Dollar Strengthens, Yen Weakens, and Gold Surges (08.07.2024)

The dollar index has climbed to around 103.2, reflecting a scale-back in bets for an imminent Federal Reserve rate cut, despite earlier recession fears sparked by a weak US jobs report. Japanese yen weakens with the Bank of Japan's cautious stance on rate hikes, even as market conditions remain unstable. Gold prices surge above $2,390 per ounce, driven by rate cut expectations and ongoing geopolitical tensions. The GBP/USD pair indicates potential bullish trends above 1.2730 and bearish movements below 1.2650, providing insights for traders navigating a volatile market.

Dollar Index Climbs as Traders Scale Back Emergency Rate Cut Bets

The dollar index climbed to around 103.2 on Tuesday, extending gains from the previous session as traders reduced bets on an emergency rate cut from the Federal Reserve. Earlier this week, the index had fallen to a near seven-month low following a weak jobs report from Friday, which fueled concerns about a US recession and speculation that the Fed might take emergency measures to lower borrowing costs. However, analysts indicated that the recent global selloff could be an overreaction, with Goldman Sachs CEO David Solomon stating to Bloomberg that he does not expect the Fed to act before September. Meanwhile, markets continue to anticipate a larger 50 basis point rate cut from the Fed in September, as well as over 100 basis points of total easing for the year. The dollar strengthened against both the yen and euro but lost ground against the Kiwi and Aussie.

In the pair, which has been trading sideways since the beginning of the week, the first support level is at 1.0900. If this level is breached, the next supports to watch will be 1.0850 and 1.0800. On the upside, the first resistance is at 1.0960; if this level is surpassed, the next targets will be 1.1000 and 1.1050.

USD/JPY Weakens with BoJ's Cautious Stance on Rate Hikes

The Japanese yen weakened past 147 per dollar, moving further away from seven-month highs after Bank of Japan Deputy Governor Shinichi Uchida stated that they would not raise interest rates if market conditions were unstable. Nonetheless, markets still anticipate that the central bank will increase rates as rising local wages drive inflation higher. On Monday, the yen surged to a seven-month high due to recent currency interventions from Tokyo and a hawkish shift in BoJ monetary policy, which triggered a significant unwinding of yen carry trades. This move was further supported by growing fears of a US recession and disappointing tech earnings that led to a global selloff in risk assets, prompting speculation about an emergency rate cut from the Fed. However, market sentiment has since stabilized, with analysts suggesting that the recent global selloff may have been an overreaction.

The first resistance level is at 148.00. If this level is surpassed, the next targets will be 149.30 and 150.90. On the downside, the initial support is at 145.90; if this level is breached, the next support to watch will be 144.00 and 141.70.

Gold Surges Above $2,390 on Rate Cut Expectations 

Gold rose above $2,390 per ounce on Wednesday following a decline in the previous session. The metal's upward momentum remained strong, fueled by expectations of multiple rate cuts from the Federal Reserve in response to weak US economic data. While Fed policymakers dismissed concerns that the weaker July jobs data signals a recession, they emphasized that rate cuts are necessary to prevent one. Markets are now pricing in over 100 basis points of total easing for the year, with a significant 50 basis point rate cut anticipated in September. Additionally, heightened tensions in the Middle East continued to support gold's appeal as a safe-haven asset.

Gold starts the day in a sideways trend, with the first support level at 2,387. If this level is breached, the next supports to watch will be 2,375 and 2,355. On the upside, the initial resistance is at 2,400; if this level is surpassed, the next targets will be 2,430 and 2,450.

GBP/USD: Bullish Above 1.2730, Bearish Below 1.2650

For GBP/USD, the initial support lies at 1.2650, followed by 1.2600 and 1.2540 below. On the upside, the first resistance is at 1.2730, with subsequent levels at 1.2830 and 1.2870 if the pair breaks above this resistance.