Today’s report: US yields cool off into end of week
In recent sessions, we’ve been hearing Fed speakers leaning more to the dovish side. At the same time, US economic data has been less than impressive. All of this has helped to drive a reversal of flow resulting in lower US yields, a broad-based US Dollar sell-off, and surge in US equities.
- hawkish Lagarde
- rate expectations
- capital spending
- higher wages
- BoC hike
- Risk-on flow
- 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 1.0635 - 31 May low – Medium
- S2 1.0613 – 17 February low – Strong
EURUSD – fundamental overviewThe Euro got a big boost on Friday on the back of hawkish ECB Lagarde comments and broad based US Dollar weakness. Lagarde said there was clear evidence underlying inflation had peaked, inflation was too high, and was set to remain so for too long. Lagarde also argued rate hikes are not yet fully reflected in financing conditions and that there is still ground to be covered on rates. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 1.2600 – Figure – Medium
- R1 1.2547 – 18 May high – Medium
- S1 1.2308 – 25 May low – Medium
- S2 1.2275 – 3 April low – Strong
GBPUSD – fundamental overviewThe Pound has enjoyed a round of relative outperformance in recent sessions, getting a boost from solid economic data and higher inflation expectations fueling a more hawkish BOE and higher rate trajectory in the UK. A recent BoE survey had UK businesses year ahead CPI forecast rising to 5.9% in May from 5.6% in April, while 3-year CPI expectations rose to 3.5% in May from 3.4% in April. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 140.94 – 30 May/2023 high – Medium
- S1 137.29 – 18 May low – Strong
- S2 136.30 – 1 May low – Medium
USDJPY – fundamental overviewThough the Yen does remain under pressure overall, sitting just off yearly lows against the Buck, we have seen some demand in recent sessions. We believe this comes from the combination of a solid run of Japan economic data and broad based selling in the US Dollar. Japan manufacturing, capital spending, and company profits all came in on the better side of expectation. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 continue to be well supported in the 0.6500 area. Only a monthly close below 0.6500 would give reason for rethink.
- R1 0.6675 – 19 May high – Strong
- R2 0.6617– 2 June high – Medium
- S1 0.6458 – 31 May/2023 low – Medium
- S2 0.6387 – 10 November low – Strong
AUDUSD – fundamental overviewThe Australian Dollar has held up better than most in recent sessions on account of a solid round of economic data including higher wages pointing to a shift back towards higher rates in Australia. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 1.3428 – 2 June low – Medium
- S2 1.3404 – 16 May low – Strong
USDCAD – fundamental overviewA recovery in the price of oil, better than expected Canada GDP, and a resurgence in risk on flow have all helped to inspire renewed demand into the Canadian Dollar. The market is fully pricing in a rate hike by year end. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 0.5985 – 31 May/2023 low – Medium
- S2 0.5969 – 11 November low – Medium
NZDUSD – fundamental overviewThe New Zealand Dollar has finally received a welcome boost out from this week's yearly lows, getting help from broad based risk on flow and Dollar selling. Looking ahead, the calendar is quite light for the remainder of the day, with the exception of the feature spotlight event in the form of the monthly employment report out of the US.
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 4238 – 30 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 1932 – 30 May low – Medium
- S2 1900 – Round Number – 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 (%)
- ECB Blows Out 25 Candles. 5% Inflation Is Harder, J. Authers, Bloomberg (June 2, 2023)
- Fannie Mae Reminds Us Yet Again of Mission Creep's Perils, I. Brannon, Alhambra (June 1, 2023)