On Friday (September 27), the US dollar index remained weak at 100.60, gold rebounded to $2,670, and Bitcoin broke through $65,000. Kashkari, the "hawk king" of the Federal Reserve, turned dovish, emphasizing that if inflation continues to ease, a larger interest rate cut will provide a more active tool, and other officials also tried to make more dovish remarks. Israel's air strikes this week killed 700 people. The country's Prime Minister Netanyahu refused to cease fire and vowed to take full action against Hezbollah.
Israeli airstrikes in Lebanon kill 700, Netanyahu vows to "strike hard" against Hezbollah
Nearly 700 people have died in Lebanon this week, according to the Lebanese Health Ministry, as Israel significantly escalated its attacks, saying it was targeting Hezbollah's military capabilities.
Israel has launched several strikes against senior Hezbollah commanders in Beirut over the past week. Earlier in the day, an attack in eastern Lebanon killed 20 people, mostly Syrian migrants, according to Lebanese health officials. On Thursday, the Health Ministry said an Israeli airstrike hit an apartment building in a southern suburb of Beirut, killing two people and wounding 15. The IDF said the strike killed Hezbollah drone commander Mohammad Hussein Surour.
Lebanon's Disaster Risk Management Department said in a report on Thursday that Israeli attacks killed 60 people and injured 81 in 24 hours, bringing the total death toll in Lebanon since Monday to 696. The report said that the ongoing conflict between Hezbollah and Israel has killed more than 1,540 people in Lebanon since October 2023.
Netanyahu vowed Thursday to strike Hezbollah "with all his might" until it stops firing rockets toward the border, dimming hopes for a ceasefire proposed by U.S. and European officials.
Israel launched a new round of attacks on the Lebanese capital, killing a senior Hezbollah commander and the armed group fired dozens of rockets into Israel. Tens of thousands of Israelis and Lebanese living on the border between the two countries have been displaced by the fighting.
Netanyahu made the remarks as he arrived in New York for the annual session of the United Nations General Assembly, where U.S. and European officials have piled pressure on both sides of the conflict to accept a proposed 21-day truce to buy time for diplomatic negotiations and avoid all-out war.
Dollar falls after Fed's hawkish turn to dovish stance
In August, new orders for durable goods in the United States were essentially unchanged, rising slightly by $100 million to $289.7 billion, the sixth increase in the past seven months. Excluding transportation, new orders increased by 0.5%, with electrical equipment, appliances and parts increasing by 1.9%. Excluding defense, new orders fell by 0.2%.
In the second quarter of 2024, the U.S. gross domestic product (GDP) grew at an annual rate of 3.0%, the same as the initial value.
The number of first-time applications for unemployment benefits in the United States fell to 218,000 in the week ending September 21, lower than the market consensus of 225,000 and the revised 222,000 in the previous week.
U.S. data supported the view that the economy remains stable and does not need significant policy easing.
Meanwhile, Fed spokespeople are trying to sound more dovish.
Atlanta Fed President Rafael Bostic stressed that a 50 basis point rate cut would make the central bank better able to respond to economic uncertainty.
Minneapolis Fed President Neel Kashkari similarly noted that larger rate cuts would provide the Fed with more aggressive tools if inflation continues to ease.
Chicago Fed President Austan Goolsbee echoed that sentiment, noting that a steep rate cut would give the Fed more room to maneuver if economic conditions worsen.
Fed Governor Michele Bowman dissented, favoring a more cautious 25 basis point rate cut, reflecting concerns about moving too aggressively.
US Dollar Technical Analysis
FXStreet analyst Patricio Martín said that the technical analysis of the US dollar index shows that the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators show bearish momentum, with the RSI still in the negative area and the MACD showing a flat green bar. This indicates weak buying pressure and suggests that the bearish momentum will continue.
Furthermore, strong resistance at 101.00 limits the upside potential for the dollar. Key support levels include 100.50, 100.30, and 100.00, while resistance levels are located at 101.00, 101.30, and 101.60.
Gold Technical Analysis
Bruce Powers, an analyst at FXEmpire, said that gold prices continued to rise on Thursday, hitting a new high of $2,686 before encountering resistance, leading to an intraday pullback. Gold prices have risen from the last pullback low of $2,547 and have now set new highs and lows for the sixth consecutive day, so there is a risk that gold prices will continue to rise.
With the exception of Thursday, gold prices have closed in the upper third of the day's trading range in the previous four days. However, the situation may change on Friday as gold prices are currently trading in the lower half of the day's trading range and may close there. A close in the upper half of the range will strengthen the bullish argument.
Gold has been trading within a potential resistance zone since Tuesday's rally reached the target points of two ascending ABCD patterns, which marked a potential pivot level (purple, orange) around 2661. Subsequently, a newer and smaller (light blue) ascending ABCD pattern identified a target point of $2675, which was reached on Thursday. Since then, bullish momentum has weakened intraday, which provides the possibility of a temporary topping.
A break below Thursday's low of $2,655 is a sign of weakness that could lead to a further pullback. The support area to watch on a pullback is the 38.2% Fibonacci retracement level of $2,633. However, a more important potential support area is around the 50% retracement level of $2,616 as it combines with this week's low of $2,614.
Of course, a break below the weekly low suggests that sellers are in control and a price drop is likely. Subsequently, a pullback to the support of the last breakout level at $2,600 would be expected. This price level is confirmed by the 61.8% Fibonacci retracement level (also at $2,600).
Although there is a possibility of a pullback, there is no sign of one at the moment. Therefore, the rally is likely to continue. If the price of gold decisively breaks above today’s high of $2,686, it will signal a possible continuation of the bullish trend. If the price of gold continues to rise, there is a chance that it will reach the next higher price area identified on the chart, which is $2,724.
This price level completes the target of a long-term ascending ABCD pattern that started from the February swing low. There are several potential targets above $2,724, but the more important one is $2,754 as it is derived from a longer time frame. It marks a 250% extended retracement of the decline from the March 2022 peak.
Bitcoin Technical Analysis
After Bitcoin broke through the $64,000 resistance level for the third time in just four days, bulls temporarily lost hope. However, the situation changed as the U.S. stock market opened, pushing the S&P 500 index to a new all-time high. Bitcoin then also rose by more than 3% to revisit the $65,000 level.
Some market analysts believe that Bitcoin’s path to $70,000 is driven by macroeconomic trends, including falling U.S. interest rates, and renewed interest from long-term institutional investors. Essentially, concerns about a stock market bubble are fading after signs of strong economic growth and record high U.S. home prices.
The technology sector has been a major driver of global stock market gains, with several companies posting gains of more than 30% in the past six months. Notable companies include Alibaba, Tesla, Nvidia, Taiwan Semiconductor and Apple. "Artificial intelligence (AI) is still here, but I think people are a little too excited and a little over-hyped about our near-term expectations," Michael Matousek, chief trader at US Global Investors Inc., told Bloomberg.
Lyn Alden, investment researcher and founder of Lyn Alden Investment Strategy, emphasized that Bitcoin is the asset most correlated with changes in the global monetary base (M2). Historical data shows that the probability of Bitcoin price increase is 83% during the 12-month period when bank deposits and currency in circulation increase liquidity. In contrast, gold has only followed the trend of M2 68% of the time in the past 10 years.
While this data is bullish for Bitcoin, especially as governments begin to deploy stimulus measures after 18 months of stagnation, it is also bullish for the stock market. According to the same study, the S&P 500 has an 81% correlation with changes in the monetary base. So, rather than proving Bitcoin to be an uncorrelated asset, this cycle may further solidify its position as an asset that hedges against ruthless government money printing policies.
On Thursday, the positive momentum of the U.S. stock market was mainly due to the key player in the AI supply chain, memory chip supplier Micron. Micron raised its quarterly revenue forecast to $8.9 billion from $8.5 billion previously. The company predicts that demand for chips in AI data centers will increase fivefold by 2025, which has provided some confidence to investors, especially those who are heavily dependent on the technology industry.
Investors' risk appetite was further boosted by the third quarter GDP growth forecast of 3% in the United States, according to Yahoo Finance. This supports the 2.9% annualized growth forecast for the third quarter. In addition, China's newly announced economic stimulus measures led to the CSI 300 stock index's biggest weekly gain in more than a decade.
However, the most significant development affecting Bitcoin’s momentum recently was the $242 million inflows into Bitcoin spot ETFs in just two days. Investors have been skeptical that institutional demand would gain traction, especially since BlackRock’s iShares Bitcoin Trust ETF has seen just $5 million in inflows since its launch on August 27, according to data from Farside Investors.
Bitcoin's move above $65,000 was driven by favorable macroeconomic trends, rising institutional demand, and renewed strength in the technology sector. Large inflows into Bitcoin ETFs indicate a shift in investor sentiment and reduced risk perception, which could lay the foundation for Bitcoin to rise to $70,000.
