It seems that the US dollar is poised to continue its decline after the latest economic data. On the other hand, the euro continues to await another increase in interest rates. Meanwhile, gold is testing support levels.
This week witnessed notable volatility in the global forex market, especially with the release of data in both the US and the Eurozone.
Amidst these developments, the US dollar has shown signs of weakness in the short term compared to the major global currencies. As a result, the greenback appears poised for further declines after a six-week streak of impressive gains. The index, which had settled at 103.66, saw a modest weekly decline of half a point and could end the positive trend if it closes below 104.1.
This is mostly because throughout the week, US economic data hinted at a possible slowdown. It is worth noting that both GDP and non-farm payrolls came in below expectations. On the contrary, the latest data showed that personal consumption expenditures came in line with expectations while claims for unemployment benefits came in lower than expected.
Turning to the Eurozone, core inflation remained in line with expectations, while the annualized CPI beat expectations by 0.2%. The current situation in Europe has cast doubt on the possibility of the ECB keeping interest rates unchanged in September.
Now, let’s dive into the technical aspects of the DXY movement in light of the latest developments.
Last week, the Dollar Index exited the bearish horizontal channel with a closing value of 104, but seemed inclined to retest the upper border of this channel this week, showing a slight decline. While there is no tangible confirmation yet of the bullish breach of the dollar index, reaching level 105 is of great importance in confirming the strength of the dollar.
However, if the market prices indicate that the US may keep interest rates in September without an increase, then we may notice a continued decline in the dollar index, and thus a return to the channel pattern. From a technical point of view, the pivotal level to watch is at 103, which may determine the direction of the index in the future.
And if the dollar tends to decline in the coming days, the possibility of the dollar index falling to the 100 level increases according to the movement of the current channel. On the upside, we continue to follow level 105 as a breakout point. However, according to the current data, the possibility of a correction is more likely than a continuation of the upward trend.
Euro/dollar forecast
The EUR/USD pair moved back into the channel this week, after breaching the lower band of the ascending channel last week, and testing the 1.07 range. For the Euro to consolidate, it needs to reclaim the $1.09 range, but moves towards this area have been weak this week.
A possible increase in demand for the euro could be the catalyst for a reversal in the EUR/USD, in case the hawkish rhetoric regarding the ECB’s rate hike in September continues. In the latter case, it became important for the EUR/USD to witness a weekly closing above 1.0860.
Next week, if the start is above $1.086, the resistance area 1.09 – $1.096 will be watched closely for trend reversal attempts. In the event of a daily closing of the pair above 1.096, we may see the start of the last ascending wave in the uptrend 2023. This may lead to a movement of the EUR/USD pair towards the range of 1.13 – 1.14. In the lower region, 1.08 is still acting as a major support level.
gold forecast
An ounce of gold tends to break the downtrend that has been going on since May, while still holding the $1880 support area since mid-August.
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Gold’s effort towards recovery, which continued this week after accelerating last week, is about to break the short-term bearish trend. Mixing trends in the global economy may cause investors to return to gold as a safe haven once again. In this case, the average $1,970 could be crucial for the continuation of the rise. In the event of a weekly close above this value, an ounce of gold could re-enter the $2,000 region. If this trend continues, we could see a rally towards record levels of $2,130-$2,200.
In the lower region, the short-term EMA values extending to $1925 are a support area for gold. And in the event of a decline below this value, an ounce of gold may continue to decline towards the $1800 region, depending on the downside trend.
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Disclosure: The authors do not hold any open positions in any of the securities mentioned in this report.
2023-09-03 19:19:00
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