The Fed’s forward misguidance

Next 24 hours: Expect thinner trade in North America

Today’s report: The Fed's forward misguidance

It’s already been a bit of a joke when assessing the quality of Fed credibility in 2021. The Fed has been doing whatever it can to dismiss risks associated with rising inflation, and it has not been successful in its attempt.

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Wake-up call

Chart talk: Technical & fundamental highlights

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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 1.1400 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 1.1400 would force a rethink.

  • R2 1.1693 – 28 October high– Strong
  • R1 1.1617 - 4 November high – Medium
  • S1 1.1465 - 11 November/2021 low – Medium
  • S2 1.1423 – June 2020 high – Strong

EURUSD – fundamental overview

Wednesday's hotter than expected US inflation data has further highlighted the need for there to be a wider yield differential gap between the US and Eurozone. As such, we've since seen the Euro extend declines to fresh 2021 lows. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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 earlier this year. 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.

  • R2 1.3608 – 9 November high – Strong
  • R1 1.3500 – Figure – Medium
  • S1 1.3393 – 11 November/2021 low – Medium
  • S2 1.3300 – Figure – Medium

GBPUSD – fundamental overview

The Pound has been under pressure, mostly on the back of this latest wave of broad based US Dollar demand in response to expectations that US inflation will force the Fed into taking a more aggressive stance on policy. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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.

  • R2 114.70 – 20 October/2021 high– Strong
  • R1 114.16 – 11 November high – Medium
  • S1 112.72 – 9 November low – Medium
  • S2 112.15 – 11 October low – Strong

USDJPY – fundamental overview

The yield differential gap with the US was more of a standout on Wednesday than the risk off flow. This translated to a wave of renewed US Dollar demand versus the Yen. Meanwhile, the Japanese government has outlined plans for additional pandemic cash handouts. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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.

  • R2 0.7471 – 4 November high – Strong
  • R1 0.7432 – 9 November high – Medium
  • S1 0.7295 – 11 November low – Medium
  • S2 0.7226 – 6 October low – Strong

AUDUSD – fundamental overview

Metals and mining stocks have taken a hit, and risk sentiment is heading south into the latter portion of the week. Iron ore has sunk to its lowest level in 18 months. This has weighed on the Australian Dollar. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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 1.2655 – 4 October high – Strong
  • R1 1.2563 – 8 October high – Medium
  • S1 1.2387 – 10 November low – Medium
  • S2 1.2288 – 21 October low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come under pressure into the second half of the week, taking a hit from broad based US Dollar demand and a turnaround in the price of oil. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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.

  • R2 0.7219 – 21 October high – Strong
  • R1 0.7133 – 10 November high – Medium
  • S1 0.7036 – 11 November low – Medium
  • S2 0.7000 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has come under pressure into the second half of the week on the back of broad Dollar demand and softer New Zealand data. On Wednesday, New Zealand business confidence declined by more than expected. Meanwhile, Covid and rising input costs are adding more strain. Key standouts on today’s calendar come in the form of a batch of UK data highlighted by trade, GDP, industrial production and construction output. We also get the ECB economic bulletin and macroeconomic projections. Trading conditions in the US will be thinner on account of the Veteran’s Day holiday.

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 4500 to take the immediate pressure off the topside.

  • R2 4750 – Psychological – Strong
  • R1 4720 – 5 November/Record high – Medium
  • S1 4500 – Psychological – Medium
  • S2 4482 – 19 October low – Strong

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.

  • R2 1917 – 1 June high – Strong
  • R1 1869 – 10 November high – Medium
  • S1 1759 – 3 November low – Medium
  • S2 1722 – 29 September 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.

Peformance chart: 30 Day Performance vs. US dollar (%)

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