Inflation still a big headache for global markets

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.

• R2 1.2270– 14 February high – Medium
• R1 1.2148 – 21 February high – Medium
• S1 1.1915 – 17 February low – Medium
• S2 1.1841 – 6 January low – Strong

GBPUSD – fundamental overview

The Pound is struggling from dovish BOE comments from earlier in the week. BOE Bailey was out saying nothing was decided with respect to the rate trajectory. This coupled with an ongoing hawkish repricing of Fed expectations easily accounts for the recent Pound weakness. Key standouts on Friday’s calendar come from German trade and PMI reads, Eurozone PMI reads, UK PMI reads, Eurozone producer prices, Canada building permits, US ISM non-manufacturing, and some Fed speak.

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.

• R2 138.18 – 15 December high – Strong
• R1 137.10 – 2 March high – Medium
• S1 135.26 – 1 March low – Medium
• S2 134.05 – 24 February low – Strong

USDJPY – fundamental overview

The BOJ continues to signal a commitment to monetary policy accommodation, and the Yen remains under pressure as a consequence. BOJ Nakagawa was on the wires earlier this week saying the central bank needed to see the impact of the December policy tweak before making any fresh decision. Key standouts on Friday’s calendar come from German trade and PMI reads, Eurozone PMI reads, UK PMI reads, Eurozone producer prices, Canada building permits, US ISM non-manufacturing, and some 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 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. Setbacks should be well supported ahead of 0.6500.

• R1 0.7031 – 14 February high – Strong
• R2 0.6920 – 21 February high – Medium
• S1 0.6695 – 1 March low – Medium
• S2 0.6688 – 3 January low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been underperforming on the back of the latest round of soft economic data highlighted by GDP, CPI misses, and the latest slumping building approvals reads which fell the most on record (-27.6% m/m). This has placed the conversation around an RBA pause back front and center. Key standouts on Friday’s calendar come from German trade and PMI reads, Eurozone PMI reads, UK PMI reads, Eurozone producer prices, Canada building permits, US ISM non-manufacturing, and some 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 1.3705 – 16 December high – Strong
• R1 1.3666 – 24 February high – Medium
• S1 1.3514 – 22 February low – Medium
• S2 1.3441 – 21 February low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been weak overall, but managed to hold up relatively well this week on account of some better bid commodities prices. But commodities have stalled into Friday and with risk sentiment in question, there could be another round of Canadian Dollar selling ahead. Key standouts on Friday’s calendar come from German trade and PMI reads, Eurozone PMI reads, UK PMI reads, Eurozone producer prices, Canada building permits, US ISM non-manufacturing, and some 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 0.6577 would be required to take the immediate pressure off the downside.

• R2 0.6391 – 14 February high – Strong
• R1 0.6276 – 1 March high – Medium
• S1 0.6100– Figure – Medium
• S2 0.6064 – 17 November low – Strong

NZDUSD – fundamental overview

Earlier this week, New Zealand terms of trade data came in solid. This followed a healthy Tuesday building permits read and so overall, the New Zealand Dollar has managed to hold up well as a consequence. At the same time, any signs of risk off flow in global markets could easily result in renewed Kiwi selling. Key standouts on Friday’s calendar come from German trade and PMI reads, Eurozone PMI reads, UK PMI reads, Eurozone producer prices, Canada building permits, US ISM non-manufacturing, and some 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 4300 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in at 3885.

• R2 4217 – 26 August high – Strong
• R1 4198 – 2 February/2023 high – Medium
• S1 3921 – 2 March low – Medium
• S2 3885 – 19 January 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 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.

• R2 2000 – Mid-Figure – Strong
• R1 1960 – 2 February/2023 high – Medium
• S1 1774 – 15 December low – Medium
• S2 1719 – 23 November 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.