The downside to lower rates

Special report: Fed Minutes Preview

Today’s report: The downside to lower rates

Now that aggressive rate cuts have been priced in for 2024, the market is starting to worry about the fact that all of this also implies greater economic weakness. This has translated to a wave of profit taking on US Dollar shorts and a liquidation in US equities as the year gets going.

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

The Euro has been in a multi-month consolidation since bottoming out in 2022. Setbacks have since been exceptionally well supported on dips below 1.0500, with a higher platform sought out ahead of the next major upside extension. Look for a push through the 2023 high at 1.1276 to strengthen the constructive outlook and extend the recovery run towards 1.2000. Only back below 1.0400 negates.

  • R2 1.1140 – 28 December high – Strong
  • R1 1.1045 - 2 January high – Medium
  • S1 1.0938 - 2 January low – Medium
  • S2 1.0888 – 15 December low – Strong

EURUSD – fundamental overview

On Tuesday, the market ignored slightly better revisions to Eurozone, German and French PMIs, instead falling victim to a wave of broad based profit taking on Dollar short positions. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The November 2022 monthly close back above 1.2000 strengthens this prospect. Any setbacks should now be well supported ahead of 1.2000. Next key resistance comes in at 1.2849.

  • R2 1.2760 – 2 January high – Medium
  • R1 1.2700 – 29 December low – Medium
  • S1 1.2610 – 2 January low – Medium
  • S2 1.2600 – Figure – Medium

GBPUSD – fundamental overview

The Pound fell victim to the broad based profit taking on US Dollar shorts, but was able to finally find some demand into the dip. Traders took back one BOE rate cut and now see 140 basis points of cuts in 2024. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

USDJPY – technical overview

The market remains confined to a strong uptrend, with sights set on a retest and break of the multi-year high from 2022 at 151.95. A push through this level will open the next major upside extension towards 155.00. Key support comes in at 140.00, with only a weekly close below to delay the constructive outlook.

  • R2 144.96 – 19 December low – Strong
  • R1 142.85 – 27 December high – Medium
  • S1 140.25 – 28 December low – Medium
  • S2 140.00 – Psychological – Strong

USDJPY – fundamental overview

The Japan earthquake, along with weaker China PMIs and home sales have been enough to invite renewed selling in the Yen. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base with the market trading down into a meaningful longer-term support zone. Only a monthly close below 0.6200 would give reason for rethink. Back above 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.

  • R1 0.6900– 16 June high – Strong
  • R2 0.6871 – 28 December high – Medium
  • S1 0.6751– 3 January low – Medium
  • S2 0.6724 – 21 December low – Medium

AUDUSD – fundamental overview

The Australian Dollar couldn't avoid weakness from risk off flow on Tuesday, while also facing pressure from a downwardly revised Aussie manufacturing PMI print. At the same time, the currency was able to find demand on dips from the ongoing run in the price of iron ore. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

USDCAD – technical overview

Above 1.3000 signals an end to a period of longer-term bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.

  • R2 1.3415 – 15 December high – Strong
  • R1 1.3400 – Figure – Medium
  • S1 1.3265 – 29 December high – Medium
  • S2 1.3223 – 2 January low – Medium

USDCAD – fundamental overview

Canada manufacturing PMIs plunged on Tuesday, and this along with more downside pressure in the price of oil and risk off flow, all helped to fuel an intense wave of selling in the Canadian Dollar. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

NZDUSD – technical overview

Overall pressure remains on the downside with the market continuing to stall out on runs up into the 0.6500 area. At the same time, there are some signs of the market wanting to put in a longer-term base. Ultimately, a break back above 0.6500 would be required to take the medium-term pressure off the downside and encourage this prospect. A monthly close below 0.5800 will intensify bearish price action.

  • R2 0.6412 – 14 July high– Strong
  • R1 0.6370 – 28 December/2023 high – Medium
  • S1 0.6232 – 21 December low – Medium
  • S2 0.6170 – 14 December low – Strong

NZDUSD – fundamental overview

A wave of broad based profit taking on US Dollar shorts along with some risk off flow have been behind this recent pullback in the New Zealand Dollar as the new year gets going. Key standouts on Wednesday’s calendar come from German unemployment, US ISM manufacturing, US JOLTs job openings, and the Fed Minutes late in the day.

US SPX 500 – technical overview

Longer-term technical studies continue to look quite extended, begging for a deeper correction ahead. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close back above 4800 will be required to delay the outlook. Next key support comes in at 4536.

  • R2 4800 – Round Number – Strong
  • R1 4796 – 29 December/2023 high – Medium
  • S1 4691– 20 December low – Strong
  • S2 4536 – 30 November low – Strong

US SPX 500 – fundamental overview

The Fed has finally bent to the will of the market, with the December 2023 policy decision revealing rate projections coming down from previous and more in line with what the market has been looking for. This has translated to more investor friendly policy going forward, which could now open the door for a run to fresh record highs in 2024. At the same time, we worry inflation remains a risk both the market and Fed are not taking as seriously as needed, which could once again force the Fed back into a more restrictive path and weigh heavily on stocks.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1900 on a monthly close basis ahead of the next major upside extension towards 2500.

  • R2 2175 – 4 December/Record high– Strong
  • R1 2100 – Round Number – Medium
  • S1 2015 – 15 December low – Medium
  • S2 1973 – 13 December low – Strong

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 inflation risk and a less stable and upbeat global growth outlook. 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.

Peformance chart: 30-Day Performance vs. US dollar (%)

Suggested reading

Daily Reports Global FX Insights   joelkruger  

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Group has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry.

LMAX Group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Group does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Group or any other FX and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately.