Today’s report: Dollar rallies despite soft inflation reads
On Thursday, there was more stress around fallout in the banking sector. This was also accompanied by another soft inflation print out of the US, this time in the form of producer prices. But in the end, the US Dollar was more bid than not.
Wake-up call
- Profit taking
- BOE delivers
- Ueda comments
- China worry
- Oil hit
- inflation expectations
- Inflation headache
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Reading the Entrails for a Fed Pause Versus Cuts, J. Authers, Bloomberg (May 10, 2023)
- What’s the Best-Performing Asset Type During a Recession?, C. Benz, Morningstar (May 10, 2023)
Chart talk: Technical & fundamental highlights
Choose pair:
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.EURUSD – fundamental overview
Hawkish ECB rhetoric seems to be losing impact as the week drags on, with a round of profit taking kicking in on weaker Euro longs. At the same time, the jump in Euro area consumer inflation expectations has managed to mitigate fallout. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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.GBPUSD – fundamental overview
We're coming off a classic sell the fact session following the Bank of England policy decision. As highlighted in our special report ahead of the event, the balance of risk was tilted to the downside with so much hawkishness already priced in. And in the end, the BOE delivered as expected, with a 25 basis point rate hike and talk of persistent inflation. The BOE also delivered its biggest growth outlook upgrade in MPC history, and now predicts no recession. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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.USDJPY – fundamental overview
The Yen has been edging higher this week, mostly on BOJ comments from earlier in the week. BOJ Ueda said the central bank would scrap YCC once sustainable inflation was in sight. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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.AUDUSD – fundamental overview
The Australian Dollar is getting hit into the end of the week on falling metals prices and worry around the China reopening narrative. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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 took a hard hit in Thursday trade on the back of heavy downside pressure in commodities prices. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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.NZDUSD – fundamental overview
The New Zealand Dollar has taken a hit in recent sessions on the back of a deterioration in global sentiment and softer economic data. Earlier today, New Zealand PMI reads disappointed, while business inflation expectations cooled off forcing a reconsideration of RBNZ expectations. Key standouts on Thursday’s calendar include the BOE policy decision, US producer prices, and US initial jobless claims.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.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 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 2100, above which opens the next extension towards 2,500.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.