Upbeat U.S. GDP Spurs Dollar Strength

• Dow Jones rose to an all-time high, bolstered by the upbeat U.S. GDP reading. 

• Eye on todays U.S. PCE reading that may spur the forex market. 

• Japanese Yen strengthened, followed by the Tokyo CPI reading release that topped market consensus. 

Market Summary

The Dow Jones set a new milestone, rising to 41,577 points before experiencing a retracement. In contrast, the Nasdaq continues to struggle, weighed down by Nvidia's earnings report, which appears to lack a significant “wow” factor. The Asian equity markets are expected to mirror the sentiment of the U.S. market and may end the week with gains.

Beyond equities, the U.S. GDP released yesterday surpassed market expectations, which has tempered some speculation about a Fed rate cut, leading the market to believe that the Fed may achieve a soft landing in its monetary policy pivot. However, all eyes are on todays U.S. PCE reading, anticipated to be a crucial factor influencing the Fed's interest rate decision next month. Additionally, forex traders will be closely watching the Eurozone CPI reading and the Japanese Yen's price movements following the Tokyo Core CPI, which exceeded market expectations.

In the commodity market, gold prices are poised near their all-time high ahead of the U.S. PCE reading, reflecting heightened market anticipation. Meanwhile, oil prices experienced a sharp rebound from their recent lackluster trend, with the “black gold” being catalyzed by the upbeat U.S. GDP reading, which suggests stronger economic activity and potential increases in energy demand.

Current rate hike bets on 18th September Fed interest rate decision: 

Source: CME Fedwatch Tool

-50 bps (32.5%) VS -25 bps (67.5%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index extended its gains following the release of significantly better-than-expected US economic data, which underscored the resilience of the US economy and tempered expectations for a larger 50 basis points rate cut by the Federal Reserve next month. According to the Bureau of Economic Analysis, the US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, exceeding both the previous quarter's growth of 1.4% and economists' forecast of 2.8%. Additionally, US Initial Jobless Claims fell slightly to 231,000, better than the forecast of 232,000.

The Dollar Index is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 59, suggesting the index might extend its gains after breakout since the RSI stays above the midline. 

Resistance level: 101.55, 102.35

Support level: 101.10, 100.55

XAU/USD, H4

The stronger-than-expected US economic data diminished the appeal of gold as a safe-haven asset, leading to a retreat in gold prices from their recent record highs. The rebound in the dollar, driven by positive economic indicators, further reduced the demand for dollar-denominated gold.

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 48, suggesting the commodity might extend its losses since the RSI stays below the midline. 

Resistance level: 2530.00, 2540.00

Support level: 2510.00, 2480.00

GBP/USD，H4

The GBP/USD pair continues to retreat from its recent bullish trend after hitting its highest level in 2024 at 1.3260. Should the pair fail to maintain support above 1.3240, it could signal a bearish reversal. The U.S. dollar has been bolstered by the upbeat GDP data and Initial Jobless Claims, suggesting resilience in the U.S. economy. However, market attention is now focused on today's PCE reading, which is expected to be a pivotal factor influencing the dollar's strength and the future direction of the GBP/USD pair.

GBP/USD has declined to the critical zone at near 1.3150 levels, a drop from current levels suggesting a bearish bias for the pair. The RSI has declined to below 50, while the MACD has plummeted toward the zero line, suggesting a bearish momentum is forming. 

Resistance level:  1.3220, 1.3280

Support level: 1.3140, 1.3065

EUR/USD，H4

The Euro retreated from its highs, pressured by disappointing economic data from Germany. The German Consumer Price Index (CPI) for the previous month fell to -0.10%, down from 0.30% in the previous month and worse than the market expectation of 0.0%. Combined with stronger US economic data, this added to the downward pressure on the EUR/USD pair. 

EUR/USD is trading lower following the prior breakout below the previous support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 35, suggesting the pair might enter oversold territory. 

Resistance level: 1.1115, 1.1190

Support level: 1.1020, 1.0920

USD/JPY, H4

The USD/JPY pair has broken above its downtrend channel, indicating a potential trend reversal. The Tokyo CPI reading, released during the Tokyo session on Friday, surpassed market expectations at 2.2%, providing support for the Japanese yen against its peers, including the U.S. dollar. However, traders should keep a close watch on the upcoming U.S. PCE reading due later today, as it could be a critical factor influencing the pair's price movement and overall market direction.

The pair has eased from its bearish momentum and has broken above the downtrend channel, suggesting a bullish bias for the pair. The RSI has rose to above the 50 level, while the MACD is on the brink of breaking above the zero line, suggesting a bullish momentum may be forming. 

Resistance level: 145.95, 149.20

Support level:143.45, 141.40

CL OIL, H4

Crude oil prices edged higher as the robust US economic data alleviated concerns about the global economic outlook and supported oil demand. Additionally, ongoing supply disruptions in Libya and plans to reduce output in Iraq fueled fears of tighter global supplies. More than half of Libya's oil production was offline on Thursday, with exports halted at several ports due to a standoff between rival political factions, affecting about 700,000 barrels per day of oil output. In Iraq, plans to reduce oil output in September to compensate for overproduction relative to its OPEC quota added further support to oil prices. 

Oil prices are trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 54, suggesting the commodity might extend its gains since the RSI stays above the midline. 

Resistance level: 77.45, 80.90

Support level: 75.30, 74.30