Data chipping away at Fed credibility

GBPUSD – technical overview

Technical studies are in the process of consolidating from stretched levels after the push to fresh multi-month highs. This leaves room for additional consolidation, before the market considers a meaningful bullish continuation towards a retest of the 2018 high. But look for setbacks to now be very well supported into the 1.3500 area.

• R2 1.4002 – 23 June high – Strong
• R1 1.3911 – 12 July high – Medium
• S1 1.3800 – Figure – Medium
• S2 1.3732 – 6 July low – Strong

GBPUSD – fundamental overview

The Pound took its hits on the above forecast US inflation data but was able to outperform some of its peers on the back of the news of the UK removing restrictions on bank dividend payouts. Key standouts on Wednesday’s calendar include UK inflation reads, Eurozone industrial production, Canada manufacturing sales, US producer prices, the Bank of Canada policy decision, Fed Chair Powell testimony and the Fed Beige Book.

USDJPY – technical overview

The longer-term trend is still bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption over the coming sessions. It would take a clear break back above 113.00 to negate the outlook.

• R2 111.00 – Figure– Medium
• R1 110.68 – 8 July high – Strong
• S1 109.53 – 8 July low – Medium
• S2 109.19 – 7 June low – Strong

USDJPY – fundamental overview

Politics are becoming more of an issue in Japan as approval ratings for Suga hit a record low at 33% ahead of the LDP leadership vote in September. The Yen was softer on Tuesday, despite the pullback in stocks, with the currency falling victim to broad Dollar demand in the aftermath of the hotter US inflation data. Key standouts on Wednesday’s calendar include UK inflation reads, Eurozone industrial production, Canada manufacturing sales, US producer prices, the Bank of Canada policy decision, Fed Chair Powell testimony and the Fed Beige Book.

AUDUSD – technical overview

Technical studies have turned up in recent months, after the market traded down to its lowest levels since 2003 in 2020. There is evidence of a longer-term bottom following the latest push back through 0.7000, though at this stage, there is risk for a deeper pullback to allow for shorter term studies to unwind. Setbacks should now be well supported ahead of 0.7000.

• R2 0.7617 – 25 June high – Strong
• R1 0.7599 – 6 July high – Medium
• S1 0.7410 – 9 July/2021 low – Strong
• S2 0.7400 – Figure – Medium

AUDUSD – fundamental overview

Better than expected China trade data helped to offset some of the Aussie outflows on Tuesday from the hotter than expected US inflation reads. Key standouts on Wednesday’s calendar include UK inflation reads, Eurozone industrial production, Canada manufacturing sales, US producer prices, the Bank of Canada policy decision, Fed Chair Powell testimony and the Fed Beige Book.

USDCAD – technical overview

Has been in major decline since topping out in 2021 above 1.4600. At this stage, with the decline now well extended, the market is likely to find solid support into the 1.2000 area ahead of a resumption of gains. Ultimately, only a weekly close below 1.2000 would suggest otherwise. A weekly close back above 1.2500 will strengthen the outlook.

• R2 1.2655 – 21 April high – Strong
• R1 1.2591 – 8 July high – Medium
• S1 1.2423– 7 July low – Medium
• S2 1.2252 – 23 June high – Strong

USDCAD – fundamental overview

The Canadian Dollar suffered on Tuesday from the broad US Dollar demand on the hotter than expected US inflation data. But setbacks were somewhat mitigated by higher OIL prices and hawkish expectations ahead of today's Bank of Canada decision. Key standouts on Wednesday’s calendar include UK inflation reads, Eurozone industrial production, Canada manufacturing sales, US producer prices, the Bank of Canada policy decision, Fed Chair Powell testimony and the Fed Beige Book.

NZDUSD – technical overview

The market has been very well supported in recent months and there is evidence of a longer-term base. Look for setbacks to hold up above 0.6800, with sights set on a run back towards the 0.7500 area.

• R2 0.7106 – 6 July high – Strong
• R1 0.7050 – Mid-Figure – Medium
• S1 0.6918 – 13 July/2021 low– Medium
• S2 0.6900 – Figure – Strong

NZDUSD – fundamental overview

It seems a lot of those hawkish RBNZ expectations have been dulled, with the market not as focused on what the central bank says today, given the more significant pull of broad US Dollar demand from Tuesday's hotter than expected US inflation reads. Kiwi sunk to a fresh yearly low against the Buck on Tuesday and could face more downside pressure if US equities become more nervous about the outlook for Fed policy with inflation proving to be more of a headache than the Fed has been indicating. Key standouts on Wednesday’s calendar include UK inflation reads, Eurozone industrial production, Canada manufacturing sales, US producer prices, the Bank of Canada policy decision, Fed Chair Powell testimony and the Fed Beige Book.

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. Look for rallies to be well capped ahead of 4500, with a break back below 4139 to strengthen the outlook.

• R2 4400 – Psychological – Strong
• R1 4394– 13 July/Record high – Medium
• S1 4289 – 8 July low – Medium
• S2 4218 – 22 June low – Medium

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 into the second half of 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.

• R2 1917 – 1 June high – Strong
• R1 1826 – 17 June high – Medium
• S1 1750 – 29 June low – Medium
• S2 1724 – 13 April 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 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.