Next 24 hours: Room for concern
Today’s report: Trying to make sense of wacky price action
It was difficult to reconcile how things closed out this past Friday. Risk markets ended on a positive note and the US Dollar was under pressure, despite ongoing hawkish communications out from the Fed.
Wake-up call
- PPI beats
- UK data
- Japan CPI
- risk-on vibes
- retail sales
- macro momentum
- 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 and this latest German producer prices beat. ECB Lagarde was on the wires last week saying the central bank will do what is necessary to stay the course. German producer prices came in at 21.6% versus the 20.7% expected. Monday’s economic calendar is thin with no first-tier data on the docket.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
The Pound held up well against the Buck but underperformed against its other peers on poor UK confidence and retail sales numbers. Both data sets were a good deal below forecast. Monday’s economic calendar is thin with no first-tier data on the docket.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
The Yen sold off on Friday on the back of falling Japanese yields. The BOJ was able to maintain the yield cap despite a fresh CPI high. Last week, the BOJ kept policy on hold, which surprised many expecting some changes to policy. Monday’s economic calendar is thin with no first-tier data on the docket.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 closed out the previous week on a strong note, riding momentum from a falling US Dollar, risk on flow, and rallying commodities. Monday’s economic calendar is thin with no first-tier data on the docket.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
Canada retail sales came in well above forecast, risk markets were feeling good, and commodities prices were well in demand. All of this helped to rally the Canadian Dollar into the end of last week. Monday’s economic calendar is thin with no first-tier data on the docket.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 New Zealand Dollar was able to brush off the news of PM Ardern's resignation, quickly focusing back on the macro positives from rallying equities and a falling US Dollar. Monday’s economic calendar is thin with no first-tier data on the docket.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.