Today’s report: Will the Fed bend to the will of the market?
There was plenty of reason for the market to worry about the prospect for a Fed pivot in the aftermath of Thursday’s round of economic data out of the US.
Peformance chart: 30 Day Performance vs. US dollar (%)
- What Adani Short Seller Hindenburg Can Learn From Elliott, S. Ren, Bloomberg (January 26, 2023)
- Actually, Japan Has Changed a Lot, N. Smith, Noahpinion (January 24, 2023)
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewThe 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 overviewThe Euro has come under some pressure as investors worry about the rumblings around the latest tension in Ukraine. The EU has said it sees legal grounds to seize Russian central bank assets. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
EURUSD - Technical charts in detail
GBPUSD – technical overviewSigns 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 overviewThe Pound came under pressure on the back of an awful round of UK CBI data. Meanwhile, British business confidence fell to the lowest levels since 2009. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
USDJPY – technical overviewThe 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 overviewYield differentials have moved out of the Yen's favor in the aftermath of a strong round of economic data out of the US. Meanwhile, the IMF has urged the BOJ to be more flexible on long-term JGB yields. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
AUDUSD – technical overviewThere 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 0.7284.
AUDUSD – fundamental overviewThe Australian Dollar has been running strong this week on the big inflation beat, with market participants scrambling to reprice RBA rate hike expectations. Odds for a February hike have moved closer towards certainty. Meanwhile, there has also been good cheer around the China reopening. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
USDCAD – technical overviewA 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 overviewThe Canadian Dollar has regained setbacks from the Bank of Canada decision in which the central bank indicated they could be holding on rates going forward. The recovery comes from improved Canada data results and a run higher in the price of oil. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
NZDUSD – technical overviewOverall 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 overviewEarlier this week, New Zealand inflation reads came in above forecast overall which has propped Kiwi somewhat. At the same time, the actual print of 7.2% YoY (near 3 decade high) is lower than the 7.5% YoY projected by the RBNZ in its November Monetary Policy Statement, which suggests a less aggressive rate hike next month. Key standouts on Friday’s calendar come from an ECB Lagarde speech, US core PCE, pending home sales, and Michigan sentiment.
US SPX 500 – technical overviewLonger-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 overviewWe'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 overviewThe 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 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 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.