The risk-on sentiment resumed overnight on Tuesday as the dollar index plummeted to 92.5. Equities take advantage of the investor’s renewed risk appetite to shoot higher. No major economic event on the calendar on Tuesday. Will the status quo remain?
The market is largely expected to favor risk assets in the first half of this week as investors remain confident that monetary stimulus removal from the central banks will be slow and gradual. The Fed Chair last week said a taper would happen later in the year but a rate hike is not in the near-term plan. The delta variant uncertainty still presents a significant road-block and policymakers fear a too early or too quick stimulus removal would jeopardize the impressive economic recovery we have seen since the last quarter of 2020. While there are still lockdowns in some places of the large economies, the world still focuses on recovery and plans are ongoing to tame the virus or even live with it.
The risk-on sentiment continues to weigh on the dollar and other risk-off currencies like the JPY and CHF. On the other hand, equities have surged together with high-beta FX – AUD, NZD and CAD. S&P 500 has gained over 0.6% so far this week, flying above the 4522 key technical level and now a small distance away from 4550. The dollar index, on the other hand, is plummeting as the bears attempt a breakdown below 92.5. Oil price remains firm as WTI eyes $70 while Gold bull remains driven by the weak dollar rather than losing value being a safe-haven asset.
August 31 Market Forecast
Since August 20, EURUSD has gained over 170 Pips – its biggest rally since May. With the DXY looking likely to push below 92.5, we should see EURUSD push toward 1.19 before the Thursday and Friday key events. The next ECB meeting is in September. We should therefore see the dollar dominate this currency throughout the key. Traders should therefore keep their eyes on the dollar index.
The Sterling FX index is looking forward to a breakdown after the resistance from the bears. On the GBPUSD chart, a bearish wedge formation just completed at 1.38. Therefore, if we continue to see resistance off the 1.38 key level, this currency pair could push downwards toward 1.37 – overriding a bearish dollar in the process.
The dollar-yen is poised for a more range-bound move and could interest scalpers. The dollar and yen are both safe-haven instruments although the dollar seems to be the more volatile in the current market environment that could switch anytime. A retest of 109.7 could happen today. However, traders should keep their eyes on the 110-109.95 intraday resistance zone.
AUDUSD and NZDUSD
These two high-betas have been the most volatile among the major FX and rightly so, considering the risk-driven nature of the market in recent weeks. The Aussie broke above 0.73 a few hours before the London session opened and has gone as high as 0.7349. A similar move can be seen on NZDUSD which has jumped over 60 pips within the same timeframe. Traders should be careful of buying at overbought regions. Buying the next dip will be very ideal in this kind of situation.
USDCAD is on the verge of breaking below a key support zone at 1.2585-1.2575. If the breakdown eventually goes through, we can expect further push toward the 1.25 psychological level. The strong prices of commodities especially oil amid a bright risk mood should continue to support the CAD against the weakening dollar.
Gold stays above 1800, recovering from Monday’s slip to 1808. 1800 still looks attractive for a renewed bullish interest. However, the declining dollar and treasury yield should continue to give Gold bulls more confidence to push higher toward 1830 thus kicking out the bearish interests.
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