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Fundamentals

During Thursday's (August 3rd) Asian session, the USDX oscillated narrowly, and it is currently trading near 102.7. Yesterday, the U.S. Department of the Treasury announced an increase in the scale of debt issuance. Besides, the U.S. ADP employment data was strong, while the long-end U.S. bond yields rose with the curve getting steeper, and the 10-year U.S. bond yields once rose to a new high this year at 4.12%. All of the above keep the dollars to rebound. What's next? Where is the demand? The biggest buyers of U.S. debt are overseas institutions, followed by the Federal Reserve, while the purchasing power for both major demands is declining this year. For example, the largest buyer, Japan, just went through a YCC adjustment, and U.S. bonds are not attractive anymore. And the Fed? It is shrinking the balance sheet, and only residents buy U.S. bonds now, which could be explained as the Treasury TGA account from the interbank pumping the liquidity of dollars, with U.S. bond yields getting more difficult to decline in the short term, the sell-off may continue. However, in the medium to long term, Fitch's downgrade of the U.S. sovereign rating is reasonable. Based on the deterioration of the fiscal, perhaps investors have stood at the peak of the strong dollar, and it will follow the historical trend to turn weak.

Data: U.S. ADP employment in July greatly exceeded expectations by 324,000 people, while it was expected to be 190,000 (nearly half of the real data). Among the data, the jobs in the service sector increased by 303,000, which may bring upside risks to Friday's Nonfarm Payrolls data.

News: On Wednesday, the U.S. Department of the Treasury announced its quarterly refinancing program, which will increase the issuance of $103 billion of longer-term bonds (3-year, 10-year, and 30-year maturities) in next week's quarterly refinancing operations, significantly exceeding the market's general expectations. Moreover, debt issuance is the second highest on record, second only to the 2Q 2020 during the pandemic, which proves the deteriorating financial situation in the U.S. That explains why Fitch downgraded the U.S. credit rating from AAA to AA+.

Today's focus: U.S. ISM Services PMI, Factory Orders, Weekly Initial Jobless Claims, Quarterly Nonfarm Productivity and Unit Labor Cost.

Technical Analysis

Regarding the daily chart, the MACD forms a golden cross and expands, and the SMAs are still splitting upward. Additionally, the 5-day SMA cross above the 10-day and 20-day SMAs, suggesting a bullish pattern. Nevertheless, since the end of last year, the USDX has been moving in a descending channel, and it is currently in the upper area of the channel. For aggressive investors, it is better to trade a small stop-loss and go short with small positions. On the above, USDX could test the resistance near 103, and investors should pay attention to the 5-day SMA (102.2) with further attention to the support near the 10-day SMA (101.7).

Trading recommendations: Go short at highs after the USD rebounds. If the USD rebound to the range between 102.8 to 103, aggressive investors should go short with small positions and stop-loss. At the same time, the stop-loss should be set at 103.300, and investors shall take profits at 101.700, where investors should move the stop-loss to breakeven. Furthermore, the second target to take profits will be 101.200.

Trading Recommendations

Trading direction: Short

Entry price: 103.000

Target price: 101.700

Stop loss: 103.300

Support: 102.300/101.700

Resistance: 103.000/103.500