Article by: ETO Markets
The currency market has been influenced by several factors this week, including Fed policy moves, U.S. economic data, and geopolitical risks. The minutes of the Fed's September FOMC meeting indicated that most members supported a 50 basis point rate cut because they believed inflation was edging closer to the 2 per cent target. However, some members wanted a cut of only 25 basis points, believing that the current economic momentum and low unemployment remained solid. This divergence of views suggests that the future path of policy is uncertain, with market expectations for a 25 basis point rate cut in November rising, as well as a more than 20 per cent chance that the Fed could opt to keep rates on hold.
The diversification of views within the Fed helped strengthen the dollar, pushing the dollar index (DXY) to a near two-month high. This was also supported by US economic data, such as the yield on the highly rate-sensitive two-year Treasury note rising to its highest level since August 19, and the benchmark 10-year note yield remaining relatively high. However, the market remains cautious about the future path of rate cuts, as it will depend on upcoming key data releases, especially this week's US consumer price Index (CPI).
In terms of geopolitics, the situation in the Middle East became the focus of market attention. Tensions between Israel and Iran have escalated, with Israeli Defense Minister Yoav Gallant warning of a "lethal, precise and unexpected" strike against an Iranian attack. This tension has increased risk aversion in the market, driving some support for safe haven assets such as gold (XAU/USD). While a stronger dollar weighed on gold prices, repositioning trades by investors ahead of the release of the US CPI data provided short-term support for gold.
The uptrend in USD/JPY remains intact despite the risk of intervention in the FX market by Japanese authorities or the Bank of Japan. The pair continues to make steady progress, trading at multi-year highs, with buyers aiming to test the psychological level of 162.00. The Relative Strength Index (RSI) shows that momentum remains in favor of buyers, and while it has entered overbought territory, it has not yet shown signs of retreating. Thus, the path of least resistance still favors the upside.
The current resistance is at the July 3 high of …, and if a break occurs, the pair could further test … and challenge the November 1986 high of …. On the downside, if USD/JPY weakens, the first support will be at …, followed by … Tenkan-Sen. A break below this level could lead to a further pullback to Senkou Span A at … or even Kijun-Sen at ….
AUD/USD has recently achieved an upside breakout, breaking through the $0.67 mark. Volatility may be low in the short term due to the US Independence Day holiday and the upcoming Non-Farm Employment Change data, but the overall trend is bullish.
A break above the July high of … could challenge the December high of …and the key … level. In the event of a pullback, support is at … and the 200-day EMA at …, with further downside targets at the May low of ….
Overall, the uptrend should continue as long as it remains above the 200-day moving average. The four-hour chart shows a resumption of upward momentum, with near-term resistance at … and … and support at 0.6645 and …. The RSI is currently around 67, indicating that there is still room for upside.
