Today’s report: Looking past the US debt ceiling deal
Sentiment has been boosted into the new week on optimism around a debt ceiling deal getting done. At the same time, we’re coming out of a week of broad based US Dollar demand as US yields make their way back to the topside.
- US absence
- retail sales
- higher inflation
- RBA Lowe
- stocks, commodities
- on-farm inflation
- 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 1.0702 - 26 May low – Medium
- S2 1.0613 – 17 February low – Strong
EURUSD – fundamental overviewThe Euro has found some demand out from recent lows after taking a hit on broad USD strength and softer Eurozone data. Today should be relatively light given the thinner volume expected. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
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 1.2308 – 25 May low – Medium
- S2 1.2275 – 3 April low – Strong
GBPUSD – fundamental overviewThe Pound got a nice little boost into the end of the week on the back of a UK retail sales beat. Otherwise, things have been quite and should continue to be that way on Monday. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
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 141.00 – Figure – Strong
- R1 140.92 – 29 May/2023 high – Medium
- S1 137.29 – 18 May low – Strong
- S2 136.30 – 1 May low – Medium
USDJPY – fundamental overviewThe fact that recent Japan inflation data pushed higher has had no impact on the Yen, with the currency continuing to track at fresh yearly lows on an ever widening yield differential with the US Dollar. The market simply doesn't believe the BOJ will be doing anything to change its tune. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
AUDUSD – technical overviewThere are signs of the potential formation of a longer-term base following the late 2022 surge back above 0.6500. Next key resistance comes in at 0.7284. Setbacks should be well supported into the 0.6500 area. Only a monthly close below 0.6500 would give reason for rethink.
- R1 0.6675 – 19 May high – Strong
- R2 0.6616– 24 May high – Medium
- S1 0.6490 – 26 May/2023 low – Medium
- S2 0.6387 – 10 November low – Strong
AUDUSD – fundamental overviewThe Australia Financial Review reported last Friday that RBA Governor Philip Lowe warned the federal Labour MPs wage rises would make inflation worse unless accompanied by increases in productivity. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
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 1.3668 – 28 April high – Strong
- R1 1.3655 – 26 May high – Medium
- S1 1.3495 – 24 May low – Medium
- S2 1.3404 – 16 May low – Strong
USDCAD – fundamental overviewHigher stocks and higher commodities has been the right recipe for a recovery in the Canadian Dollar over the past few sessions. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
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. A monthly close below 0.6000 would intensify bearish price action.
- R2 0.6257 – 24 May high – Medium
- R1 0.6114 – 25 May high – Medium
- S1 0.6033 – 26 May/2023 low – Medium
- S2 0.6000 – Psychological – Strong
NZDUSD – fundamental overviewThe New Zealand Dollar has been finding some demand into the new week on optimism around a US debt ceiling deal and on local data that shows the monthly employment indicator rising and on-farm inflation picking up. US markets are closed for holiday and absence of any meaningful first-tier economic data will leave the focus on the major themes.
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 4300 – Resistance zone – Strong
- R1 4234 – 29 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 1937 – 26 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 (%)