Markets to watch this week

US Dollar Index: Too early to call for a reversal?

The US dollar managed to regain some footing last week (+1.3%), following a month-long sell-off which brought the index near the lower range of its broad consolidation pattern at the 100.32 level. That said, a break below a wedge formation may still be significant, which will leave its lower trendline at the 102.00 level on watch as a key resistance to overcome.

It may still be too early to call for a reversal. The latest Commodity Futures Trading Commission (CFTC) data revealed that the aggregate US dollar positioning vs G10 has dipped into net-short territory for the first time since February this year, which generally saw another leg lower for the US dollar in the past few occasions where it occurred. Seasonality also suggests that September tends to be a weak month for the greenback, often seeing strength in the first week before it tapers off through mid-October.

Peaking US Treasury yields may serve as a limiting factor for US dollar gains as well, which could see yield spread with other major economies narrow further. The US 10-year Treasury yield seems to present a head-and-shoulder formation breakdown on the weekly chart, which may suggest lower bond yields as the likely scenario over coming months – another headwind for the US dollar to digest.

Levels:

R2: 103.40
R1: 102.00

S1: 100.50
S2: 99.12

US Dollar Index chart:

Spot Gold: Near-term consolidation in wait for fresh cues

Following a touch of fresh record high, gold prices are locked in a near-term consolidation, with a series of economic data on watch this week to guide the debate around the scale and pace of the Federal Reserve (Fed)’s policy easing. Technically, the daily relative strength index (RSI) continues to trade above its mid-line, while its daily moving average convergence/divergence (MACD) has been eyeing for higher lows, which could still leave buyers in broader control.

Falling real US interest rates could remain as tailwind for the yellow metal, alongside healthy central bank demand and room for further catch-up in exchange traded fund (ETF) flows. A break above the previous consolidation range may leave an eventual price target projection at the US$2,685 level. For now, gold bulls may be hoping to see softer US economic data this week to validate Fed’s easing ahead, but not overly weak to renew recession jitters, given how gold prices reacted to the previous weakness in US non-farm payrolls with a 4% retracement.

Levels:

R2: 2,685
R1: 2,600

S1: 2,480
S2: 2,382

Spot Gold chart:

Hang Seng Index (HSI): Near-term resistance on watch

The HSI has a weak start to the month, giving back all of its last Friday’s gains as a disappointing profit warning from New World Development drives some shunning in property developers. This comes amid a weaker-than-expected official Purchasing Managers' Index (PMI) manufacturing read over the weekend, which does not offer much reassurances around China’s economic recovery. Overall, China’s economic surprise index remains near its one-year low.

The index is facing near-term resistance around the 18,000 level, where its daily Ichimoku Cloud stands alongside an upward trendline resistance. One to watch if the 17,538 level may hold, as its daily RSI heads to retest the mid-line. Failure to hold may potentially pave the way towards the 16,870 level next.

Levels:

R2: 18,370
R1: 18,000

S1: 17,538
S2: 16,870

HSI chart: