday's U.S. PMI reading, as it could be a pivotal factor influencing the pair's price movement.

The pair has gained more than 1.5% for the past three sessions, suggesting that bearish momentum is vanishing. The RSI is approaching the overbought zone, while the MACD is on the brink of breaking above the zero line, suggesting that bullish momentum may be forming. 

Resistance level: 149.20, 151.75

Support level: 143.45, 141,40

CL OIL, H4

Oil prices extended their losses as investors anticipated an increase in OPEC+ production starting in October, compounded by sluggish demand in China and the US, the world's two largest oil consumers. Sources from the Organization of the Petroleum Exporting Countries and their allies (OPEC+) indicated that the group is set to proceed with a planned output hike in October. Eight OPEC+ members are scheduled to boost production by 180,000 barrels per day as part of a strategy to gradually unwind the latest layer of output cuts, amounting to 2.2 million bpd, while keeping other cuts in place until the end of 2025.

Oil prices are trading lower following the prior breakout below the previous support level. MACD has illustrated increasing bearish momentum, while RSI is at 37, suggesting the commodity might extend its losses since the RSI stays below the midline. 

Resistance level: 74.30, 77.45

Support level: 71.80, 67.50