The USD supported by uncertainty and Fed expectations

The USD continued to strengthen against its counterparts yesterday. There seem to be two factors currently feeding USD bulls with the one being the market’s expectations for the Fed’s intentions. Fed policymakers in the past weeks, have highlighted the possibility that the bank may proceed with a more moderated pace in rate cutting than what the market may have been expecting thus providing support for the USD. It’s characteristic that US yields both on shorter as well as on longer-term bonds, were on the rise yesterday, providing additional support for the greenback.

In the FX market we note the rise of the USD against the JPY yesterday, with the pair’s price action bouncing on the 149.40 (S1) support line and aiming for the 152.00 (R1) resistance level. We tend to maintain a bullish outlook for the pair as long as the upward trendline guiding the pair since the start of the month remains intact. Furthermore the RSI indicator remains just below the reading of 70 implying a strong bullish sentiment for the pair among market participants and the price action has some distance from the upper Bollinger band, implying that there is still some room for the bulls to play. Should the bulls remains in charge as expected, we may see the pair breaking the 152.00 (R1) resistance line and thus pave the way for the 155.20 (R2) resistance level. For a bearish outlook, we would require the pair to initially the prementioned upward trendline, signalling an interruption of the upward movement and continue to break the 149.40 (S1) support line, aiming for the 146.00 (S2) support level.

The second factor to keep an eye out, would the US elections as both the stakes and uncertainty about the outcome are high. The presidential elections are to be a close call as polls show Trump and Harris leading a tight race, within the boundaries for a statistical error. The market seems to be increasingly convinced that Trump may win the elections, hence the notion of “Trump trade” seems to gain traction. Given the former US President’s intentions for a more isolationist economic policy, characterised by tariffs such an outcome could support the USD and weigh on emerging markets, At the same time the possibility of further deregulation, could provide support for US stock markets. At the same time gold’s price is at new record high levels and rising as it seems to enjoy safe haven inflows. The possible outcome of the elections, is still uncertain and given also that in parallel the US is to have local elections for Congress, the possibility of a hung Government, where the President and Congress are in two opposing sides, should be priced in. If the elections are decided by a very narrow majority, we may see Trump of Harris contesting the results.

On a technical level, we note the rise of gold’s price, with the precious metal’s price breaking the 2685 (S1) resistance barrier, now turned to support. Gold’s price entered unchartered waters, reaching new record high levels and we maintain a bullish outlook for gold’s price as long as the upward trendline guiding it since the 8 of August remains intact. The RSI indicator has surpassed the reading of 70 highlighting the bullish intentions of the market for the precious metal, yet at the same time may also imply that gold’s price is at overbought levels and thus ripe for a correction lower. Similar signals are being send by the price action flirting with the upper Bollinger band. Should the buying interest be extended, we may set as the next possible target for the bulls the 2760 (R1) resistance line. Should the bears take over, we may see gold’s price, reversing course, breaking the 2685 (S1) line, the prementioned upward trendline and aiming if not breaching the 2600 (S2) support base, forming a lower trough than the last one on the 9 of October.