KVB Market Analysis | 26 September: Dollar strengthens after a strong recovery

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices dipped after reaching a record high of $2,670/ounce, but stayed above $2,650/ounce, supported by bullish momentum. Expectations of a Federal Reserve rate cut in November, with a 60% chance of a 50-basis point reduction, continue to boost gold's appeal. The U.S. is also working on a ceasefire plan between Israel and Hezbollah, while the Biden administration seeks to pause fighting in Lebanon and resume Gaza-related negotiations.

Technical Analysis:

Gold is in an overbought state, which increases the risk of a pullback. The Relative Strength Index (RSI) shows that gold is overbought, meaning the price might drop before bouncing back. If gold continues its upward trend and breaks past the year-to-date high of $2,670, it may next aim for $2,675, followed by $2,700. If the rise continues, the next targets are $2,750 and $2,800. If the price falls below $2,650, it could test the September 18 high of $2,600, with further support levels at the September 18 low of $2,546 and the 50-day Simple Moving Average (SMA) at $2,488.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis:

The Japanese Yen (JPY) weakened slightly against the US Dollar (USD) on Wednesday as investors considered the Bank of Japan's (BoJ) future plans. BoJ Governor Kazuo Ueda said the bank has time to review market and economic conditions before making any changes to policy, showing no rush to raise interest rates again. The USD/JPY pair faced pressure as the US Dollar struggled after weaker consumer confidence data from the US, which increased expectations that the Federal Reserve (Fed) may take a more cautious approach in its next policy decision.

Technical Analysis:

USD/JPY still shows a downward trend as it stays below the 200-day moving average (DMA). The Relative Strength Index (RSI) has just crossed its neutral line, suggesting the possibility of more gains in the near future. If the pair continues to rise, the next resistance is at the $145.00 level, followed by the 50-DMA at $146.73. Further strength could push it to $147.00. On the other hand, if USD/JPY falls below $144.00, it may head towards $143.39, with further support at $142.76 and then $142.13.

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

The pair gave back most of Tuesday's gains, which were driven by news of extra stimulus from the People's Bank of China (PBoC). On the US Dollar side, the Dollar Index (DXY) dropped near 14-month lows around 100.20 before bouncing back, as investors' outlook shifted, supported by a rise in US bond yields. Meanwhile, the European Central Bank (ECB) eased its monetary policy last week, influenced by concerns over inflation and the economy. While the ECB did not specifically mention a rate cut for October, it recognized that domestic inflation is still high.

Technical Analysis:

Further EUR/USD increases are likely to meet resistance first at the 2024 high of $1.1214 (on September 25), followed by the 2023 top of $1.1275 (on July 18). If the pair moves down, the next target is the September low of $1.1001 (on September 11), supported by the 55-day simple moving average (SMA), and then the weekly low of $1.0881 (on August 8). The key 200-day SMA is at $1.0872, before the weekly low of $1.0777 (on August 1) and the June low of $1.0666. On the 4-hour chart, bearish momentum is increasing. Resistance is at $1.1214 and $1.1275, while support levels are $1.1121 and $1.1083. The RSI has dropped below 47.

Product: BTC/USD

Prediction: Decrease

Fundamental Analysis:

Since the Bitcoin halving in 2024, this phase has continued, with the short-term holders (STH), who have held Bitcoin for less than 155 days, showing negative market momentum, while the real price gradient remains positive but is trending downward. This means Bitcoin's price is dropping more than the amount of capital leaving the network. Although many new investors are seeing losses, their unrealized losses are much smaller compared to the mid-2021 sell-off and the March 2020 COVID-19 crash. When the market enters a long-term contraction, newer investors' cost basis tends to lower the spot price, which can be described as a “net capital outflow from the Bitcoin ecosystem.”

Technical Analysis:

The cost basis for investors who have held Bitcoin for one week to one month (usually called the “fast line”) has dropped below the cost basis of those who have held it for one to three months (called the “slow line”). This suggests the market is experiencing a net outflow mechanism. This indicator shows that “a sustainable market reversal may be in the early stages of gaining positive momentum.” Bitcoin's recent recovery keeps it above the $63,900 level, which is boosting optimism for further price gains. If the price also stays above the 200-day moving average of $63,900, this rebound could be technically significant.