In the US, last week’s data indicate that the economy continues to be robust. Employers added a net of 187,000 new positions in August. While the labor market modifies, we do not anticipate another interest rate increase in this cycle. Nevertheless, significant rate reductions are not imminent, given the labor market's continued tightness and wage growth acceleration.
On the international front, key indicators continue to indicate a trend of slowing global growth and a progressive easing of inflationary pressures. China's services PMI decreased for the fifth consecutive month in August, falling to 51.0.
Meanwhile, Canada's economy unexpectedly contracted in the second quarter. The headline Consumer Price Index (CPI) in the Eurozone remained unchanged at 5.3% year-over-year in August, while core inflation moderated to 5.3%.
Several financial market indicators appear to support the likelihood of a gentle landing for the economy. Since the beginning of the year, the S&P 500 and corporate bond spreads have increased by nearly 18%. Nonetheless, one market indicator, the yield curve, continues to raise concerns about the economic outlook.
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Forex Technical Outlook for 04 September 2023 to 08 September 2023
Let’s see the list of events to look at this week:
- RBA Cash Rate & Rate Statement on Tuesday
- AUD GDP q/q on Wednesday
- BoC Overnight Rate and Rate Statement on Wednesday
- The US Unemployment Claims on Thursday
- CAD Employment Change on Friday
- CNY CPI y/y on Friday
Let’s see the market outlook from the weekly forecast:
After the strong Non-farm payroll report, investors' sentiment has shifted to the US Dollar. However, there is a lot of data to come this week, which can set the EUR/USD’s direction. The August ISM Manufacturing OMI and July Retail Sales for the Eurozone would be notable releases for the week.
The EUR/USD price is currently trading below the 23.6% Fibo Retracement from a 1.1275 high to a 1.0765 swing at the 1.0885 level. As the current price is training below this critical level, supported by the strong NFP, we can consider the overall outlook as bearish.
As per the weekly reading, the upward pressure is limited as technical indicators have bounced back to the midline. Meanwhile, the dynamic 20-day EMA worked as a bearish signal, while the 100 SMA is yet to be violated before going short.
The daily chart's overall structure is strongly bearish, as 100 SMA and 20 EMA showed a downward pressure. Meanwhile, the 20-day EMA showed a downward slope, while the 100 SMA remained flat at the 1.0924 level.
Based on the current price action, the immediate support level is at 1.0765, which is a July 2023 low. Below this level, a long-term bearish trend might be found, but a bullish recovery above the 1.0930 level could open rooms for reaching the 1.1000 mark.
The GBP/USD price showed a bearish reversal and rebounded against most of the major currencies from the two-month high. The week was initiated with a firm footing step by the US Dollar, which extended the momentum of the strong Non-farm payroll.
In the technical analysis of this pair, the bearish pressure has become potent below last week’s low. However, the 100 SMA is still below the price, while the current 20 EMA is above the price. As per the weekly candlestick analysis, an inside bar after a strong bearish candle suggests a downside trend continuation toward the near-term support level.
Although the current daily price trades within a descending channel, the bearish pressure could be potent in the coming days. The 14-day Relative Strength Index (RSI) has rebounded below the 50.00 level, which can move further down towards the 30.00 oversold level.
Based on this structure, buying pressure needs a stable recovery above the 100-day SMA at the 1.2650 level. As the downside pressure is potent, the sell-off might extend toward the 1.2548 level, which is the current 2-month low.
The AUD/USD pair closed the month with a strong bearish candle, which suggests a strong bearish trend continuation opportunity. However, there are several trend-changing events to look at from the RBA. As per the current expectation, the cash rate is expected to remain unchanged at 4.10%.
After 6 consecutive weeks, AUD/USD managed to close a positive weekly close, which appeared after an indecision candlestick. Although it is a new month, a bullish correction is pending before forming a significantly lower low.
In the daily chart, the selling pressure is potent as the current price resists the 20-day EMA level. However, the downward 100-day SMA is way above the current price, while the current RSI is bearish below the 50.00 level.
In the volume structure, the most active level since 13 July is at 0.6402 level, which might work as a strong support level. A bearish trend continuation from the rejection from 20 EMA needs a daily candle below the 0.6400 level before aiming for the 0.6300 level.
On the other hand, a bullish recovery needs a solid recovery of the 0.6521 level before reaching the 0.6650 level.
The dominance of the US Dollar is clear in the USD/JPY price as several upbeat data pushed the price higher with impulsive pressure. Still, there is nothing much from BOJ to consider a trend change.
The USD/JPY price showed a bullish momentum since 14 July and moved 6.5% higher from that level within 42 trading days. Although the bullish sentiment was potent from the Non-farm payroll release, the weekly close appeared indecisive. However, the previous weekly candle is strongly bullish, which may result in a trend continuation.
The daily chart shows a corrective movement in the 14-period Relative Strength Index, which is currency above the 50.00 neutral line. In the main chart, sellers’ have been taken out from the false break at the 20 EMA area, where the current 100-day SMA is below the major support.
Based on the current weekly forecast, a bullish trend continuation is potent where the near-term resistance level is at 147.38 level. On the other hand, a bearish reversal needs a strong daily candle below the 144.50 level, which may lower the price toward the 142.00 psychological level.
Gold reached the 1950.00 level last month, supported by the retreating US yields and the absence of other high-impact news. However, the upbeat Non-farm payroll changed the sentiment.
In the weekly price of XAU/USD, the current price is trading sideways at the 20 EMA, where the latest candle closed above the crucial dynamic level. The 100 SMA remained below the structure, with the current RSI above the 50.00 line.
The RSI is at the 60.00 level in the daily price, suggesting that the pair has a higher possibility of extending the bullish pressure in the coming days. The 100 SMA is the immediate resistance in the daily chart, where a minor downside correction could influence bulls to join from the 20 EMA.
Based on the current market outlook, the 1950.00 would be a crucial level to look at. A bullish recovery with a daily candle above this level would increase the possibility of testing the 1980.00 static level before moving to the 2000.00 level.
Conversely, a bearish daily candle below the 1930.00 level could lower the price towards the 1900.00 psychological level.
Bitcoin's connection to the stock market has strengthened significantly, making it susceptible to the influence of the US dollar and broader macroeconomic forces affecting traditional markets.
In the wake of the March 2020 COVID-19 collapse, Bitcoin's association with the U.S. stock market intensified. Since then, Bitcoin has demonstrated sensitivity to macroeconomic policy decisions made by the US Federal Reserve.
While the correlation remained high throughout the first half of 2023, it decreased in April, reached its lowest point in June, and reached an even lower level in August. With the Dow Jones Industrial Average (DJIA) currently at 0.92, the correlation has recently increased once more and returned to levels observed in early 2021. The correlation between the S&P 500 and Nasdaq 100 is somewhat lower, at approximately 0.69 and 0.53, respectively.
Closer inspection reveals that the downward trend in correlation bottomed out and began to recover in the second week of June, coinciding with the BlackRock spot Bitcoin ETF filing. This pattern indicates that the correlation fluctuates, and the recent upswing will likely continue through the third and fourth quarters of 2023.
The latest monthly candle suggests a strong sellers’ presence in the market, followed by a long, wicked weekly candle to the sellers’ side.
The daily price also suggests a bearish continuation opportunity as the dynamic 20 EMA is above the price, working as a resistance. The 14-day RSI is also bearish, aiming towards the 30.00 oversold area.
Based on this outlook, the 24,802.00 level is crucial as a bearish daily candle below this level could lower the price toward the 21,800.00 level.
Bulls should remain active in the market as the 28141.00 level should be overcome before aiming for the 31,000.00 psychological level.
After a volatile week, this trading week is going to be less volatile due to the absence of high impact releases and monthly shifts. As a result, the market might follow the direction set from the NFP until any significant release comes.