Today’s report: Bad news still good news for stocks
We head into Friday with the story the same as what we’ve grown accustomed to. Ultimately, bad news continues to be perceived as a positive for financial markets, in that it pressures the Fed into keeping with an accommodative track.
Wake-up call
- ECB aftermath
- smaller issuance
- Yen recovers
- Risk off
- QE end
- RBNZ bets
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- It's Becoming Tempting to Try Timing the Bubble Again, J. Authers, Bloomberg (October 27, 2021)
- Inflation Update: Not Transitory Yet!, V. Katsenelson, Contrarian Edge (October 28, 2021)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has been looking for a higher low since topping out in 2021 up at 1.2350. Ideally, setbacks continue to be well supported above 1.1500 on a weekly close basis in favour of the next major upside extension back through 1.2350 and towards a retest of the 2018 high at 1.2555 further up. Only a weekly close below 1.1500 would force a rethink.EURUSD – fundamental overview
The ECB decision has come and gone, and though the central bank left policy on hold, the market was ultimately content to buy Euros on the fact, especially with inflation metrics continuing to challenge dovish policy and with the ECB signaling an end to PEPP in March. Also adding to the Euro recovery was the broad based US Dollar selling in the aftermath of a discouraging US GDP read. Key standouts on Friday’s calendar include German GDP, UK mortgage approvals, Eurozone inflation, Eurozone GDP, Canada GDP, Canada producer prices, US personal income and spending, US core PCE, Chicago PMIs, and Michigan sentiment.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market is in a consolidation phase in the aftermath of the run to fresh 2021 and multi-month highs. At this stage, additional setbacks should be limited to the 1.3200 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high.GBPUSD – fundamental overview
Most of the demand for the Pound on Thursday came from the broad based US Dollar selling in the aftermath of the weaker than expected US GDP data. Key standouts on Friday’s calendar include German GDP, UK mortgage approvals, Eurozone inflation, Eurozone GDP, Canada GDP, Canada producer prices, US personal income and spending, US core PCE, Chicago PMIs, 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 114.55 to negate the outlook.USDJPY – fundamental overview
The widening rate gap between the US and Japan, and ongoing record highs in US equities have been behind most of this latest weakness in the Yen. However, we are seeing some Yen demand into Friday on the back of broad based US Dollar selling from the below forecast US GDP read. Key standouts on Friday’s calendar include German GDP, UK mortgage approvals, Eurozone inflation, Eurozone GDP, Canada GDP, Canada producer prices, US personal income and spending, US core PCE, Chicago PMIs, and Michigan sentiment.AUDUSD – technical overview
The Australian Dollar has been in the process of a healthy consolidation following the impressive run towards a retest of the 2018 high earlier this year. At this stage, there are signs of the market wanting to turn back up and any setbacks should be well supported down into the 0.7200 area. Look for a weekly close above 0.7500 to strengthen the outlook and force a shift in the structure.AUDUSD – fundamental overview
There's still plenty of demand for the Australian Dollar with US equities at record highs, the Buck under pressure after soft US GDP, commodities bid, and Aussie inflation data coming in hotter earlier this week. Key standouts on today’s calendar include German unemployment, Eurozone confidence and sentiment reads, German inflation, the ECB decision, and US data in the form of GDP, initial jobless claims and pending home sales.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.USDCAD – fundamental overview
The Canadian Dollar has held up well in the aftermath of this week's Bank of Canada decision where the central bank surprised with the announcement of an end to QE. Balance sheet expansion is now over, with only maturing bond proceeds to be reinvested. We saw more Loonie demand on Thursday as the US Dollar sold off post soft US GDP. Key standouts on today’s calendar include German unemployment, Eurozone confidence and sentiment reads, German inflation, the ECB decision, and US data in the form of GDP, initial jobless claims and pending home sales.NZDUSD – technical overview
The market has entered a period of consolidation after running up to a yearly and multi-month high. Back above the April high at 0.7317 would be required to force a shift in the structure.NZDUSD – fundamental overview
The New Zealand Dollar was right back up on Thursday, getting a big boost from the broad US Dollar selloff on the discouraging US equities print, and from record high US stocks. Key standouts on today’s calendar include German unemployment, Eurozone confidence and sentiment reads, German inflation, the ECB decision, and US data in the form of GDP, initial jobless claims and pending home sales.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 4600, with a break back below 4353 to strengthen the outlook.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 in Q4 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.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.