US Dollar Index

Trading action in financial markets remained calm last week as trading conditions remained light after the Christmas holiday and the New Year holiday was approaching. The US dollar index fluctuated in a narrow range above 108.00 for most of the time, reflecting cautious sentiment. The US Department of Labor reported last Thursday that the number of initial jobless claims in the United States fell slightly to 219,000 in the week ending December 21 from 220,000 in the previous week. This data was better than the market expectation of 224,000. It was the highest in more than three years. Reuters reported last week that the US dollar failed to rise significantly despite news that Chinese policymakers were considering selling nearly 3 trillion yuan of special government bonds in 2025. The additional capital should boost the slowing and weak Chinese economy. In the short term, the US dollar continues to be supported against the backdrop of widening monetary policy divergences between the Federal Reserve and other major central banks, while foreign exchange market volatility can increase in the rest of the month due to reduced liquidity and the approaching Trump's inauguration. On the chart, the US dollar is expected to continue to consolidate at a high level.

Last week, the market was still light due to the Christmas holiday, and the trading range of the US dollar index was in a very narrow range of 107.70 - 108.30. As the 14-day relative strength index (RSI) and MACD indicators of the daily chart show, the US dollar index has not only fully recovered its earlier losses, but also hit a 25-month high of 108.55 in mid-December, keeping the US dollar index above 108. So, on the upside, the area formed by 109.10 (trend line stretching upward from the low of 100.62 on December 28, 2023); 109.20 (76.4% Fibonacci retracement from 114.78 to 100.16); and 109.29 (July 14, 2022 peak) is the first key resistance level. Once this area level is exceeded, the psychological level of 110.00 comes into play. As for the downside, 107.68 (last week's low), and 107.47 (50.0% Fibonacci retracement from 114.78 to 100.16) are the first target levels. Further will target the 107.00 (market psychological barrier) level.

Consider shorting the US dollar index around 108.15 today, stop loss: 108.25, target: 107.70, 107.60

WTI spot crude oil

Last week, oil prices rose more than 1% and recorded weekly gains due to a larger-than-expected decline in US crude oil inventories and thin year-end trading volumes. Major European energy companies are focusing on oil and gas rather than renewable energy for short-term profits, a trend expected to continue until 2025. On the other hand, this shift by oil majors is due to a slowdown in the promotion of clean energy policies around the world, with many governments delaying their targets after Russia's full-scale invasion of Ukraine in 2022 as energy prices soared. Oil prices are expected to achieve weekly gains on optimism that economic stimulus measures will drive recovery in China, the world's largest oil importer. The World Bank raised its growth forecasts for China in 2024 and 2025 but warned that weak confidence and challenges in the real estate sector will continue to weigh on the economy. Traders are focusing on China’s recent economic measures, including reports that officials have more flexibility to use government bond proceeds to stimulate growth, which could boost oil demand in the major consumer.

Crude oil prices did not rise much despite headlines that China will boost local demand with a massive RMB 3 trillion cash injection. This should be good for local oil demand as China is one of the world’s largest oil consumers. Looking up, $70.59 (100-day simple moving average) and $71.46 (February 5 low) are firm resistance levels nearby. If more bulls emerge to support oil, the next key levels would be $72.23 (50.0% Fibonacci rebound from $77.93 to $66.53), and $72.54 (November 7 high). However, watch out for quick profit-taking as the year-end approaches. Therefore, once a technical pullback occurs, $68.50 is the initial support level for WTI crude oil, and $67.12 - the level that held prices in May and June 2023 and the last quarter of 2024 - remains the first solid support nearby. If broken, the low of November 18, $66.53, followed by the low so far in 2024 will reach the $64.75 level.

Today, consider going long on crude oil around 69.80, stop loss: 69.65; target: 70.80; 71.00

Spot gold

Last week, gold prices fell due to rising U.S. Treasury yields. The appeal of non-yielding gold has weakened in a holiday-light week, with the market focusing on the potential impact of President-elect Donald Trump's return to office and his inflationary policies on the Fed's outlook for 2025. A stronger dollar, driven by strong U.S. economic data and expectations of smaller rate cuts from the Federal Reserve in 2025, has made gold more expensive for non-dollar holders. Gold prices have surged 28% so far this year, hitting an all-time high of $2,790 on October 31. The Fed's rate-cutting cycle and rising global tensions have driven gold prices higher. Although the Fed currently expects fewer rate cuts, it remains optimistic for 2025. Global geopolitical tensions will remain elevated, central banks will continue to buy gold aggressively, and uncertainty will continue with Trump's return to the White House next January. Tariffs and protectionist policies are also expected to trigger a potential trade war, increasing gold's appeal as a safe-haven asset. Next year, with central banks buying gold, if gold prices continue at their current pace, it is foreseeable that gold prices will break $3,000 at some point, possibly in the summer.

The daily chart shows that gold prices are in a consolidation phase as they move sideways around the 9-day (2616) and 100-day (2618) moving averages. The technical indicator 14-day relative strength index (RSI) is hovering below 50, and the fundamentals of gold prices remain unchanged in the short term, reflecting a neutral sentiment. A decisive move above 50 may indicate an increase in buying interest in the golden commodity. Currently, the gold price is holding the 110-day simple moving average of $2,599.80, while it continues to face selling pressure at the 45-day simple moving average of $2,642.70. On the upside, the gold price may initially target the last week's high of $2,639.00 and $2,642.70 (45-day simple moving average) levels. The next resistance is at the 50-day moving average of $2,663.20. The next relevant resistance is at the 2,692.80 (Dec. 13 high) level. If gold buyers give up, gold prices will continue to fall below the 9-day moving average of 2,616.00, and the $2,615.50 (last week's closing price) area, and will test $2,600.00 (market psychological level), and $2,599.80 (110-day moving average). Next is the monthly low of $2,583.00. If it breaks, it will test the $2,560.50 (134-day moving average) level.

Today, you can consider going long on gold before 2,610.00, stop loss: 2,606.00; target: 2630.00; 2635.00

AUD/USD

Last week, AUD/USD fell for the fifth consecutive day, trading slightly above 0.6200. AUD/USD fell as the US dollar gained support due to the reduction of expectations of a Fed rate cut. At its December meeting, the Fed cut interest rates by a quarter and revised its forecast for 2025 from four cuts previously to just two. The U.S. dollar index, which measures the value of the greenback against six major currencies, traded above 108.00, just below its highest level since November 2022. However, the upside for the dollar may be limited as the 2-year and 10-year U.S. Treasury yields remain at 4.32% and 4.57%, respectively. The Australian dollar came under pressure after the Reserve Bank of Australia hinted at a possible rate cut in 2025, with markets expecting a drop to 3.6% by the end of the year. According to the latest RBA monetary policy meeting minutes, the central bank is increasingly confident that inflation is on a sustainable path to its target. In addition, the Australian dollar is struggling during the period due to increased risk aversion and growing concerns about the health of the Chinese economy. This factor is particularly important given that China is Australia's largest trading partner.

Last week, the U.S. dollar remained higher in a thin holiday week. The U.S. dollar remained strong as the Federal Reserve has guided for gradual rate cuts in 2025. AUD/USD is trading slightly above the four-year low of 0.6180 and is temporarily trading slightly above 0.6200. However, the pair has closed down for the fourth consecutive week and the outlook for the pair remains bearish as the 5-week moving average, which is trading around 0.6348, is sloping down. The technical indicator 14-week relative strength index (RSI) is fluctuating between 28.00 and 33.00, indicating that the bearish momentum is intact. If the AUD pair fails to maintain its recovery above the support of last week's high of 0.6265, more downsides will occur, with the nearest lows being 0.6199 (Dec. 19 low), and 0.6200 (market psychological level), a break of which will see the low of 0.6120 on March 6, 2020 and the psychological support of 0.6000. On the other hand, last week's high of 0.6265 will be the first resistance, followed by 0.6300 (round number), and 0.6348 (5-week moving average).

Today, you can consider going long on AUD before 0.6205, stop loss: 0.6190; target: 0.6250; 0.6260.

GBP/USD

GBP/USD continues to fluctuate in a narrow range of 1.2500 - 1.2575 as the Christmas holiday approaches, resulting in light trading activities and rising expectations that the US Federal Reserve will reduce the number of interest rate cuts next year. Therefore, the currency pair may find it difficult to find a direction in the short term under the condition of still light trading conditions. On the other hand, due to the pause of the dovish stance of the Bank of England and the weak economic data last week, GBP/USD once fell below the 1.25 to 1.2475 level last week, and then stabilized. A growing number of Bank of England officials voted in favor of rate cuts, leading traders to gradually raise dovish bets for 2025. Markets are now pricing in a 53 basis point rate cut for 2025, up from 46 basis points after the BoE's policy announcement on December 19, suggesting at least two meetings would be held, with officials set to cut the key borrowing rate by 25 basis points. Meanwhile, BoE Governor Andrew Bailey did not guide a specific path for policy easing in 2025, citing heightened uncertainty over the UK economy. Markets estimate that UK interest rates could fall faster than expected next year.

GBP/USD continued to trade in a narrow range of 1.2500 - 1.2575 last week, amid thin trading activity due to the Christmas holidays and rising expectations that the US Federal Reserve will reduce the number of rate cuts next year. Nonetheless, upside for the major currency pair appears limited. From the daily chart, the bearish outlook for GBP/USD remains, with the price temporarily holding above the "double bottom" formed by 1.2485 (November 22) and 1.2475 (December 20). The 14-day relative strength index (RSI) is below the mid-line around 38.50, which strengthens the downward momentum and indicates that further declines are likely. If the pair falls below the key support of the "double bottom", the first downside target is 1.2445 (May 9 low). The next level to fight is the market psychological low of 1.2400. On the upside, the immediate resistance level is 1.2571 (10-day moving average). Looking further up, the next hurdle is at 1.2600 (round number), while the key upside hurdles to watch are the 1.2667 (December 19 high) - 1.2689 (40-day moving average) range levels.

Today, we recommend going long on GBP before 1.2565, stop loss: 1.2550, target: 1.2630, 1.2640

USD/JPY

The yen fell about 1% against the dollar last week, to a near 5-month low of around 158.08. The Bank of Japan ended its December policy meeting with few clues on when to raise borrowing costs. In addition, Bank of Japan Governor Kazuo Ueda said last week that it may wait longer before making the next rate hike, saying the central bank needs more information on wage trends. This, coupled with the earlier release of the minutes of the October Bank of Japan policy meeting, stressed the need for caution amid domestic and global uncertainties. Nevertheless, Japan's widening inflationary pressures may force the Bank of Japan to raise rates again in early 2025. However, market speculation that Japanese authorities may intervene to support the local currency may limit the yen's further decline. In fact, Japanese Finance Minister Katsunobu Kato warned that foreign exchange volatility was excessive and reiterated that the government is ready to take action to stabilize the local currency. In addition, geopolitical risks and trade war concerns prevented traders from making aggressive bearish bets around the safe-haven yen. This limited further gains in the USD/JPY currency pair.

USD/JPY climbed to a near 5-month high of around 158.08 last week. Technical analysis on the daily chart shows that the bullish trend remains in the short term, with the pair moving upwards in an ascending channel. The 14-day relative strength index (RSI) of the technical indicator is slightly below the 70 level (latest at 68.50), reinforcing the bullish outlook for the US dollar. A break above the 70 mark could indicate overbought conditions, which could lead to a potential downside correction for the pair. On the upside, USD/JPY could retest the monthly high of 158.08 reached last Thursday, as the 20-day (153.75) and 40-day (153.66) moving averages formed a bullish "golden cross" pattern last week. A break above this level could support the pair to target 158.86 (July 16 high), and further challenge 160.00 (market psychological level), and the upper line of the ascending channel near 160.30. As for the downside, USD/JPY may find major support around 157.08 (last Thursday's low), and 157.00 (round number) areas. The next level will point to the 9-day moving average of 156.58, and 156.00 (market psychological barrier) levels.

Today, it is recommended to short the US dollar before 158.15, stop loss: 158.35; target: 157.20, 157.10

EUR/USD

Last week, EUR/USD ended a short week with a small rebound and traded in a narrow range around 1.0380 - 1.0450, market participants remained on the sidelines due to the Christmas holiday, and trading was light. The currency pair struggled to find direction, while the US dollar rose on the firm expectation that the Federal Reserve will follow a gradual easing policy, as inflation has rebounded slightly in the past three months. The performance of the US dollar has remained optimistic in the past few months, and the US dollar index has remained above the key support level of 108.00. Part of the reason is investors' expectations of strong economic growth under President-elect Trump and growing speculation about a slowdown in the Fed's easing cycle. On the economic front, the U.S. initial jobless claims data for the week ending December 20 was lower than expected. The number of first-time unemployment claims unexpectedly fell to 219,000 from the previously released 220,000. Economists expected the number of unemployment claims to increase to 224,000. And European Central Bank President Christine Lagarde said last week that she is confident that the deflationary trend will progress further. Lagarde said in an interview with the Financial Times. However, she still believes that "we (policymakers) should be highly vigilant about inflation in the service sector." From the daily chart, EUR/USD has been consolidating in a narrow range around 1.0380-1.0450 above the two-year low of 1.0332 since the beginning of last week. The outlook for the major currency pair remains bearish as the 20-day and 40-day moving averages at 1.0470 and 1.0541 respectively continue to decline. The 14-day relative strength index (RSI), a technical indicator, is oscillating around 40.00. A sustained break below this level will trigger downward momentum. Looking down, the pair may fall to the round-level support near 1.0300 if it breaks below 1.0400 (round mark), 1.0383 (December 24 low, and then the two-year low of 1.0332. On the contrary, the 20-day moving average near 1.0470 will be the first key obstacle for the euro to rise. Breaking through the above level will look to 1.0500 (round mark), and finally challenge 1.0541 (40-day moving average).

Today, it is recommended to go long on the euro before 1.0410, stop loss: 1.0400, target: 1.0460, 1.0470.

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