Investors can’t get away from inflation risk

Next 24 hours: Realities that can't be ignored

Today’s report: Investors can't get away from inflation risk

US rates were up for the fifth consecutive day on Wednesday and the US Dollar was able to rally as a consequence. The market has been forced to have a serious rethink about how it has been pricing the path forward with respect to monetary policy.

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Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The Euro remains well supported on dips following a run to the topside through 1.1000 earlier this year. Any additional setbacks should be well supported ahead of 1.0500 in favor of the formation of the next major higher low and a bullish continuation. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Next key resistance comes in the form of the March 2022 high at 1.1185.

  • R2 1.1185– Monthly high, March 2022 – Strong
  • R1 1.1076 - 14 April, 2023 high – Medium
  • S1 1.0908- 12 April low – Medium
  • S2 1.0831 – 10 April low – Strong

EURUSD – fundamental overview

Eurozone core inflation was confirmed at a record high, while ECB Lane was on the wires saying a May rate hike was likely. Nevertheless, the demand for Dollars was greater, which ultimately weighed on the Euro. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and Fed speak.

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 November 2022 monthly close back above 1.2000 strengthens this prospect. Any setbacks should now be well supported ahead of 1.2000. Next key resistance comes in at 1.2667.

  • R2 1.2667 – Monthly high, May 2022 – Strong
  • R1 1.2547 – 14 April/2023 high – Medium
  • S1 1.2344 – 10 April  low– Medium
  • S2 1.2275 – 3 April low – Strong

GBPUSD – fundamental overview

UK inflation continued to trend up above expectation, which has led to GBP outperformance in recent sessions as it increases odds for a more aggressive move from the BOE. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and Fed speak.

USDJPY – technical overview

The major pair has seen a nice recovery following the massive correction out from multi-year highs. Setbacks have finally been well supported ahead of 125.00 in the 127s thus far. At this stage, it looks like the market could be wanting to resume the bigger picture uptrend and head back towards a retest of that multi-year high from October 2022 up at 151.95. Look for any weakness to continue to be well supported in favor of higher lows along the way.

  • R2 136.00 – Figure – Medium
  • R1 135.14– 19 April high – Medium
  • S1 132.02 – 13 April low – Medium
  • S2 130.62 – 5 April low – Medium

USDJPY – fundamental overview

The BOJ has continued to keep with an easy policy line, adding that it would be wary to make any changes to policy this month. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and Fed speak.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the late 2022 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 0.6894 – 13 December 2022 high – Strong
  • R2 0.6806– 14 April high – Medium
  • S1 0.6685– 13 April low – Medium
  • S2 0.6619 – 10 April low – Strong

AUDUSD – fundamental overview

The Australian Westpac leading index came out less bad than expected the other day, and overall, the Australian Dollar has held up rather well in the fact of some risk off flow. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and 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 1.3554 – 10 April high – Strong
  • R1 1.3500 – Psychological – Medium
  • S1 1.3301 – 14 April low – Medium
  • S2 1.3226 – 15 November 2022 low – Strong

USDCAD – fundamental overview

The Canadian Dollar has been a standout underperformer this week on the back of softer Canada inflation reads and weaker economic data as reflected by the latest discouraging housing starts print. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and Fed speak.

NZDUSD – technical overview

Overall pressure remains on the downside with the market once again stalling out on a run up into the 0.6500 area. Ultimately, 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 0.6350 – Mid-Figure – Medium
  • S1 0.6139– 16 March low – Medium
  • S2 0.6084 – 8 March low – Strong

NZDUSD – fundamental overview

No surprise to see the New Zealand Dollar trading lower on Thursday after the latest round of inflation data came in a good deal softer than expected. This has opened a dovish repricing of RBNZ expectations. Key standouts on Thursday’s calendar come from German producer prices, Eurozone trade, the ECB Minutes, the US Philly Fed, initial jobless claims, and existing home sales, and Eurozone consumer confidence. We also get a wave of ECB and 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 3806.

  • R2 4198 – 2 February/2023 high – Strong
  • R1 4179 – 18 April high – Medium
  • S1 3921 –  2 March low – Medium
  • S2 3806 – 13 March 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 the record high from 2020 at 2076, above which opens the next extension towards 2,500.

  • R2 2076 – Record high, 2020 – Very Strong
  • R1 2071 – 2022 high – Strong
  • S1 1969 – 19 April low – Medium
  • S2 1934 – 22 March low – Medium

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.

Peformance chart: 30 Day Performance vs. US dollar (%)

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