Next 24 hours: No signs of relief
Today’s report: Don't get sucked in to the bounce
A minor bout of risk on price action as the week gets going, though we think this is somewhat deceptive. Risk markets took a beating last week and so, it’s only natural to see a little bit of a bounce here.
- ECB dismisses
- retail sales
- haven demand
- Aussie slides
- data disappoints
- PMI reads
- Stocks vulnerable
- Dealers report
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewSetbacks have extended to retest the critical 61.8% fib retrace off the 2020 low to 2021 high move. Technical studies are now turning up from extended territory on the weekly chart, warning of the need for an additional corrective bounce ahead. Look for the market to hold up on a weekly close basis above the 61.8% fib retrace around 1.1275. Weekly close back above 1.1500 strengthens outlook. Weekly close below 1.1275 negates.
- R2 1.1500 – Psychological – Strong
- R1 1.1483 - 15 January high – Medium
- S1 1.1300 - Figure – Medium
- S2 1.1272 – 4 January low – Strong
EURUSD – fundamental overviewThe Euro continues to be well capped into rallies despite record inflation, given the ECB's ongoing dismissal of the data. Meanwhile, Ukraine tension has also been capping Euro upside. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
EURUSD - Technical charts in detail
GBPUSD – technical overviewThe market is in a correction phase in the aftermath of the run to fresh multi-month highs in 2021. 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 1.3835 takes pressure off the downside.
- R2 1.3663 – 20 January high – Strong
- R1 1.3603 – 21 January high – Medium
- S1 1.3500– Figure – Medium
- S2 1.3491 – 6 January low – Strong
GBPUSD – fundamental overviewThe latest round of GBP weakness comes from Friday's softer than expected UK retail sales print which reduced odds for a February rate hike to 89% from 95% previous. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
USDJPY – technical overviewThe 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.
- R2 115.48 – 12 January high – Strong
- R1 115.06 – 18 January high – Medium
- S1 113.14 – 17 December low – Medium
- S2 112.53 – 30 November low – Strong
USDJPY – fundamental overviewA recent round of intense risk off flow in US equities and a healthy Japanese export data showing have contributed to the latest round of Yen demand. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
AUDUSD – technical overviewThe 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.
- R2 0.7315 – 13 January high – Strong
- R1 0.7300 – Figure – Medium
- S1 0.7130– 7 January low – Medium
- S2 0.7083 – 20 December low – Strong
AUDUSD – fundamental overviewThe Australian Dollar couldn't hold gains from last Thursday's strong jobs report and upgrades to RBA rate hike calls. This latest round of intense risk off flow has more than offset. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
USDCAD – technical overviewFinally 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 1.2814 – 6 January high – Strong
- R1 1.2698 – 10 January high – Medium
- S1 1.2450 – 19 January low– Strong
- S2 1.2400 – Figure – Medium
USDCAD – fundamental overviewA Canada retail sales miss and ongoing downside pressure in US equities have been behind the latest wave of weakness in the Canadian Dollar. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
NZDUSD – technical overviewThe 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.
- R2 0.6894 – 25 November high – Strong
- R1 0.6891 – 13 January high – Medium
- S1 0.6701 – 15 December/2021 low – Strong
- S2 0.6650 – Mid-Figure – Medium
NZDUSD – fundamental overviewThe New Zealand Dollar has been mostly dragged lower on the back of broad based risk off flow. Last Friday's manufacturing PMI data out of New Zealand was solid but hasn't factored into price action. Key standouts on today’s calendar come in the form of German, Eurozone and UK manufacturing PMIs, and the Chicago Fed national activity index.
US SPX 500 – technical overviewLonger-term technical studies are in the process of unwinding from extended readings off record highs. The latest breakdown below 4,500 opens the door for the next major downside extension towards the October 2021 low at 4,272. Back above 4,612 will be required at a minimum to take the immediate pressure off the downside.
- R2 4527 – 19 January high – Strong
- R1 4495 – 21 January high – Medium
- S1 4390 – 21 January low – Medium
- S2 4272 – 1 October low – Strong
US SPX 500 – fundamental overviewWith 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 overviewThe 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 1878 – 16 November high – Medium
- S1 1753 – 15 December low – Medium
- S2 1722 – 29 September low – Strong
GOLD (SPOT) – fundamental overviewThe 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 (%)
- Inflation Has the Radicals Crawling to the Center, D. Moss, Bloomberg (January 23, 2022)
- Business Schools Switch Focus to People, Purpose and Planet, A. Jack, FT (January 19, 2022)