Next 24 hours: Nothing more than a corrective bounce
Today’s report: Lots of chop expected ahead of tomorrow's FOMC
Worry about the Fed trajectory with a splash of geopolitical tension around Russia and the Ukraine. That’s the headline right now. This has been driving the latest acceleration of risk off flow in markets. Indeed, we did see a sharp recovery rally in US equities.
- Political drama
- haven demand
- Aussie CPI
- hike odds
- omicron cases
- 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. Eurozone PMI data was mixed on Monday. The Bundesbank said German GDP would probably decline slightly in Q4. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
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 1.3440– 24 January low – Medium
- S2 1.3400 – Figure – Strong
GBPUSD – fundamental overviewThe political drama on Downing Street and a softer round of UK PMI reads have hit the Pound into Tuesday. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
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 has mostly contributed to the latest wave of Yen demand. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
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 0.7277 – 20 January high – Medium
- S1 0.7100– Figure – Medium
- S2 0.7083 – 20 December low – Strong
AUDUSD – fundamental overviewThe Australian Dollar couldn't hold gains from today's hotter than expected Aussie CPI read. This latest round of intense risk off flow has more than offset. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
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 1.2702 – 24 January high – Medium
- S1 1.2450 – 19 January low– Strong
- S2 1.2400 – Figure – Medium
USDCAD – fundamental overviewA recent Canada retail sales miss and ongoing downside pressure in US equities have been behind the latest wave of weakness in the Canadian Dollar. Market participants have become less certain about this week's BoC rate hike. Odds now stand at 70%. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
NZDUSD – technical overviewThe market has entered a period of intense correction after running up to a yearly and multi-month high. Back below 0.6500 would suggest a more significant bearish structural shift.
- R2 0.6891 – 13 January high – Strong
- R1 0.6812 – 19 January high – Medium
- S1 0.6660 – 24 January/Multi-month 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. The New Zealand cabinet is set to review the country's Covid-19 traffic light settings today after another 10 Omicron cases were reported. Key standouts on Tuesday’s calendar come in the form of German Ifo reads, UK CBI prints, US Case Shiller, and US consumer confidence.
US SPX 500 – technical overviewLonger-term technical studies are in the process of unwinding from extended readings off record highs. The latest breakdown below 4,272 opens the door for the next major downside extension towards 3,500. 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 4220 – 24 January low – Strong
- S2 4200 – Round Number – Medium
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 (%)
- Boomerang Rally Hints at Deeper Market Troubles, J. Authers, Bloomberg (January 25, 2022)
- The Reason That They Don't Teach at Schools Like Wharton, A. Brown, RCM (January 24, 2022)