The US 10-year yields continued to rise further during the first trading day of the week, rising to the highest level since 2007 at 4.56%, lifting the US Dollar further, while stocks remained under pressure.
The question is, for how long will such a move last? The short answer is that it’s a matter of time until things turn around.
The Fed Fund Futures are still not pricing in any further rate hikes, none of the coming meetings have over a 50% probability for a possible rate hike. Therefore, this is all about the upcoming data.
DXY at key weekly resistance
The US Dollar Index is currently trading above its key resistance area mentioned in our previous reports at 105.50 – 105.70, while the technical indicators are heavily overbought on most time frames.
Another reason for the current rally in the US Dollar is the Federal Reserve’s balance sheet which declined by about 1% last week. This is the biggest weekly decline since 2020.
Therefore, if you are still short on the US Dollar, managing your risk is key, as the current move is overextended, and a notable retracement is highly possible.
SPX’s first bearish signal since November
Last week, US indices closed lower, and SPX closed below the 4350 key support area, which confirms the first bearish signal since November of last year. Such a signal suggests a correction between 7% and 10% over the next few weeks.
Traders can use the upcoming correction to hedge their FX positions, especially if they are short on the dollar.
On the upside view, any upside retracement over the coming days should be limited to below 4350. On the downside view, the next support area stands at 4300 followed by 4277 and 4200.
USDJPY testing 149.0
Since the Bank of Japan’s dovish decision, USDJPY continues to gain more ground, reaching as high as 149.10 in Asia. This is the highest level since October of last year.
However, nothing has changed when it comes to the BoJ intervention. It is still a matter of time. Last week, the finance minister mentioned that they will do what’s appropriate against the rapid FX moves. However, the Bank of Japan’s dovish tone set the stage for another leg higher.
In the meantime, 149.0 should act as a strong resistance, while a break above that resistance would clear the way for further gains, possibly towards 150.0. However, the faster the move, the higher the possibility for a BoJ intervention, especially since the entire verbal interventions have failed over the past few weeks.
Gold near support
Gold declined once again after it failed to hold above $1930 last week, back to the 1910 support level in Asia. The area between $1910 and $1900 remained solid since June. A break through that support might not be an easy mission.
If it holds again, it will open a new opportunity ahead, with a possibility to retest $1920 and $1930. The bullish outlook remains unchanged as long as the weekly close remains above $1900.
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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