Today’s report: Harsh realities for investors
A lot of this week has been the market coming around to the fact that the Fed pivot trade isn’t as much of a reality as had been priced in.
Wake-up call
- ECB Minutes
- Dovish Bailey
- policy shift
- soft employment
- commodities complex
- PM resignation
- Inflation headache
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- The Black Swans Are Coming to Congress to Roost, J. Authers, Bloomberg (January 20, 2023)
- Why Stakeholder Capitalism is Under Attack, S. Mundy, Financial Times (January 17, 2023)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro recovery has finally run back above meaningful previous support turned resistance at 1.0635. The December close above this level further encourages the recovery outlook and makes a stronger case for the formation of a longer-term bottom. Any setbacks should now be well supported ahead of 1.0300. Next major resistance at 1.1000.EURUSD – fundamental overview
The Euro continues to hold up well on hawkish communications out of the ECB, the latest coming from the ECB Minutes which showed some members preferring a 75 basis point rate hike. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.EURUSD - Technical charts in detail
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 1.1500. Next key resistance comes in at 1.2668.GBPUSD – fundamental overview
Dovish BOE comments from BOE Bailey and weak UK housing data were behind the latest run of underperformance in the Pound. BOE Bailey said inflation had turned a corner, while RICS house prices plunged to their lowest levels since 2010. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.USDJPY – technical overview
The major pair has been in the throes of a long overdue correction that was waiting to play out after a parabolic run to the topside to multi-year highs. At this stage, the correction could be getting close to having played out fully, with the market finally approaching critical previous resistance turned support in the 125.00 area.USDJPY – fundamental overview
Long JGB yields were on the rise, which opened upside for the Yen. The market is speculating the BOJ will need to change its tune and get a little more aggressive when it comes to monetary policy adjustments. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.AUDUSD – technical overview
There are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. The recent weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift. Next key resistance comes in at 0.7137.AUDUSD – fundamental overview
The Australian Dollar has taken a hit in the latter half of the week on the back of the weak Aussie jobs data and downturn in global sentiment. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.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.USDCAD – fundamental overview
The Canadian Dollar has managed to find some demand, riding the coattails of the commodities complex as the China reopening pushes raw materials up. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.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 0.6577 would be required to take the immediate pressure off the downside.NZDUSD – fundamental overview
The political uncertainty in New Zealand following the surprise announcement of PM Ardern's resignation has opened Kiwi underperformance this week. Key standouts on Friday’s calendar come from UK retail sales, German producer prices, an ECB Lagarde speech, Canada retail sales, and US existing home sales.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 4300 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in at 3492.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 H1 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. The recent break back above 1808 strengthens the bullish outlook. Next major resistance comes in at 2000.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.