All about inflation expectations

GBPUSD – technical overview

Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September. The latest weekly close back above the September high at 1.1739 strengthens this prospect. Any setbacks should now be well supported ahead of 1.1100. Next key resistance comes in at 1.2294.

• R2 1.2029– 15 November high – Strong
• R1 1.1900 – Figure – Medium
• S1 1.1600 – 8 November high – Medium
• S2 1.1430 – 8 November low – Medium

GBPUSD – fundamental overview

The Pound was a standout outperformer on Tuesday, initially finding demand from the UK jobs data which showed  wages rising at their fastest pace in more than a year. This inspired a repricing of BOE rate hike bets. At the same time, the Pound also got a boost from broad based US Dollar selling on the back of the softer US PPI read. Key standouts on Wednesday’s calendar come from UK inflation reads, Canada inflation reads, US retail sales, US industrial production, US business inventories, US NAHB housing, and Fed speak.

USDJPY – technical overview

Longer-term technical studies are in the process of unwinding from severe overbought readings. Look for additional corrective price action back down towards the 130.00 area before the market considers the possibility of uptrend resumption. Rallies should now be well capped ahead of 147.00.

• R2 145.10 – 27 October low – Strong
• R1 142.49 – 11 November high – Medium
• S1 137.67 – 15 November low – Medium
• S2 137.00 – Figure – Medium

USDJPY – fundamental overview

The Yen was initially softer on Tuesday after the bad Japan GDP miss, before finding support on the back of the broad based US Dollar selloff from softer US producer prices. Key standouts on Wednesday’s calendar come from UK inflation reads, Canada inflation reads, US retail sales, US industrial production, US business inventories, US NAHB housing, and Fed speak.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. The latest weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift.

• R1 0.6917 – 13 September high – Strong
• R2 0.6798 – 15 November high – Medium
• S1 0.6500 – Psychological – Medium
• S2 0.6387 – 10 November low – Strong

AUDUSD – fundamental overview

The RBA Minutes revealed policymakers were prepared to return to larger rate hikes if needed. This along with a soft US producer prices print helped to fuel Aussie demand. Key standouts on Wednesday’s calendar come from UK inflation reads, Canada inflation reads, US retail sales, US industrial production, US business inventories, US NAHB housing, and Fed speak.

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 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.

• R2 1.3572 – 10 November high – Strong
• R1 1.3400 – Figure – Medium
• S1 1.3226 – 15 November low – Medium
• S2 1.3200 – Figure – Strong

USDCAD – fundamental overview

Though the Canadian Dollar was bid against the Buck on Tuesday, the currency has been underperforming against its peers on struggling Canada home prices. Key standouts on Wednesday’s calendar come from UK inflation reads, Canada inflation reads, US retail sales, US industrial production, US business inventories, US NAHB housing, and Fed speak.

NZDUSD – technical overview

Overall pressure remains on the downside with risk for the current recovery rally to stall out and form a lower top for the next major downside extension. A break back above 0.6251 would be required to take the immediate pressure off the downside.

• R2 0.6251 – 25 August high – Strong
• R1 0.6204 – 15 November high – Medium
• S1 0.5841– 10 November low – Medium
• S2 0.5741 – 3 November low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar continues to benefit from the combination of shifting expectations for higher rates from the RBNZ, and softer US inflation data suggesting the Fed may ease up on its rate hike timeline. Key standouts on Wednesday’s calendar come from UK inflation reads, Canada inflation reads, US retail sales, US industrial production, US business inventories, US NAHB housing, and Fed speak.

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. A monthly close back above 4000 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in around 3200.

• R2 4150 – 13 September high – Strong
• R1 4048 – 15 November high – Strong
• S1 3863 – 8 November high – Medium
• S2 3699 – 3 November low – Strong

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. Overall, we expect inflation to continue to be a problem in Q4 2022 and Q1 2023 that results in downside pressure into rallies.

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 1600 on a monthly close basis ahead of the next major upside extension. Back above 1808 will strengthen the bullish outlook.

• R2 1808 – 7 August high – Strong
• R1 1787 – 15 November high – Medium
• S1 1665 – 8 November low – Medium
• S2 1615 – 28 September/2022 low – Strong

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.