Soft PCE Hinders Dollar’s strength

*Last Friday, the PCE reading boosted Wall Street sentiment and hammered the dollar.

*Eyes on Wednesday’s BoJ and Fed interest rate decisions. 

*BTC prices are bolstered by Donald Trump’s statement that supports the crypto market.

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Market Summary

The financial market has reacted to the highly anticipated U.S. inflation gauge preferred by the Federal Reserve, the PCE reading. The PCE came in line with market expectations at 2.5%, suggesting that inflationary pressure in the country is moving toward the targeted 2% rate and heightening the likelihood of a September Fed rate cut speculated in the market. Wall Street rallied last Friday, with the Dow Jones soaring by more than 600 points. Meanwhile, as the dollar’s strength was hindered by the soft inflation reading, gold jumped from its recent low level and gained 1% in the last session.

Traders start the week with a busy schedule ahead, with multiple central banks’ interest rate decisions due, including the Fed, BoJ, and BoE. Additionally, both eurozone and Australia CPIs are highlights for this week as well.

In the crypto market, BTC prices are inching closer to topping the $70,000 mark, while ETH sees marginal gains as Donald Trump shows strong support for BTC and vows to hold Federal government BTC holdings if he becomes the next U.S. president.

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Current rate hike bets on 31st July Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (92.8%) VS -25 bps (7.2%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index, which trades against a basket of six major currencies, continued to consolidate in a range as market participants struggled to find clearer trends for the Greenback. Recently, US economic data, including GDP and inflation rates, have exceeded expectations, though concerns remain about their sustainability. Despite these positive economic indicators, several Federal Reserve members have consistently signalled potential interest rate cuts, contributing to scepticism about dollar demand. Investors are advised to seek further information as the market awaits crucial US Nonfarm Payrolls and unemployment rate data this week.

The Dollar Index is trading flat while currently near the resistance level. MACD has illustrated diminishing bearish momentum. However, RSI is at 49, suggesting the index might consolidate in a range since the RSI near the midline. 

Resistance level: 104.45, 104.90

Support level: 103.75, 103.20

XAU/USD, H4

Gold prices rebounded after slumping to two-week lows, as market participants anticipate the Federal Reserve will lower interest rates during the September meeting, despite higher-than-expected inflation reports. The constant signalling of rate cuts by the Federal Reserve has led US Treasury yields to dip further, with the 10-year note sliding four and a half basis points. On the economic data front, the US Core PCE Price Index year-over-year (YoY) rose by 2.60%, slightly higher than forecast and unchanged from the prior month’s reading.

Gold prices are trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum while RSI is at 54, suggesting the commodity might extend its gains after breakout since the RSI stays above the midline. 

Resistance level: 2400.00, 2420.00

Support level: 2355.00, 2325.00

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GBP/USD，H4

The GBP/USD pair has extended its bearish trajectory, especially after the formation of the evening star price pattern. However, the pair has found support near the 1.2850 level, awaiting a catalyst to rebound. The U.S. PCE reading last Friday eased the strength of the U.S. dollar, providing buoyancy for the pair as inflationary pressure in the U.S. appears to be easing. Pound Sterling traders are now focusing on this Thursday’s BoE interest rate decision, expecting a 25 bps rate cut. If the decision aligns with market expectations, it may harm Sterling’s strength and lead to a further plunge in the pair.

GBP/USD has eased from its bearish trend and shows signs of rebounding from its recent low level at 1.2850. A Break above its resistance level at 1.2095 may suggest a trend reversal signal for the pair. The RSI remains in the lower region, while the MACD is flowing below the zero line, suggesting the pair remains trading with bearish momentum. 

Resistance level: 1.2935, 1.2995

Support level: 1.2855, 1.2785

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EUR/USD，H4

The EUR/USD pair has traded sideways for the past few sessions, awaiting a catalyst to pick a direction. The pair seems to have eased from its bearish momentum and may be poised for a trend reversal. The euro was strengthened by the previous CPI reading, which showed signs of stubborn inflation in the region. The upcoming CPI reading, due on Wednesday, will be a pivotal factor for the euro’s strength and the price movement of the pair.

EUR/USD has traded flat over the past few sessions and is awaiting a catalyst that could possibly push for a technical rebound for the pair. The RSI is rebounding from the bottom, while the MACD is edging higher toward the zero line, suggesting that the bearish momentum is easing. 

Resistance level: 1.0895, 1.0940

Support level: 1.0815, 1.0770

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Dow Jones (US30), H4

The Dow jumped significantly in the last session following the release of the U.S. PCE reading, which fueled upward momentum in the equity market. The improved risk appetite was driven by the PCE reading aligning with market expectations, bolstering the chances of a widely speculated September Fed rate cut. The index found support at the 39,860 mark, and the uptrend is likely to continue buoyed by the improved sentiment until the Fed’s interest rate decision, due on Wednesday.

The Dow gained by more than 600 points and is back to above the 40,000 mark, suggesting a bullish bias for the index. The RSI is close to the overbought zone, while the MACD is about to have a bullish cross above the zero line, suggesting the bullish momentum is gaining. 

Resistance level: 41200.00, 42000.00

Support level: 40430.00, 39870.00

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USD/JPY, H4

In recent weeks, investors have eagerly bought the yen, anticipating an interest rate hike from the Bank of Japan (BOJ). The yen’s approximately 5% rise against the dollar since July 11 was boosted by suspected market intervention. However, the rally’s fragility was highlighted by a quick retracement after stronger-than-expected US economic data. With swaps markets suggesting a 45% chance of a BOJ rate hike and only 30% of surveyed BOJ watchers predicting it, yen bulls are vulnerable. The BOJ’s potential inaction or smaller-than-expected bond purchase cuts, alongside US Federal Reserve decisions, could weaken the yen.

USD/JPY is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 40, suggesting the pair might extend its losses since the RSI stays below the midline. 

Resistance level: 154.35, 155.75

Support level: 152.25, 150.80

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CL OIL, H4

Oil prices edged slightly higher from a six-week low after positive economic signals from China over the weekend ahead of an OPEC+ meeting later this week. According to National Bureau of Statistics (NBS) data, China’s industrial profits grew at a faster clip in June, with a 3.60% year-on-year rise in profits last month following a 0.70% gain in May. Market participants will continue monitoring the OPEC and its allies’ potential oil production cut decisions for further trading signals.

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 46, suggesting the commodity might extend its gains since the RSI rebounded sharply from oversold territory. 

Resistance level: 78.65, 80.55

Support level: 76.15, 74.35

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