AUD/USD Climbs as Investors Await Key Federal Reserve Decision

Economic

Forex

Summary:

The AUD/USD pair has extended its rally to a one-and-a-half-week high, driven by expectations of a U.S. Federal Reserve rate cut and a positive risk environment.

BUY AUDUSD

Close Time

CLOSED

0.67600

Entry Price

0.68200

0.67300

0.61919 -0.00017 -0.03%

60.0

Pips

Profit

0.67300

0.68201

Exit Price

0.67600

Entry Price

0.68200

The AUD/USD pair continues to build on its positive momentum for the second consecutive day, pushing higher on Tuesday to reach a one-and-a-half-week high during early European trading. Spot prices currently hover in the mid-0.6700s, up around 0.15% for the day, extending the pair's rally to the fourth straight session. Investors are closely watching the outcome of the two-day Federal Open Market Committee (FOMC) meeting, which will conclude on Wednesday, for a fresh directional cue.

As the market prepares for the central bank's decision, the U.S. dollar (USD) is struggling to recover from its recent significant losses. The greenback has dropped to its lowest level since July 2023, amid widespread expectations that the Federal Reserve (Fed) will implement an aggressive 50 basis point interest rate cut. This outlook has diminished demand for the dollar, while simultaneously boosting appetite for risk-sensitive currencies like the Australian dollar (AUD).

Adding further support to the AUD/USD pair is the hawkish stance taken by the Reserve Bank of Australia (RBA), coupled with a generally upbeat mood in global equity markets. The combination of these factors has enabled the pair to stage an impressive recovery, rallying nearly 150 pips from the crucial 200-day Simple Moving Average (SMA) support level near 0.6620, which marked a four-week low just last Wednesday.

From a fundamental perspective, the outlook for the U.S. dollar remains bearish, suggesting that the path of least resistance for the AUD/USD pair could be to the upside. However, traders should be mindful of potential headwinds, particularly concerning economic developments in China, Australia’s largest trading partner.

Over the weekend, a series of disappointing economic data from China pointed to ongoing challenges for the world’s second-largest economy, casting doubt on the likelihood of achieving its official target of around 5% GDP growth in 2024. As the Australian dollar often serves as a proxy for Chinese economic activity, any further signs of weakness in China’s economy could weigh on the AUD’s strength and limit the pair’s upward potential.

Moreover, with the Fed’s rate decision looming large, many traders may prefer to adopt a cautious approach before placing new bullish bets on the AUD/USD pair. In the lead-up to the Fed announcement, the market will also be focused on the release of U.S. retail sales figures, which could provide additional clues on the state of the U.S. economy. However, any significant market reaction to this data is likely to be muted, as attention remains squarely on the Fed’s policy stance and its forward guidance on interest rates.

Technical Analysis

From a technical perspective, the AUD/USD pair has demonstrated impressive resilience, with prices now using the neckline of a failed Head & Shoulders pattern as support. The bears were unable to complete the pattern, and the pair has since pushed higher, breaking through the falling resistance that had been created by the highs of both the "head" and the "right shoulder."

The AUD/USD’s close above the 0.6728 level reinforces expectations for further bullish movement in the sessions ahead. This price action opens the door for the pair to reach new positive targets, starting with 0.6795 and potentially extending to 0.6820. The 50-day Exponential Moving Average (EMA50) is also lending support to this bullish outlook, further strengthening the case for continued upside.

However, for this bullish scenario to remain valid, it is crucial that the pair stays above the 0.6728 support level. A break below this level could signal a shift in momentum, potentially invalidating the current bullish trend and prompting a retest of lower levels.

The expected trading range for today is between support at 0.6710 and resistance at 0.6810, with a bullish forecast still prevailing.

TRADE RECOMMENDATION

BUY AUDUSD

ENTRY PRICE: 0.6760

STOP LOSS: 0.6730

TAKE PROFIT: 0.6820

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Winkelmann

Stocks

Summary:

As the expectations of a Fed rate cut have been fully priced in, when the cut is announced, U.S. stocks might fall rather than rise.

SELL USNDAQ100

Close Time

CLOSED

19417.70

Entry Price

18000.00

20200.00

20799.60 -31.15 -0.15%

7823.0

Pips

Loss

18000.00

20200.15

Exit Price

19417.70

Entry Price

20200.00

Fundamentals

The market's focus has shifted to the Fed's rate cut decision this week. Recent employment and inflation data have backed a potential September rate cut, possibly by 50 basis points. Normally, such a cut would benefit the stock market, but a substantial rate cut may signal economic troubles. Prolonged high rates have hurt corporate financing and profitability. Major tech stocks like NVIDIA and Apple have already shown signs of significant retracements, hinting at unusual market signals. Even Buffett and Bridgewater have sold Apple shares and are holding cash to avoid risks from a potential U.S. stock correction.

Although the major U.S. indices hold steady at highs, there is clear divergence as the Dow Jones reaches new highs, while the Nasdaq, led by tech stocks, appears weak. With substantial gains in the past three years and rate-cut expectations being fully priced-in, the drop in the dollar index may be limited. The market could see a "buy the rumor, sell the news" scenario, potentially triggering a "recession trade" that leads to U.S. stock declines.

Technical Analysis

In the daily timeframe, the NDAQ100 is fluctuating but its highs are moving lower, suggesting a potential top. The index is suppressed under the downtrend line and shows a bearish engulfing pattern, indicating a tendency for a further drop. A drop below the support level of 18400 would open the door for further declines.

It is recommended traders short NDAQ100 when it is around 19500, with a target at 18000 and a stop-loss order placed above 19800.

Trading Recommendations

Trading direction: Sell

Entry point: 19500

Target price: 18000

Stop-loss: 20200

Support: 18400 / 18000

Resistance: 19500 / 19800

Risk Warnings and Disclaimers

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Eva Chen

Forex

Central Bank

Summary:

The US dollar may struggle to sustain a recovery even if the Fed cuts rates by 25 basis points this week. As the rate-cutting cycles between the ECB and the Fed remain out of sync, the euro is likely to maintain its upward momentum.

SELL EURUSD

Close Time

CLOSED

1.11600

Entry Price

1.08990

1.12050

1.03027 -0.00047 -0.05%

32.5

Pips

Profit

1.08990

1.11275

Exit Price

1.11600

Entry Price

1.12050

Fundamentals

Further rate cuts are likely in future meetings even with a 25-basis-point rate cut from the Fed, especially if the labor market remains weak. This suggests that it might just be a matter of time before expectations shift towards more aggressive rate cuts by the Fed.

If expectations for aggressive US rate cuts diminish, the dollar could see a short-term rebound, but any recovery will likely be limited. We don't foresee the US dollar returning to its 2022 highs, as its elevated valuation and lower rates present substantial headwinds.

Currencies like the British pound, Australian dollar, and New Zealand dollar may continue to strengthen against the US dollar, as the pace of rate cuts in these countries is expected to lag behind the US. In particular, the central banks of Australia, the UK, and New Zealand are likely to maintain higher interest rates than the US by the end of the year.

The EUR/USD two-year swap spread is currently at 85 basis points, the lowest level of the year, with US short-term rates continuing to decline. If the market fully prices in an ECB rate cut during its October meeting, this spread could narrow further, pushing EUR/USD towards 1.1165.

Limited Recovery Potential for the Dollar_1

Technical Analysis

The EUR/USD pair rebounded from 1.1001 and continues to rise, but it remains below the resistance level of 1.1153. The outlook remains neutral for the day.

On the upside, a break above the 1.1153 resistance level would indicate a possible resumption of the rebound, with targets at 1.1200 and then the 1.1274 high. On the downside, a drop below minor support at 1.1072 could shift the bias back toward declines, targeting the 38.2% retracement level from 1.0665 to 1.1200, and potentially falling below 1.0996 again.

In the bigger picture, the prior break above 1.1138 suggests that the corrective pattern from 1.1274 may have been completed at 1.0665. A decisive break above 1.1274 (the 2023 high) would confirm that the overall uptrend from 0.9534 (the 2022 low) has resumed. The next target would be the 61.8% Fibonacci retracement level of 0.9534 to 1.1274, at 1.1740. This scenario remains favorable as long as the 1.0947 resistance-turned-support level holds.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.1160

Target Price: 1.0899

Stop Loss: 1.1205

Valid Until: Oct 1, 2024 23:55:00

Support: 1.1071, 1.1017, 1.0979

Resistance: 1.1153, 1.1165, 1.1193

Risk Warnings and Disclaimers

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Eva Chen

Stocks

Economic

Summary:

Despite strong bullish sentiment in the market, US stocks may be just one step away from a potential correction based on current market dynamics.

SELL US30

Close Time

CLOSED

42250.00

Entry Price

40577.00

42878.00

42565.44 -41.01 -0.10%

124.8

Pips

Profit

40577.00

42237.52

Exit Price

42250.00

Entry Price

42878.00

Fundamentals

The Fed is set for a busy week, with the Bank of England and the Bank of Japan also announcing policy decisions on Thursday and Friday, respectively. The three major US stock indices are less than 1% away from their historical highs, and bullish sentiment remains strong on Wall Street.

As traders prepare for a possible Fed rate cut, the US dollar has weakened and bond prices have risen. However, there is still uncertainty over the extent of this week's rate cut. If the Fed cuts rates by 50 basis points while reaffirming that it's aimed at ensuring a soft economic landing, it would be positive for the stock market. Conversely, if the Fed appears to be reacting out of fear due to unforeseen risks, a market sell-off may follow.

Inflation is cooling toward the Fed's long-term target at present, and a rate cut seems imminent. Corporate earnings, consumer spending, and the broader economy demonstrate resilience. Nonetheless, there are still risks such as concerns about a cooling labor market and a potential recession.

If labor market data deteriorates further, the market could enter "risk-off" mode, regardless of whether the Fed's initial rate cut is 25 or 50 basis points. On the other hand, if employment data improves, consecutive 25-basis-point rate cuts through mid-2025 could further support stock valuations.

New Highs Expected but Upside Potential Will Narrow Again_1

Technical Analysis

The Dow Jones Industrial Average (DJIA) continued to rise on Monday, suggesting that the recent bullish momentum may persist.

The key question for this week's FOMC meeting is not whether the Fed will cut rates but whether the cut will be 25 or 50 basis points. Further rate cuts could catch the market off guard. In the short term, we expect the bullish trend in equities to continue.

Last week's DJIA trading saw a strong rebound as the market did not drop below the psychological level of 38,000 during the recent pullback, which raises doubts about the sustainability of further gains, though there is still some room for upside. As for trading, chasing the rally might not be a prudent strategy; it's better to focus on selling at highs.

Trading Recommendations

Trading Direction: Sell

Entry Price: 42250

Target Price: 40577

Stop Loss: 42878

Valid Until: Oct 1, 2024 23:55:00

Support: 41604, 41168, 40714

Resistance: 41869, 42000, 42178

Risk Warnings and Disclaimers

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Eva Chen

Economic

Commodity

Summary:

With increasing bets on a Fed rate cut, various investment banks have raised their forecasts for gold prices. Regardless, we maintain that gold will follow a path of rising for one week, followed by a correction of one to two weeks.

SELL XAUUSD

Close Time

CLOSED

2600.00

Entry Price

2436.00

2636.00

2674.74 -2.46 -0.09%

360.0

Pips

Loss

2436.00

2636.03

Exit Price

2600.00

Entry Price

2636.00

Fundamentals

Expectations for a Fed rate cut in September have strengthened this week. The journey to this point has been long and bumpy, and Wednesday's monetary policy decision could be a milestone. Meanwhile, gold had a historic week, once again breaking through its consolidation range after three consecutive weeks of adjustment. It came just shy of the psychological $2,600 mark.

ANZ Bank raised its short-term gold price forecast to $2,700 and its year-end 2025 forecast to $2,900. Soni Kumari, the bank's commodity strategist, stated that as US inflation returns to the Federal Reserve's 2% target, the Fed is likely to begin a rate-cutting cycle this month, which would support gold prices.

Saish Sandeep Sawant Dessai, Analyst for Base Metals at Angel One, noted that increasing bets on significant rate cuts by the Fed, coupled with geopolitical risks, are expected to continue driving gold prices higher.

Market Outlook: Supported by a weakening US dollar and market expectations that the Fed will cut rates for the first time since 2020, gold hit a new record high of $2,589 on Monday. While market expectations for a rate cut may seem too strong—almost "helping the Fed cut rates"—we believe the Fed will stick to its path and not be swayed by market sentiment. As inflation trends downward and signs of labor market weakness are not spiraling, the Fed may focus more on resolving the inverted yield curve (the end of yield curve inversion and a widening spread could signal the start of a recession).

The strength of the gold rally will depend on the pace of Fed rate cuts in the short term. During the upcoming easing cycle, declining real interest rates and a weaker dollar are likely to strengthen their inverse relationship with gold. Moreover, central banks' gold purchases remain robust.

Gold Prices May See Correction This Week_1

Technical Analysis

Gold prices continued to climb last Friday, setting new historical highs for the second consecutive day, making it the best-performing asset with a gain of around 3.3%. The Fed is almost "certain" to cut rates this week, which has triggered another round of accelerated gold price increases. Additionally, market expectations for a further 50-basis-point rate cut by the Fed have bolstered bullish sentiment.

Currently, bullish technical analysis and favorable fundamentals have shifted investors' focus toward the $2,600 psychological barrier. Any limited short-term declines have been met with dip-buying, indicating strong bullish market sentiment. A pullback would also provide a better entry point for bulls to re-enter the market.

However, as indicators in the daily and weekly charts show overbought conditions, the market may struggle to push significantly higher in the near term.

Based on the current uptrend structure of gold, there may still be some room for further gains, but not enough to drive a stronger rally. Following gold's "one-week rise, one to two weeks correction" pattern, prices may adhere to this principle in the coming one to two weeks.

Trading Recommendations

Trading Direction: Sell

Entry Price: 2600

Target Price: 2436

Stop Loss: 2636

Valid until: Oct 1, 2024 23:55:00

Support: 2556, 2531, 2528

Resistance: 2600, 2614, 2628

Risk Warnings and Disclaimers

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Alan

Central Bank

Economic

Forex

Summary:

With the market expecting a rate cut from the Fed, the outcome is bearish for the US dollar index (USDX) whether the cut is by 25 or 50 basis points. The US dollar index, which stabilized after last week's decline, is now set to enter a downward channel.

SELL USDX

Close Time

CLOSED

100.330

Entry Price

99.400

100.950

108.980 -0.020 -0.02%

62.0

Pips

Loss

99.400

100.950

Exit Price

100.330

Entry Price

100.950

Fundamentals

As of today's release, the USDX has fallen by 0.46%, reaching a new low of 100.21, its lowest point since December last year.

With the Federal Reserve meeting this week and increasing market expectations for further easing policies, market sentiment has become more volatile, placing additional pressure on the dollar.

Currently, a Fed rate cut in September is widely anticipated by the market, with attention focusing on whether the cut will be by 25 or 50 basis points. According to the federal funds futures market, there is a 42% chance of a 25-basis-point cut and a 58% probability of a 50-basis-point cut, an increase from 50% last week.

UBS has indicated that they are closely watching retail sales and industrial production data. If these data points are weak, it could sway the Fed to opt for a 50-basis-point cut instead of a more moderate 25-basis-point move.

A 50-basis-point cut would suggest the Fed is leaning toward a more aggressive easing stance, signaling deeper concerns over the economic slowdown and a need for stronger measures to stabilize growth. Conversely, a 25-basis-point cut might suggest the Fed sees some economic pressure but doesn't believe aggressive easing is necessary.

In either scenario, whether the Fed cuts rates by 25 or 50 basis points, the outcome will likely put downward pressure on the US dollar.

Technical Analysis

The Downward Path to Continue Regardless of a 25 or 50 BPS Cut_1

In the daily chart, the USDX remains in a downward trend. As of writing, the index has broken through its December low of 100.27, hitting a new low of 100.21.

Although the index has reached a new low, it does not yet confirm a significant break below the key support level of 100.40. The area around the 100.00 psychological level and the dense trading zones in the weekly chart still provide some support. If the index decisively breaks below the 100.40 support level today, further downside potential will open, with the first target at 99.35.

However, if the index fails to break this support today, the likelihood of a weaker dollar remains much greater than a rally, particularly under the assumption of a Fed rate cut. It is recommended that a trading strategy of selling at highs be considered.

Trading Recommendations

Trading Direction: Sell

Entry Price: 100.39

Target Price: 99.40

Stop Loss: 100.95

Valid Until: Sep 30, 2024 15:00:00

Support: 100.21, 99.83, 99.18

Resistance: 100.48, 100.66, 100.83

Risk Warnings and Disclaimers

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Alan

Central Bank

Forex

Summary:

The market widely expects a rate cut with the Fed's upcoming meeting, which is putting downward pressure on the US dollar and creating a bearish outlook for the USD/CAD pair.

SELL USDCAD

Close Time

CLOSED

1.35867

Entry Price

1.32710

1.36320

1.43561 +0.00077 +0.05%

45.3

Pips

Loss

1.32710

1.36322

Exit Price

1.35867

Entry Price

1.36320

Fundamentals

Recently, market attention has been focused on this week's Federal Reserve meeting. It seems almost certain that the Fed will cut rates, but there is disagreement on the scale of the cut. According to the CME FedWatch tool, the market sees a 50% probability for both a 25-basis-point and a 50-basis-point cut at this week's meeting.

Institutions like Goldman Sachs are leaning towards a 25-basis-point cut, arguing that a combination of fiscal and monetary policies, along with foreign capital inflows, will help sustain economic growth and counter recession risks. This makes it more likely for the Fed to opt for a moderate rate cut. On the other hand, a 50-basis-point cut would signal that the Fed is more concerned about an economic slowdown and sees a need for a more aggressive monetary easing to stabilize growth. As a result, the US dollar is currently under significant pressure.

Additionally, with growing expectations that the Bank of Canada may also cut rates, the Canadian dollar could weaken. Investors will closely watch the Canadian Consumer Price Index report for August, scheduled for release on Tuesday, as it may provide new insights into the Bank of Canada's policy outlook ahead of its October decision.

Technical Analysis

US Dollar Under Pressure as Fed Heads for Rate Cut_1

Looking at the daily chart, USDCAD has broken out of its previous upward trend and turned bearish, dropping to a support level of 1.3440 before rebounding. The pair has now risen to the key resistance level of 1.3600, but it has failed to break above this level for five consecutive days, indicating strong upward resistance. The market sentiment is gradually shifting toward the bears.

If the pair fails to break through the crucial 1.3600 resistance level, the market will likely lean further toward the bearish side. The recommended trading strategy is to sell at highs.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.3590

Target Price: 1.3271

Stop Loss: 1.3632

Valid Until: Sep 30, 2024 15:00:00

Support: 1.3564, 1.3492, 1.3439

Resistance: 1.3622, 1.3644, 1.3698

Risk Warnings and Disclaimers

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Risk Disclosure