Expect more volatility into the end of the week

Special report: Ominous signs from record high US equities

Today’s report: Expect more volatility into the end of the week

We fully expect activity to pick up into the latter portion of the week as the market gets ready to take in back-to-back inflation readings out of the US on Thursday and Friday. Interestingly enough, currencies have remained relatively well bid, while stocks continue to surge to record highs.

Wake-up call

Chart talk: Technical & fundamental highlights

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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 1.0917 – 4 June high – Strong
  • R1 1.0846 - 8 July high – Medium
  • S1 1.0762 - 18 June high– Medium
  • S2 1.0666 – 26 June low – Strong

EURUSD – fundamental overview

The Euro was back trading to the topside on Wednesday, with the currency getting help from faded concerns around French politics and a better than expected Italian industrial production print. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

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 door is now open for the next major upside extension towards the 2023 high at 1.3143. Any setbacks should be well supported ahead of 1.2000.

  • R2 1.2894 – 8 March/2024 high – Strong
  • R1 1.2861 – 12 June high – Medium
  • S1 1.2740 – 4 July low – Medium
  • S2 1.2668 – 3 July low – Medium

GBPUSD – fundamental overview

Odds for am August BOE rate cut have come off quite a bit from less than one week ago, dropping down to about 50% from 70%. Hawkish warnings from BOE Pill about upside risks to inflation have further contributed to the GBP bid. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

USDJPY – technical overview

The market remains confined to a strong uptrend, most recently extending to a multi-year high through 160.00. Key support comes in at 151.95, with only a weekly close below to delay the constructive outlook. Next major resistance comes in at 165.00.

  • R2 162.00 – Figure – Strong
  • R1 161.96 – 3 July/2024/Multi-Year high – Medium
  • S1 159.60 – 26 June low – Medium
  • S2 158.67 – 21 June low – Medium

USDJPY – fundamental overview

Any discussion around a BOJ taper are lacking in urgency, which isn't inspiring any confidence from traders. Even a hotter than expected Japan producer prices has failed to inspire any Yen demand, with the currency sliding right back to the recent multi-year low. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

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 0.6800– Figure – Medium
  • R2 0.6762 – 8 July high – Medium
  • S1 0.6620 – 28 June low – Medium
  • S2 0.6576 – 10 June low – Strong

AUDUSD – fundamental overview

The Australian Dollar has held up well on the back of recovering commodities prices and an ongoing record run in US equities. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

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 1.3847 – 16 April/2024 high – Strong
  • R1 1.3792 – 11 June high – Medium
  • S1 1.3602 – 5 July low – Medium
  • S2 1.3586 – 10 May low – Strong

USDCAD – fundamental overview

Stronger commodities and US equities helped to rally the Canadian Dollar on Wednesday, though the currency remains well offered into rallies on account of softer Canada economic data and increasing odds for a BoC rate cut later this month. Odds currently sit at about 70%. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

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 0.6222 – 12 June high – Strong
  • R1 0.6154 – 8 July high – Medium
  • S1 0.6048 – 2 July low – Medium
  • S2 0.6031 – 15 May low – Strong

NZDUSD – fundamental overview

This week's RBNZ communication caught the market off guard, with the central bank sounding decidedly less hawkish than expected. Odds for an RBNZ rate cut have jumped to about 50% after the central bank cited weakening credit and spending data. This has been a complete 180 from what had been hints of a possible rate hike back in May. Key standouts on Thursday’s calendar come from German inflation, UK GDP, trade, and industrial production, US CPI, and initial jobless claims.

US SPX 500 – technical overview

Longer-term technical studies continue to look quite extended, begging for a deeper correction ahead. The latest rally has extended to reach a 355 point measured move extension target objective in the 5,640 area, adding to the case for an imminent correction. At this stage, additional upside should be limited to allow for overbought studies to unwind. There is now room for a pullback towards previous resistance turned support in the form of the previous record high from April around 5,290.

  • R2 5700 – Round Number – Strong
  • R1 5643 – 10 July/Record high/Extn Target – Strong
  • S1 5583 – 10 July low – Medium
  • S2 5450 – 2 July low – Strong

US SPX 500 – fundamental overview

Though we have seen a healthy adjustment of investor expectations towards the amount of rate cuts in 2024, the market still hopes policy will end up erring more towards the investor friendly, accommodative side of things. This bet has kept stocks well bid into dips and consistently pushing record highs. Still, if there is a sense the Fed will need to be more sensitive towards erring on the side of higher rates, it could invite major disruption to the stock market.

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 this next major upside extension into the 2500-3000 area. Setbacks should now be well supported above 2000 on a monthly close basis.

  • R2 2451 – 20 May Record high – Strong
  • R1 2400 – Round Number – Medium
  • S1 2277 – 3 May low – Strong
  • S2 2223– 21 March high – Strong

GOLD (SPOT) – fundamental overview

The yellow metal has pushed record highs in 2024 with solid demand from medium and longer-term accounts. These players are more concerned about inflation, geopolitical risk and a less 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 end.

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

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