Today’s report: What to watch on this Friday
It’s been an ugly week for risk markets, with things really heading south in the aftermath of Wednesday’s hawkish Fed Minutes. But all things considered, stocks have actually held up rather well.
Wake-up call
- Strong data
- Avian flu
- appetite recedes
- covid restrictions
- trade data
- Sentiment deterioration
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- A Tantrum Could Be Brewing Ahead of Payrolls, J. Authers, Bloomberg (January 7, 2022)
- Learning From Poker...How To Be A Good Investor, K. Iskyan, American Consequences (January 7, 2022)
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 remains well offered into rallies despite a recent bout of strong German data. The market remains fixated on monetary policy divergence, which has been further highlighted in the aftermath of this week's hawkish Fed Minutes. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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. Back above 1.3608 takes pressure off the downside.GBPUSD – fundamental overview
The Pound has pulled back from recent highs against the Buck as UK rate hike odds cool down a bit, and as the Fed continues to outline a hawkish path. Meanwhile, a case of avian flu has been detected in the UK, and a BOE price survey shows planned 5% price increases in 2022. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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 well offered into 2022 on flow from US Dollar demand on diverging Fed/BOJ policy. But this week's round of intense risk off flow in US equities could not be ignored, with the Yen finding demand on the traditional correlation. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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 in 2021. 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
Overall, the Australian Dollar is under pressure, mostly on the back of diverging Fed/RBA policy and this latest dump in US equities. Meanwhile, rising COVID infections and hospitalizations have forced many states to reinstitute restrictions. Victoria's Health Minister Foley however said there were no plans to re-impose lockdown. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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
Overall, the Canadian Dollar is under pressure into 2022, falling victim to diverging central bank policy, a worsening virus outlook in Canada and broad based risk off flow. We did however see some demand on Thursday from higher oil prices and a strong Canada trade number. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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
Overall, 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 2022. Key standouts on today’s calendar come in the form of German trade and industrial production, Eurozone inflation, retail sales, sentiment, and consumer confidence, Canada employment, Canada Ivey PMIs, and the US jobs report.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 into the 4800 area introduces the possibility for the next major upside extension towards 5000. 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 in 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.