Special report: ECB policy decision preview
Today’s report: Markets consolidate into Thursday
We saw a wave of inflation data misses on Wednesday, though the market is more focused on misses from US inflation data than anything else. Nevertheless, German and Canada inflation reads were a good deal softer than expected which opened some downside pressure on the Euro and Canadian Dollar.
Wake-up call
- German PPI
- UK inflation
- Fed expectations
- Foot-and-mouth scare
- CPI miss
- global sentiment
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- ‘Full Capitulation’ Could Mean Opportunity Knocking, J. Authers, Bloomberg (July 20, 2022)
- The Auto Industry and Sustainable Production?, P. Campbell, Financial Times (July 19, 2022)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has come under intense pressure in recent months, with setbacks accelerating below the critical multi-year low from 2017 at 1.0340. This sets up a test of monumental support in the form of parity. At the same time, technical studies are tracking in oversold territory, suggesting additional setbacks should be limited. Back above 1.0500 would be required to take the immediate pressure off the downside.EURUSD – fundamental overview
German producer prices came in soft, and Eurozone consumer confidence produced the lowest print on record for the series. This in conjunction with position adjusting ahead of today's ECB decision accounted for the pullback in the single currency. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market continues to be exceptionally well supported on dips below 1.2000. Unless we see a monthly close below 1.2000, we expect this to continue to be the case. Look for a break back above 1.2200 to take the immediate pressure off the downside.GBPUSD – fundamental overview
The Pound held steady on Wednesday, with the currency supported on UK inflation data which surged to a 40 year high. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.USDJPY – technical overview
The market has rocketed higher to its highest levels since 1998 after breaking through the 2002 high. Technical studies are however looking stretched, with scope for a sizable consolidation and correction in the weeks ahead. Look for additional upside from here to be well capped ahead of 140.00. A break back below 134.00 would take the immediate pressure off the topside.USDJPY – fundamental overview
We've seen some mild demand for the Yen in recent sessions. Most of this price action comes from position adjusting from shorter-term accounts in the aftermath of a massive decline in the Yen. There has also been a round of position adjusting in favor of the Yen as the market prices out the odds for a 100 basis point rate hike from the Fed. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.AUDUSD – technical overview
Overall pressure remains on the downside and conditions remain quite choppy. A break back above 0.7070 would be required at a minimum to take the immediate pressure off the downside. Until then, scope exists for deeper setbacks towards 0.6500.AUDUSD – fundamental overview
The Australian Dollar rally was cut short on Wednesday, with weak survey data and a foot-and-mouth scare driving relative weakness. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.USDCAD – technical overview
A recent surge back above 1.3000 signals an end to a period of bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.3500 area. Setbacks should be very well supported down into the 1.2500 area.USDCAD – fundamental overview
The Canadian Dollar came back under some pressure on Wednesday, with the currency taking a hit on softer Canada inflation data and a miss on industrial product prices. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.NZDUSD – technical overview
Overall pressure remains on the downside and conditions remain quite choppy. A break back above 0.6400 would be required to force a shift in the structure and suggest we are seeing a more significant bullish reversal. Until then, scope exists for fresh yearly lows and a retest of the major psychological barrier at 0.6000.NZDUSD – fundamental overview
The New Zealand Dollar has been in minor recovery mode in recent sessions, getting a boost out from the yearly low on account of a bounce in US equities, broad based declines in the US Dollar, and hot inflation data out of New Zealand. Key standouts on Thursday’s calendar come from the ECB policy decision, and US reads in the form of initial jobless claims, and the Philly Fed.US SPX 500 – technical overview
Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. Back above 4,206 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in around 3,400.US SPX 500 – fundamental overview
We've finally reached a point in the cycle where the Fed recognizes unanchored inflation expectations pose a greater downside risk than over-tightening. This is significant, as it means less investor friendly monetary policy that risks potential recession in the months ahead. And so, naturally, stocks have been under intense pressure in 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. Setbacks should now be well supported above 1700 on a monthly close basis.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 inflation risk and a less upbeat global growth outlook. 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.