Next 24 hours: Don't fight the Fed
Today’s report: Market scales back dovish Fed bets
The Fed pivot trade was already looking ripe for reversal in the aftermath of Wednesday’s FOMC decision, and things really got going in that direction as the week closed out.
Wake-up call
- ECB Lagarde
- construction PMIs
- Yield differentials
- retail sales
- Oil slump
- battered sentiment
- Inflation headache
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- When the Fed’s Suspected of Bluffing, It Has a Problem, C. Crook, Bloomberg (February 3, 2023)
- Hot January Jobs Report Presents Puzzle for Investors, L. Solberg, MorningStar (February 3, 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 2022 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 1.0500. Next major resistance at 1.1185.EURUSD – fundamental overview
Euro inflation reads continues to press higher, though none of this mattered into the end of last week, with traders scaling back on dovish Fed bets in the aftermath of the Fed decision and some very healthy Friday US economic data. Key standouts on Monday’s calendar come from German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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 2022. The recent 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
On Thursday we saw some selling of the fact in the Pound post BOE decision. The selling intensified on Friday, with the US Dollar racing higher across the board on scaled back dovish Fed bets and strong US economic data. Key standouts on Monday’s calendar come from German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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
Broad based US Dollar demand into the end of the week on account of scaled back dovish Fed bets post FOMC and solid Friday data have all contributed to this latest round of Yen weakness as yield differentials move back in the Buck's favor. Key standouts on Monday’s calendar come from German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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 0.7284.AUDUSD – fundamental overview
The Australian Dollar reversed course into the end of last week, with the currency taking hits on declining metals prices, a scaling back of dovish Fed bets, and solid US economic data. Key standouts on Monday’s calendar come from Aussie retail sales, German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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 sold off on the back of declining commodities prices, softer Canada data, a scaling back of dovish Fed bets, and solid US economic data. Key standouts on Monday’s calendar come from German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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 reversed course into the end of last week, with the currency taking hits on declining metals prices, a scaling back of dovish Fed bets, and solid US economic data. Key standouts on Monday’s calendar come from German factory orders, Eurozone, German, and UK construction PMIs, Eurozone retail sales, and an ECB Lagarde speech.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.