Next 24 hours: A cautious recovery
Today’s report: How legit is the Monday bounce?
The combination of razor thin trade resulting from the US holiday and news of the new COVID variant, was not a pretty combination for financial markets on Friday. But already into Monday, we’re seeing the extent of the overreaction in the thin conditions, as demand for risk appetite returns.
Wake-up call
- short covering
- BOE Pill
- can't ignore
- risk liquidation
- Oil dump
- RBNZ pricing
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Omicron Variant Resurrects the Risk of U.S. Stagflation, M. El-Erian, Bloomberg (November 28, 2021)
- Soaring NFT Sales Redraw the Art Market, R. Armstrong, Financial Times (November 29, 2021)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Setbacks have extended to retest the critical 61.8% fib retrace off the 2020 low to 2021 high move. Technical studies are now tracking in extended territory on the weekly chart, warning of the need for a corrective bounce ahead. Look for the market to hold up on a weekly close basis above the 61.8% fib retrace around 1.1275. Back above 1.1465 strengthens outlook. Weekly close below 1.1275 negates.EURUSD – fundamental overview
The Euro comes into the new week making a small recovery out from multi-month lows, with the price action attributed to short covering. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market is in a correction phase in the aftermath of the run to fresh multi-month highs earlier this year. At this stage, additional setbacks should be limited to the 1.3200 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high.GBPUSD – fundamental overview
BoE Pill noted interest rates would need to rise in coming months, but warned a new lockdown would change the view of the recovery, adding the Bank needed to be wary of over-steering with tightening. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.USDJPY – technical overview
The longer-term trend is bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption back down towards the 100.00 area. It would take a clear break back above 116.00 to negate the outlook.USDJPY – fundamental overview
The Yen came storming back on Friday, with the currency unable to ignore demand on traditional correlations with flight to safety. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.AUDUSD – technical overview
The Australian Dollar has been in the process of a healthy correction following the impressive run towards a retest of the 2018 high earlier this year. At this stage, the correction is starting to look stretched and setbacks should be well supported down into the 0.7000 area.AUDUSD – fundamental overview
The Australian Dollar has traded back down towards the yearly low on the back of intensified risk off flow on renewed COVID worry. There has been some demand into Monday as risk sentiment recovers a bit. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.USDCAD – technical overview
Finally signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.USDCAD – fundamental overview
The Canadian Dollar comes into the new week under pressure and just off two months lows against the Buck after getting hit on declines in US equities and oil. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.NZDUSD – technical overview
The market has entered a period of intense correction after running up to a yearly and multi-month high. Back below 0.6800 would suggest a more significant bearish structural shift.NZDUSD – fundamental overview
The New Zealand Dollar was already underperforming last week on the back of a very discouraging retail sales print and comments from RBNZ Orr that heavy household debt was a reason for concern. We've seen added pressure to retest the yearly low as worry around COVID intensifies. All of this has the market reconsidering hawkish RBNZ bets. Key standouts on today’s calendar include speeches from ECB’s Guindos and Enria, UK net lending and consumer credit, Eurozone sentiment and confidence, German inflation, the Canada current account and producer prices, speeches from Treasury Secretary Yellen and ECb President Lagarde, and US reads in the form of pending home sales, and Dallas Fed manufacturing.US SPX 500 – technical overview
Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. At the same time, the latest breakout above 4600 introduces the possibility for the next major upside extension through 4800. At this stage, it will take a break back below 4500 to take the immediate pressure off the topside.US SPX 500 – fundamental overview
We're trading just off fresh record highs, and yet, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment in Q4 2021.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, and coronavirus fallout. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.