Next 24 hours: Time to sit back and wait on the Fed
Today’s report: Stocks extend record run despite warnings from FX
We head into the new week and new month with stocks still doing a good job of extending to record highs. What’s interesting about the latest push is that it hasn’t been accompanied by the same sentiment in the rates market.
Wake-up call
- German GDP
- Repricing risk
- More stimulus
- RBA expectations
- Canada GDP
- Coronavirus uptick
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Fund Managers Live on Earth Too, and Seem to Like It, J. Authers, Bloomberg (October 29, 2021)
- G-20 Needs a ‘Sputnik Moment’ on the Global Economy, M. El-Erian, Bloomberg (October 29, 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
Eurozone inflation continues to trend higher, though this has been offset by inflation expectations in the United States and Fed rate pricing. At the same time, Germam growth data was a big disappointment last week and this has weighed on the Euro into the new week. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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
We're into BOE and Fed decision week and it seems the consensus heading into the week is that the market may have been a little too aggressive with hawkish BOE bets and not as aggressive with Fed bets. This has been reflected in pricing with the Pound under pressure as the week gets going. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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
A growing expectation of further contraction in the Japanese economy and concurrent expectations for more stimulus after the Japan election are keeping the Yen under pressure as it further accentuates the rate differential with the US. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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 and Aussie inflation data coming in hot last week. RBA expectations have been leaning more and more to the hawkish side and most talk around YCC policy is around it being ditched. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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
Canada GDP was a miss on Friday and this in conjunction with broad US Dollar demand on more hawkish leaning expectations heading into Fed week, were behind the underperformance in the Loonie on Friday. Still, there continues to be support for the Canadian Dollar on well bid oil and US equities. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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 sold in Friday trade on the combination of the rise in New Zealand coronavirus cases and broad demand for the US Dollar as market pricing into Fed week turned more hawkish. Key standouts on Monday’s calendar come in the form of German retail sales, Canada manufacturing PMIs, US ISM manufacturing, and US construction spending.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. At the same time, the latest breakout above 4600 introduces the possibility for the next major upside extension through 4800. At this stage, it will take a break back below 4272 to take the immediate pressure off the topside.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.