Considering the recovery in risk appetite

Today’s report: Considering the recovery in risk appetite

Russia has gone into the Ukraine, and many major economies have responded with sweeping sanctions in opposition to the move. That’s pretty much where we’re at right now.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market has been confined to a choppy consolidation, between 1.1100 and 1.1500. A clear break back above 1.1500 will suggest the market could be getting ready to turn back up. Back below 1.1100 will set up the next major downside extension to fresh multi-month lows below 1.1000 towards the multi-year low from 2020 in the 1.0600 area.

  • R2 1.1396 – 16 February high – Strong
  • R1 1.1310 - 24 February high – Medium
  • S1 1.1186 - 24 November low – Medium
  • S2 1.1106 – 24 February/2022 low – Strong

EURUSD – fundamental overview

The Euro tanked to its lowest level since 2020 on the back of the escalation in the Russsia-Ukraine conflict and realization Europe would bear the brunt of Ukraine economic fallout. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

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 in 2021. At this stage, additional setbacks should be limited to the 1.3000 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high. Back above 1.3835 takes pressure off the downside.

  • R2 1.3662 – 20 January high – Strong
  • R1 1.3550 – 24 February high – Medium
  • S1 1.3273 – 24 February low – Strong
  • S2 1.3200 – Figure – Medium

GBPUSD – fundamental overview

The Pound hasn't been immune to fallout from Russia-Ukraine, with the UK imposing sweeping sanctions on Russia, denying the use of Pounds for payments and denying access to UK debt markets. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

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 117.00 to negate the outlook.

  • R2 116.36 – 4 January high – Strong
  • R1 115.70 – 24 February high – Medium
  • S1 114.41 – 24 February low – Medium
  • S2 113.47 – 24 January low – Strong

USDJPY – fundamental overview

The Yen has been seeing quite a bit of two way flow of late, but has mostly been weighed down on deteriorating terms of trade for imported energy given rocketing prices. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

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 in 2021. At this stage, the correction is starting to look stretched and setbacks should be well supported above 0.7000 on a weekly close basis. A weekly close below 0.7000 will force a bearish shift.

  • R2 0.7300 – Figure – Strong
  • R1 0.7284 – 23 February high – Medium
  • S1 0.7095 – 24 February low – Medium
  • S2 0.7052 – 4 February low – Strong

AUDUSD – fundamental overview

It's all about risk off flow and safe haven bids into the US Dollar, this after Russian President announced a "military operation" in Ukraine's Donbas region. However, cooler heads are prevailing a bit into Friday, which has helped to support Aussie on dips. On the data front, Aussie capex came in as expected. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

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.

  • R2 1.2878 – 24 February high – Strong
  • R1 1.2800 – Figure – Medium
  • S1 1.2682 – 23 February low– Medium
  • S2 1.2636 – 10 February low – Medium

USDCAD – fundamental overview

Surging oil prices and the February Canada business barometer coming in a lot higher than expected, have helped to offset some of the negative flow from the geopolitical crisis escalation. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

NZDUSD – technical overview

Setbacks have intensified in recent weeks with the market trading down to fresh multi-month lows. A recent breakdown below the 0.6700 area opens the door for a drop towards 0.6500 in the sessions ahead.

  • R2 0.6810 – 23 February high – Strong
  • R1 0.6777 – 24 February high – Medium
  • S1 0.6592 – 14 February low – Medium
  • S2 0.6530 – 28 January/2022 low – Strong

NZDUSD – fundamental overview

It's all about risk off flow and safe haven bids into the US Dollar as the week closes out, this after Russian President announced a "military operation" in Ukraine's Donbas region early Thursday. All of this is more than offsetting Wednesday's hawkish RBNZ and this latest run in commodities, perhaps even forcing some market participants to already reconsider hawkish RBNZ bets. Key standouts on today’s calendar include German growth, Eurozone economic sentiment and confidence, and US reads highlighted by durable goods, personal income, personal spending, core PCE, pending home sales, and Michigan sentiment.

US SPX 500 – technical overview

Longer-term technical studies are in the process of unwinding from extended readings off record highs. The latest breakdown below 4,272 opens the door for the next major downside extension towards 3,500. Back above 4,612 will be required at a minimum to take the immediate pressure off the downside.

  • R2 4594 – 2 February high – Strong
  • R1 4490 – 16 February high – Medium
  • S1 4105 – 24 February low – Strong
  • S2 4035 – 13 May low – Strong

US SPX 500 – fundamental overview

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, rising inflation, and geopolitical tension should weigh more heavily on investor sentiment in Q1 2022.

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 1700.

  • R2 1993 – September 2020 high – Strong
  • R1 1975 – 24 February high – Medium
  • S1 1910 – 24 February low – Medium
  • S2 1878 – 16 November high – 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 exhausted monetary policy, extended global equities, coronavirus fallout, and geopolitical tension. 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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