Today’s report: US data stands out
Things are relatively quiet out there and it all makes sense with desks thinning out from now through the second week in January for the holiday break.
Wake-up call
- German confidence
- Gilt yields
- Offsetting flow
- dovish stance
- falling oil
- soft data
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- What Eight Charts Are Telling Us About Markets in 2022, M. Gilbert, Bloomberg (December 21, 2021)
- The Case for Universal Basic Income, M. Sandbu, Financial Times (December 20, 2021)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Setbacks have extended to retest the critical 61.8% fib retrace off the 2020 low to 2021 high move. Technical studies are now tracking in extended territory on the weekly chart, warning of the need for a corrective bounce ahead. Look for the market to hold up on a weekly close basis above the 61.8% fib retrace around 1.1275. Back above 1.1465 strengthens outlook. Weekly close below 1.1275 negates.EURUSD – fundamental overview
The Euro comes into the end of year under pressure on the back of diverging central bank policy outlooks at the Fed and ECB. The ECB is seen by many as being behind the curve, while the surge in virus cases in Europe is not helping matters either. Meanwhile, the ongoing energy crisis and latest slide in German consumer confidence haven't helped matters. Trading conditions will be thin from now through the second week in January, with so many off the desks for the holidays. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing home sales.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 1.3000 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
CBI sales volume was down hard in the UK, though it seems as though the Pound has been feeling better about the fact that no new restrictions around the virus have been imposed. This has resulted in rising Gilt yields, which has propped up the Pound. Trading conditions will be thin from now through the second week in January, with so many off the desks for the holidays. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing home sales.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 116.00 to negate the outlook.USDJPY – fundamental overview
The Yen has been mostly sideways in recent sessions, caught between flow from US Dollar demand on diverging Fed/BOJ policy, and flow from Yen demand on flight to safety bids. Earlier this week, BoJ Governor Kuroda said the central bank will only discuss policy normalization once inflation is closer to 2%. Trading conditions will be thin from now through the second week in January, with so many off the desks for the holidays. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing home sales.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 earlier this year. 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.AUDUSD – fundamental overview
The Australian Dollar is under pressure into year end, mostly on the back of diverging Fed/RBA policy and a wave of risk off flow. On Tuesday, the RBA reiterated a patient approach with respect to rate hikes. Trading conditions will be thin from now through the second week in January, with so many off the desks for the holidays. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing 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 is under pressure into year end, falling victim to diverging central bank policy, plummeting oil, and a downturn in global risk sentiment. We did see some demand on Tuesday as risk assets recovered a bit and Canada retail sales exceeded expectation. Trading conditions will be thin from now through the second week in January, with so many off the desks for the holidays. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing home sales.NZDUSD – technical overview
The market has entered a period of intense correction after running up to a yearly and multi-month high. Back below 0.6700 would suggest a more significant bearish structural shift.NZDUSD – fundamental overview
Economic data out of New Zealand has been softer of late, RBNZ rate hike expectations have been scaled back, the phased border reopening has been delayed due to omicron, and risk off flow has soured sentiment. All of this has been behind this latest wave of Kiwi underperformance into year end. Key standouts on today’s calendar come in the form of UK GDP, and US reads featuring GDP, core PCE, and existing 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. 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.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 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 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.