A case of diverging communications

Next 24 hours: Trying to make sense of the price action

Today’s report: A case of diverging communications

So far this week, the messages out from central banks have all been dovish leaning in one way or another. We got these messages from the RBA, BOJ, ECB, and BOE, either by way of a central bank decision, economic data, or dovish speak from central bankers.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

Any additional setbacks should be well supported on dips below 1.0500 in favor of the start to the next major upside extension. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Back above 1.0770 will take the immediate pressure off the downside.

  • R2 1.0770 – 12 September high – Strong
  • R1 1.0757 - 6 November high – Medium
  • S1 1.0609 - 3 November low– Medium
  • S2 1.0517 – 1 November low – Medium

EURUSD – fundamental overview

The Euro came back under pressure on Tuesday, feeling the heat from weak German industrial production and construction PMI data. Meanwhile, ECB Stournaras comments also weighed after the central banker said the ECB could consider rate cuts from mid-2024. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

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 1.2429.

  • R2 1.2429 – 6 November high – Strong
  • R1 1.2400 – Figure – Medium
  • S1 1.2289 – 24 October high – Medium
  • S2 1.2184 – 3 November low – Medium

GBPUSD – fundamental overview

The Pound took a dive on Tuesday on the back of dovish comments from BOE Pill. The central banker talked about the expectation for a sharp inflation retreat and the possibility of 2024 rate cuts. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

USDJPY – technical overview

At this stage, it looks like the market is wanting to resume the bigger picture uptrend and head back towards a retest of that multi-year high from October 2022 up at 151.95. Look for any weakness to continue to be well supported on dips.

  • R2 151.72 – 31 October/2023 high – Strong
  • R1 150.00 – Psychological – Medium
  • S1 149.19 – 3 November low – Medium
  • S2 148.80 – 30 October low – Stronger

USDJPY – fundamental overview

The latest round of Japan wages and spending data and dovish speak from BOJ Ueda has given the Bank of Japan another excuse to maintain the status quo with respect to monetary policy. We have since seen renewed Yen weakness in the aftermath. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

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 0.6523 will take the immediate pressure off the downside and strengthen case for a bottom.

  • R1 0.6523– 30 August high – Strong
  • R2 0.6523 – 6 November high – Medium
  • S1 0.6419 – 3 November low – Medium
  • S2 0.6387 – 2 November low – Medium

AUDUSD – fundamental overview

The Australian Dollar is under pressure in the aftermath of a fully priced in RBA 25 basis point rate hike. We're seeing a classic case of sell the fact, with additional selling from a smore dovish tone in the communication after the central bank raised the bar on the requirements for further rate hikes. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

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 1.3786 – 5 October high – Medium
  • R1 1.3761 – 3 November high– Medium
  • S1 1.3629 – 6 November low – Medium
  • S2 1.3605 – 17 October low – Medium

USDCAD – fundamental overview

Canada fundamentals have been less than encouraging of late, which has resulted in a wave of renewed Canadian Dollar selling after the Loonie had benefited from broad USD outflows. On Monday, Canada Ivey PMIs ticked up but came in below consensus estimates. Downside pressure on the price of oil is also factoring into some of the renewed Canadian Dollar selling. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

NZDUSD – technical overview

Overall pressure remains on the downside with the market once again stalling out on a run up into the 0.6500 area. Ultimately, a break back above 0.6056 would be required to take the immediate pressure off the downside. A monthly close below 0.5800 will intensify bearish price action.

  • R2 0.6056 – 11 October high– Strong
  • R1 0.6002 – 6 November high – Medium
  • S1 0.5900 – Figure – Medium
  • S2 0.5884 – 3 November low – Medium

NZDUSD – fundamental overview

New Zealand business inflation expectations came in softer than previous but a little higher than forecast, which perhaps helped to prop the Kiwi rate somewhat into the latest dip. But the Tuesday GDT auction results were not good and renewed downside pressure on risk assets is expected to ultimately weigh on the currency. At the moment, the OIS market sees the RBNZ keeping the rate unchanged until 4Q 2024, while pricing a rate cut at the October 2024 meeting. Key standouts on Wednesday’s calendar come from German inflation, Eurozone retail sales, Canada building permits, the Bank of Canada summary of deliberations, and a batch of Fed speak.

US SPX 500 – technical overview

Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close back above 4400 will be required to take the immediate pressure off the downside. Next key support comes in at 4103.

  • R2 4398 – 12 October high – Strong
  • R1 4387 – 7 November high – Medium
  • S1 4308 – 3 November low – Medium
  • S2 4239 – 2 November low – Medium

US SPX 500 – fundamental overview

Investors continue to struggle with the reality of a higher for longer Fed policy track in the face of ongoing worry around inflation, while also contending with an escalation in geopolitical risk. Overall, we expect inflation to continue to be a problem in 2023 that results in downside pressure into rallies despite market expectations that would argue otherwise.

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 1600 on a monthly close basis ahead of the next major upside extension. Next major resistance comes in at 2100, above which opens the next extension towards 2500.

  • R2 2071 – 8 March 2022/Record high– Strong
  • R1 2010 – 27 October high – Medium
  • S1 1954 – 24 October low – Medium
  • S2 1908 – 16 October low – Medium

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 (%)

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