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Despite a confluence of favorable conditions that are typically Dollar bullish — a decidedly hawkish Federal Reserve, plummeting stocks, and soaring yields — the greenback's response was unexpectedly tepid last week. While it managed to gain ground against European majors and Yen, it faltered when squared against the robust commodity currencies. Dollar Index, a measure of the currency against a basket of other major currencies, also recorded only a modest uptick. With the quarter's end on the horizon, it's plausible that a sense of caution may have restrained Dollar's potential surge. Alternatively, traders might possibly be awaiting further developments to validate a one-sided bullish shift.

The week was notably tough for Sterling and Swiss Franc. Both currencies took a hit after their respective central banks, BoE and SNB, caught market participants off-guard with decisions to maintain their interest rates unchanged. There's mounting speculation that both these institutions might have hit the ceiling of their tightening cycles. Euro, despite facing its own challenges, found some reprieve from the buying against these two European rivals, which in turn, acted as a buffer against surging Dollar.

Meanwhile, Japanese Yen emerged as the week's third most lackluster performer, following Pound and Franc. BoJ's decision to remain tight-lipped about potential policy adjustments did the currency no favors. However, fears surrounding potential intervention are lending some support to Yen, anchoring it securely above 150 mark against Dollar.

In a surprising twist, commodity currencies stood out as the week's top performers. Their rise can be dissected into several catalysts. Market bets are tilting towards BoC potentially breaking its pause for a second time, particularly in light of Canada's robust inflation figures. The narrative surrounding RBA remains more ambivalent, with market consensus yet to crystallize on the possibility of another rate hike within the fourth quarter, potentially in November. However, the primary tailwind for commodity currencies appears to be the revitalized Chinese stock markets, endowing them with substantial impetus.

Dollar bulls remain wary despite hawkish Fed, surging yields, and falling stocks

The US markets faced a turbulent last week after Fed's hawkish hold at 5.25-5.00%. While Fed's messages were clear that interest rates are going to stay "higher for longer", overall developments argue that investors are much less convinced on the "higher" part than the "longer".

S&P 500 and NASDAQ experiencing notable drops of -2.9% and -3.6% respectively, marking both indexes' most dismal weekly performance since March and their third consecutive week in the red. 10-year Treasury yield reached its highest point since 2007, while 2-year rate recorded its apex since 2006. Despite the risk aversion sentiment and elevated yields, Dollar index only nudged up by a mere 0.002%. Dollar would probably need to be convinced about the "higher" part before having another substantial break on the upside.

To recap, Fed's messages were unequivocal – another rate hike this year is in the offing. Out of 19 policymakers, 12 have projected another 25bps rate hike to 5.50-5.75% by the year's end. Interest rates will remain elevated for a protracted period. By the conclusion of 2024, rate is anticipated to drop backs slightly to 5.10%.

However, market sentiment doesn't seem wholly aligned with Fed's projections. Current indications from Fed fund futures underscore only a 26.3% likelihood of a hike in November, and 46.3% in December. On the other hand, here's a whopping 90% chance that by 2024-end, interest rates will have reverted to 5.00-5.25% or even lower.

On the technical side, S&P 500's fall from 4607.07 resumed last week by breaking through 4335.31 support. Next target is the support zone between 55 W EMA (now at 4228.09) and 38.2% retracement of 3491.58 to 4607.07 at 4180.95. Strong rebound from there level will maintain near term bullishness for extending the whole rise from 3491.58 at a later stage. However, sustained break of 4180.95 will argue that SPX is already in a medium term down trend, as the third leg of the corrective pattern from 4818.62 (2021 high). In any case, risk will stay on the downside as long as 55D EMA (now at 4430.30) holds.

10-year yield surged sharply to as high as 4.490 (in regular hours), before closing at 4.438. Near term outlook will stay bullish as long as 4.223 support holds. Daily MACD suggests upside re-acceleration while W MACD doesn't indicate loss of momentum. Current rally might target 61.8% projection of 1.343 to 4.333 from 4.253 at 5.100, which is above 5% handle.

Dollar index edged higher to close at 105.58 but failed to break through 105.88 resistance. But upside momentum is unconvincing as seen in D MACD. It's still unsure if rise from 99.57 is just correcting the down trend from 114.77 (2022 high), or reversing it. DXY is now at a juncture.

Rejection by 105.88, followed by break of 104.42 support will affirm the former case, and bring deeper fall back to 55 D EMA (now at103.73). However, decisive break of 105.88 will affirm the latter case, and target 61.8% retracement of 114.77 to 99.57 at 108.96 next.

EUR/CHF and EUR/GBP in medium term rallies after BoE and SNB holds

Sterling ended as the weakest currency last week, following the shock move of BoE which kept interest rates steady. This decision became notably significant, given that key figures like Governor Andrew Bailey, Deputies Ben Broadbent and Dave Ramsden, and Chief Economist Huw Pill, in alignment with Swati Dhingra, edged out a close 5-4 vote.

In response, a slew of prominent global banks, including Barclays, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs, JP Morgan, UBS, and HSBC, have revised their forecasts. Now, the prevalent expectation is that BoE's current 5.25% rate might mark the peak of this cycle.

Swiss Franc followed closely behind Sterling's tumble, ranking as the second-worst performer. This came after SNB chose to maintain status quo, defying market anticipations of a rate increase. Yen wasn't far behind, securing the third spot, as BoJ refrained from providing any hints regarding potential monetary policy adjustments or an exit from negative rates.

On the technical front, EUR/CHF and EUR/GBP are gearing up for a potential medium-term rally as the aftermath of ECB's recent rate hike combined with BoE's and SNB's inaction. However, given that all three central banks have reached their peak in tightening, the long-term trends will hinge on the intensity and span of the potential upcoming recessions in the region, as well as the implications on the timing for the inaugural rate cut. Still for the immediate future, the dynamics within EUR/CHF and EUR/GBP might alleviate some of the downward pressure on EUR/USD and subsequently limit upward momentum of Dollar Index.

Specifically, a medium term bottom is probably in place at 0.9513 in EUR/CHF, on bullish convergence condition in D MACD. Sustained break of 0.9670 support turned resistance will argue that whole decline from 1.095 has completed, and bring stronger rally to 61.8% retracement at 0.9873.

Similarly, for EUR/GBP, firm break of 0.8700 resistance should confirm medium term bottoming at 0.8491, on bullish convergence condition in D MACD. That would also argue that whole down trend from 0.9267 (2022 high) has completed with three waves down to 0.8491. Stronger rally would then be seen to 0.8874/8997 resistance zone.

China's move to relax capital controls bolsters commodity currencies

In a move that defied the prevailing risk aversion in US markets, commodity currencies took the lead as the week's strongest performers. The uplift seems largely tethered to shifting sentiments in the Chinese financial arena.

A marked turnaround was observed in Chinese stocks on Friday, following the nation's announcement of plans to liberalize capital controls in major cities, Beijing and Shanghai. This initiative would grant foreigners more flexibility to channel their funds into and out of the country.

China's move, as articulated by the government, aims to entice overseas investors by paving the way for a more open economy. This could mark a seminal shift, given China's traditionally stringent capital controls.

Technically speaking, there is no confirmation of trend reversal in China Shanghai SSE index for now, as sit's still capped well below falling 55 D EMA (now at 3161.35). The decline from 3418.95 could still extend to 100% projection of 3418.95 to 3144.24 from 3322.12 at 3047.41, or even further to 138.2% projection at 2942.47.

Nonetheless, a continued stream of encouraging economic data, coupled with strategic government interventions, could provide the necessary momentum for the index to challenge the aforementioned EMA at least.

USD/CAD Weekly Outlook

USD/CAD's deep decline last week argues that rise from 1.3091 might have completed at 1.3693 already. Fall from there is probably another leg in the corrective pattern from 1.3976 high. Initial bias stays neutral this week for consolidation above 1.3378 temporary low. But risk stays on the downside as long as 1.3548 resistance holds. Below 1.3378 will target 61.8% retracement of 1.3091 to 1.3693 at 1.3321.

In the bigger picture, price actions from 1.3976 are viewed as a corrective pattern to the up trend from 1.2005 (2021 low). Deeper decline could be seen as the pattern is now extending. But downside should be contained by 50% retracement of 1.2005 to 1.3796 at 1.2991. Rise from 1.2005 is still expected to resume after the correction completes.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 M EMA (now at 1.3082) holds.

EUR/USD struggled to break through 1.0609/34 cluster support zone last week despite decline attempt. Yet, there is no clear sign of bottoming. Initial bias remains neutral this week first. On the downside, sustained break of 1.0609/34 will carry larger bearish implication. Fall from 1.1274 should then target target 1.0515 support next. Nevertheless, strong rebound from current level, followed by break of 1.0767 resistance, should confirm short term bottoming. Intraday bias will be back on the upside for 1.0944 resistance.

In the bigger picture, fall from 1.1274 medium term top is seen as a correction to up trend from 0.9534 (2022 low). Strong support could be seen from 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609) to bring rebound, at least on first attempt. However, sustained break of 1.0609/0634 will raise the chance of bearish trend reversal, and target 61.8% retracement at 1.0199.

In the long term picture, there is no clear sign of trend reversal yet. That is, down trend from 1.6039 (2008 high) might still be in progress. Rejection by 55 M EMA (now at 1.1108) will retain long term bearishness, for another fall through 0.9534 at a later stage.

USD/JPY edged higher to 148.45 last week but retreated again. Initial bias remains neutral this week and further rise is mildly in favor with 147.00 support holds. Above 148.45 will resume larger rise from1 27.20 to retest 151.93 high. However, firm break of 147.00 will should confirm short term topping, and turn bias to the downside for 145.88 support and below.

In the bigger picture, while rise from 127.20 is strong, it could still be seen as the second leg of the corrective pattern from 151.93 (2022 high). Rejection by 151.93, followed by break of 137.22 support will indicate that the third leg of the pattern has started. However, sustained break of 151.93 will confirm resumption of long term up trend.

In the long term picture, price action from 151.93 is seen as developing into a corrective pattern to up trend from 75.56 (2011 low). Another falling leg could be seen, but in that case, downside should be contained by 38.2% retracement of 75.56 to 151.93 at 122.75. On resumption, next target would be 61.8% projection of 102.58 to 151.93 from 127.20 at 157.69.

GBP/USD's decline from 1.3141 accelerated lower last week and there is no sign of bottoming yet. Initial bias stays on the downside for 1.2075 fibonacci level. On the upside, above 1.2369 minor resistance will turn intraday bias neutral and bring consolidations. But near term outlook will stay bearish as long as 1.2618 support turned resistance holds, in case of strong recovery.

In the bigger picture, fall from 1.3141 medium term top is seen as a correction to up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3141 at 1.2075. Strong support would be seen there to bring rebound on first attempt. However, sustained break of 1.2075 will raise the chance of bearish trend reversal and target 1.1801 structural support next.

In the long term picture, there is no clear sign of trend reversal yet. Rise from 1.0351 could be part of a consolidation pattern to down trend from 2.1161 (2007 high). Rejection by 55 M EMA (now at 1.2900) will retain long term bearishness for extending the down trend at a later stage.

USD/CHF's rally from 0.8851 accelerated higher last week and there is no sign of topping. Initial bias stays on the upside this week for 0.9146/60 cluster resistance. On the downside, break of 0.8982 minor support will turn intraday bias neutral first. But further rally will remain in favor as long as 0.8874 resistance turned support holds, in case of retreat.

In the bigger picture, rebound from 0.8551 medium term bottom is currently seen as a correction to the downtrend from 1.0146 (2022 high). Further rally would be seen to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160). Strong resistance could be seen there to limit upside, at least on first attempt. However, decisive break of 0.9146/60 will indicate trend reversal, and target 61.8% retracement at 0.9537.

In the long term picture, there is no clear sign that down trend from 1.8305 (2000 high) has completed. With 38.2% retracement of 1.8305 to 0.7065 at 1.1359 intact, outlook is neutral at best.

AUD/USD stays in consolidation above 0.6356 last week and outlook is unchanged. Initial bias remains neutral this week first. Further decline is expected as long as 0.6520 resistance holds. Break of 0.6356 will resume larger down trend to 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195.

In the bigger picture, down trend from 0.8006 (2021 high) is possibly still in progress. Decisive break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound.

In the long term picture, while fall from 0.8006 might extend lower, the structure argues that it's merely a correction to rise from 0.5506 (2020 low). In case of downside extension, strong support should emerge above 0.5506 to bring reversal. But still, momentum of the next move will be monitored to adjust the assessment.

USD/CAD's deep decline last week argues that rise from 1.3091 might have completed at 1.3693 already. Fall from there is probably another leg in the corrective pattern from 1.3976 high. Initial bias stays neutral this week for consolidation above 1.3378 temporary low. But risk stays on the downside as long as 1.3548 resistance holds. Below 1.3378 will target 61.8% retracement of 1.3091 to 1.3693 at 1.3321.

In the bigger picture, price actions from 1.3976 are viewed as a corrective pattern to the up trend from 1.2005 (2021 low). Deeper decline could be seen as the pattern is now extending. But downside should be contained by 50% retracement of 1.2005 to 1.3796 at 1.2991. Rise from 1.2005 is still expected to resume after the correction completes.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 M EMA (now at 1.3082) holds.

GBP/JPY's fall from 186.75 extended lower last week but recovered after forming a temporary low at 180.78. Initial bias remains neutral this week for consolidations. But further decline is expected as long as 183.34 resistance holds. Break of 180.78 will target to 176.29 support next.

In the bigger picture, fall from 186.75 is currently seen as a corrective move only. As long as 176.29 support holds, larger up trend from 123.94 (202 low) should still be in progress. Break of 186.75 will target 195.86 (2015 high). Nevertheless, firm break of 176.29 will confirm medium term topping, and bring lengthier and deeper consolidations.

In the longer term picture, rise from 122.75 (2016 low) in still in progress but started losing upside momentum as seen in W MACD. Further rise will remain in favor, though, as long as 176.29 support holds, to retest 195.86 (2015 high).

EUR/JPY stayed in consolidation above 156.57 last week and outlook is unchanged. Initial bias remains neutral this week first. Risk stays on the downside with 158.64 resistance intact. On the downside, break of 156.57 support, and sustained trading below 55 D EMA (now at 156.91) will argue that fall from 159.75 is a larger scale correction. Deeper decline would be seen back towards 151.39 support. Nevertheless, above 158.64 would bring retest of 159.75 high instead.

In the bigger picture, as long as 151.39 support holds, rise from 114.42 is still expected to continue. Next target is 100% projection of 124.37 to 148.38 from 139.05 at 163.06. Sustained break there will pave the way to retest long term resistance at 169.96.

In the long term picture, rise from 109.03 (2016 low) is seen as the third leg of the whole up trend from 94.11 (2012 low). Next target is 100% projection of 94.11 to 149.76 from 114.42 at 170.07 which is close to 169.96 (2008 high).

EUR/GBP's strong rebound last week raises the chance of bullish trend reversal. Initial bias stays on the upside this week with immediate focus on 0.8700 resistance. Decisive break there carry larger bullish implication and bring stronger rally to 0.8874 resistance next. Nevertheless, rejection by this resistance will maintain bearish outlook that larger down trend is not over. Break of 0.8629 resistance turned support will turn bias back to the downside for 0.8568 support first.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Decisive break there will argue that this decline has completed with three waves down to 0.8491. Rise from 0.8491 could then be another leg inside the pattern that targets 0.8977 and above. However, rejection by 0.8700 will keep the down trend alive for another fall through 0.8491 at a later stage.

In the long term picture, long term range pattern is extending. But rise from 0.6935 (2015 low) is expected to resume at a later stage, to 0.9799 (2009 high).