Next 24 hours: Boost from a more dovish leaning Powell
Today’s report: Mountain out of a molehill
We think the market has done a good job of making a bigger deal out of the US debt ceiling drama than there needs to be. After all, it’s been the same story every time this comes up, and each time, there is a resolution in the final hours.
- EURUSD Hawkish ECB speak props Euro
- consumer confidence
- Yen recovery
- Exporter demand
- retail sales
- FinMin Robertson
- Inflation headache
- Dealers report
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewThe 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 1.0905 – 16 May high – Strong
- R1 1.0849 - 18 May high – Medium
- S1 1.0760 - 19 May low – Medium
- S2 1.0713 – 24 March low – Strong
EURUSD – fundamental overviewECB Schnabel said there is still more ground to cover on rates which must then stay high for a some time. ECB Chief Lagarde said the ECB is heading towards more delicate decisions going forward and will be courageous in taking the decisions which are needed to bring inflation back down to 2%. German producer prices data came in mixed. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
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 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 1.2680.
- R2 1.2547 – 16 May high – Strong
- R1 1.2493 – 18 May high – Medium
- S1 1.2391 – 18 May low– Medium
- S2 1.2344 – 10 April low – Strong
GBPUSD – fundamental overviewGfk May consumer confidence rose to -27 as expected, versus -30 last, the highest since February 2022, just before energy/food bills spiked on the Ukraine invasion. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
USDJPY – technical overviewThe 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 139.90 – 30 November high – Strong
- R1 138.75 – 18 May/2023 high – Medium
- S1 136.30 – 17 May low – Medium
- S2 135.64 – 15 May low – Strong
USDJPY – fundamental overviewA solid run of Japan economic data and this latest above forecast Japan inflation rate have done nothing to stop the Yen from sinking to fresh yearly lows against the US Dollar. Ultimately, the BOJ remains committed to holding the line on NIRP and YCC policy, while yields are back on the rise in the US. Any Yen upside we do see is not expected to last. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
AUDUSD – technical overviewThere 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 0.6806 – 14 April high – Strong
- R2 0.6804– 8 May high – Medium
- S1 0.6590 – 15 March low – Medium
- S2 0.6564 – 10 March low – Strong
AUDUSD – fundamental overviewThe Australian Dollar notched gains as high beta FX outperformed G10 peers. We also saw residual exporter demand as well as leverage funds trimming shorts ahead of the weekend. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
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.
- R2 1.3600 – Figure – Medium
- R1 1.3568 – 15 May high – Medium
- S1 1.3404 – 16 May low – Medium
- S2 1.3301 – 14 April low – Strong
USDCAD – fundamental overviewCanada retail sales fell by 1.4% in March as expected, but the ex-autos print came in at -0.3% vs the -0.8% forecast. StatsCan estimate retail sales will rise by 0.2% in April. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
NZDUSD – technical overviewOverall 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 0.6306 – 19 May high – Medium
- S1 0.6111– 26 April low – Medium
- S2 0.6084 – 8 March low – Strong
NZDUSD – fundamental overviewThe New Zealand Dollar has been getting help from higher US equities and solid local developments. This resulted in the currency standing out as the best performer in the G10 over the past week and month. Most recently, the NZ trade deficit swung to a surplus, and NZ FinMin Robertson said he doesn't think New Zealand's credit rating will be downgraded. Key standouts on Monday’s calendar come from Eurozone construction output, Eurozone consumer confidence, and Fed speak from the likes of Bullard, Barkin, and Bostic.
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 4049.
- R2 4217 – 26 August high – Strong
- R1 4217 – 19 May/2023 high – Medium
- S1 4100 – 12 May low – Medium
- S2 4049 – 4 May low – Strong
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 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 2100, above which opens the next extension towards 2,500.
- R2 2100 – Round Number – Strong
- R1 2076 – Record high/2020 – Strong
- S1 1952 – 18 May low – Medium
- S2 1934 – 22 March low – Strong
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.
Peformance chart: 30 Day Performance vs. US dollar (%)
- Buffett’s Play Means This Time, Japan Is Different (Really), G. Reidy, Bloomberg (May 22, 2023)
- Hillary Clinton on China, Putin and the threat to US Democracy, Financial Times (May 21, 2023)