The dollar weakens further on Tuesday as traders await the next action from the Fed amid swift economic recoveries despite rising global Covid-19 cases.
The US-Sino affairs run mildly underneath while political tensions surge in the US ahead of the November general elections in the world’s biggest economy. EURUSD hits a fresh weekly high and GBPUSD bounced from the dovish Brexit effect. Meanwhile, the equities markets remain firm following rebounds that followed the current bearish move. US equities are up 2-3% in the last 7 days while the Asian and European stock markets have also turned higher. The Japanese Yen gained across the board on Monday as the country’s governing party selected a new leader to succeed the outgoing Shinzo Abe. USDJPY hits a fresh September low as a result of this and a weaker Dollar.
In the commodities market, risk-off returned on Monday as Gold hits 1969 – highest in nearly the last two weeks. The Oil market remains under pressure with Brent struggling to float above $40. The black gold is down by over 6.5% in September on fears of Covid second wave.
Looking ahead, traders and investors will focus on Wednesday’s FOMC meeting. How will the Fed react to the Covid-19 second wave? Will the bank expatiate on its last month average inflation rate policy? In addition, traders and investors will most probably get a clearer picture as to the current state of the economy. Let’s take a look at the current price pattern and important levels across the major instruments.
S&P 500 contracts. What next?
The S&P 500 has been range-bound since the massive September 2-4 decline. Since the dip to 3350, the stock index rallied a bit before making a new low just below 3300. However, the bearish stock market has stabilized and momentum seems to be building. The question now is this: in what direction?
From technical standpoint, it seems US equities will make one lower leg. S&P 500 completed a bearish triangle pattern just above 3400. Unless the price breaks above 3448-3500 critical zone, more decline is high likely to 3255 and 3162 Fibonacci support levels before the bullish trend resumes to fresh all-time high.
DXY drops below 93. When will the recovery continue?
The dollar remains under the bearish pressure after a quick breakaway early September. the greenback gained across the board as the index gained over 2% in just about a week. The long-term trend remains bearish. However, the current bullish correction from 91.77 is expected to stay longer and surge toward 94-95. However, before that could happen, the bulls have to overcome the current dip which is a correction of the 91.77-93.67 jump. Therefore, the price will most probably touch 92.67 and 92.44 in the short-term before the lift. The dollar weakness is expected to continue before the FOMC meeting on Wednesday.
Gold hangs in a triangle
The yellow metal hits the roof of a triangle pattern and is looking exhausted at the moment. 1992 and 2016 resistance levels can be tested if the price breaks the triangle to the upside. If the current 1965-1970 holds, the metal should drop toward the base of the pattern below 1920. A bearish break below the 1906-1902 would be devastating for the bulls as a sharp decline toward 1800 would follow.
WTI rebounds from a 6.5% decline
Oil prices fell off a 10-week bullish wedge pattern. From the start of September, Brent and WTI have fallen over 6.5%. Last week, a minor bullish correction started but the heavy bearish pressure is still very strong. As the chart shows, the bounce will continue to $39, $40 or even $41 for the WTI. If the expected rally is corrective, the bearish run will be expected to resume toward $32.
(All charts used are from TradingView)
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