KVB Market Analysis | 6 August: USD/JPY Recovers from January Lows Amid Recession Fears and Fed Rate Cut Speculation

Product: XAU/USD

Prediction: Increase

Fundamental Analysis: 

Gold price edges higher and moves away from a one-week low touched on Monday. Bets for a 50-bps Fed rate cut in September and geopolitical risks lend some support. A turnaround in the global risk sentiment and rebounding US bond yields could cap gains. Risk aversion hit hard financial markets at the beginning of the week, triggering volatile movements across all boards. XAU/USD plummeted to $2,364.19 ahead of Wall Streets opening, bouncing afterwards to trade around the $2,400 mark at the time of writing, still sharply down on the day. The US Dollar surged against the battered bright metal as concerns about the United States (US) economic performance and escalating tensions in the Middle East put markets in panic mode.

Technical Analysis: 

The daily chart for XAU/USD shows the pair met buyers around the 61.8% Fibonacci retracement of its June/July rally at around $2,366, a critical support area. However, technical indicators keep heading south, reflecting continued selling interest. Even further, the pair is developing below the 38.2% retracement of the aforementioned rally and a still bullish 20 Simple Moving Average (SMA), both located around $2,411.20. In the near term, and according to the 4-hour chart, the case for a continued advance seems limited. Technical indicators have lost their ascendant strength below their midlines and after correcting oversold conditions, skewing the risk back to the downside. At the same time, the pair trades below the 20 and 100 SMAs, with the shorter one gaining downward traction, supporting the case for another leg south. Support levels: 2,388.70 2,372.90 2,366.00 Resistance levels: 2,411.20 2,424.10 2,438.80

Product: EUR/USD

Prediction: Increase

Fundamental Analysis: 

EUR/USD added to Friday‘s robust comeback and briefly trespassed the psychological 1.1000 hurdle in quite a positive start to the new trading week. The strong move higher in spot followed an equally deep retracement in the US Dollar (USD), which sent the US Dollar (USD) to levels last seen in January near the 102.00 neighbourhood. Meanwhile, investors continued to gauge last week’s discouraging prints from the US docket vs. the likelihood that the US economy might tip into recession this year, all requiring a probable inter-meeting rate cut by the Fed as well as more interest rate reductions.

Technical Analysis: 

Further north, EUR/USDs first obstacle is the August high of 1.1008 (August 5), followed by the December 2023 top of 1.1139 (December 28). On the downside, the next target for the pair is the 200-day SMA at 1.0827 prior to the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all preceding the May low of 1.0649 (May 1). Looking at the larger picture, the pair's constructive bias should hold if it climbs above the critical 200-day SMA in a convincing fashion. So far, the four-hour chart suggests renewed bullish momentum. Against it, the initial resistance is at 1.1008, ahead of 1.1139. On the flip side, initial support aligns at 1.0777, seconded by 1.0709. The relative strength index (RSI) eased to about 68.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis: 

The USD/JPY pair recovers some lost ground near 145.40 after falling to the lowest level since January 2 around 141.68 during the early Asian session on Tuesday. The sell-off of the Greenback is triggered by fears of the US recession and expectations of deeper rate cuts by the Federal Reserve (Fed).  Fridays US employment data showed that the Unemployment Rate rose in July, sparking the likelihood that the US economy is heading into a recession. The markets expect the Fed to cut its interest rate by 50 basis points (bps) in both September and November and another quarter-point cut in December.

Technical Analysis: 

The USD/JPY is downward biassed yet has found a bottom at around 141.69. Once hit, buyers emerged at the bottom and lifted the exchange rate since the mid-North American session. The latest push saw spot prices above 144.00 as momentum shows the downtrend is overextended, as shown by the Relative Strength Index (RSI). As the RSI lies beneath 20, the pair is subject to a mean-reversion move. If USD/JPY climbs past 145.00, the next resistance will be on February 1, bottom at 145.89. Once surpassed, the March 11 146.48 emerged, followed by the 147.00 mark. Conversely, if USD/JPY extends its losses below 144.00, the next support would be the January 9 pivot low at 143.42, ahead of the August 5 bottom at 141.69.

Product: AUD/USD

Prediction:Decreases

Fundamental Analysis: 

The Australian Dollar (AUD) recovers its recent losses ahead of the Reserve Bank of Australia's (RBA) monetary policy decision scheduled for Tuesday. The RBA is widely anticipated to maintain the Official Cash Rate (OCR) at 4.35% for the sixth consecutive meeting. Traders will likely closely watch RBA Governor Michele Bullock's speech, which may provide insights into the Board's future policy direction. The AUD faced challenges against the US Dollar (USD) due to central banks rapid policy adjustments and increasing fears of a hard landing for the US economy. Additionally, the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.

Technical Analysis: 

The Australian Dollar trades around 0.6520 on Tuesday. The daily chart analysis shows that the AUD/USD pair has breached above the descending channel, indicating a weakening of a bearish bias. The 14-day Relative Strength Index (RSI) is slightly up the oversold 30 level, which suggests a potential for more upward correction. The AUD/USD pair could find immediate support around the throwback support of 0.6470 level, followed by the lower boundary of the descending channel around the level of 0.6450. On the upside, resistance is first encountered at the nine-day Exponential Moving Average (EMA) at 0.6540, followed by the “throwback support turned resistance” at 0.6575 level. A breakout above the latter could propel the AUD/USD pair toward a six-month high of 0.6798.

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