Next 24 hours: Risk building for reversal of flow
Today’s report: All eyes on this week's Fed decision
There has been a lot of speculation around what the Fed will do when it meets later this week. At the moment, based on how markets are trading, it looks like the market is betting the Fed will end up delivering a less hawkish message resulting in US equities back to yearly highs and the US Dollar coming under pressure.
- softer data
- BOE expectations
- BOJ Ueda
- recession odds
- post BoC
- RBNZ outlook
- 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 1.0832 – 22 May high – Medium
- R1 1.0787 - 8 June high – Medium
- S1 1.0635 - 31 May low – Medium
- S2 1.0613 – 17 February low – Strong
EURUSD – fundamental overviewThe Euro is consolidating under a two week high. Perhaps a little selling coming from France Villeroy comments around a France slowdown in inflation, and some softer industrial output data out of Italy. At the same time, talk continues to circulate of higher rates from the ECB which has been supporting on dips. Looking ahead, Monday’s economic calendar is exceptionally thin with only US consumer inflation expectations standing out.
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 1.2591 – 1 June high – Medium
- S1 1.2368 – 5 June low – Medium
- S2 1.2308 – 25 May low – Strong
GBPUSD – fundamental overviewThe Pound has traded up to a 4 week high on ramped up hawkish BOE expectations. Looking ahead, Monday’s economic calendar is exceptionally thin with only US consumer inflation expectations standing out.
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 138.43 – 1 June low – Medium
- S2 137.29 – 18 May low – Medium
USDJPY – fundamental overviewBOJ Governor Ueda said the Bank will debate whether it will unload holdings of ETFs when it nears an exit from easing policy. Ueda also said the central bank expects CPI to clearly slow towards the middle of this fiscal year and will continue monetary easing patiently. Looking ahead, Monday’s economic calendar is exceptionally thin with only US consumer inflation expectations standing out.
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 0.6800 – Figure – Medium
- R2 0.6752 – 9 June high – Medium
- S1 0.6579 – 5 June low – Medium
- S2 0.6458 – 31 May/2023 low – Strong
AUDUSD – fundamental overviewThere were reports on the wires that odds of a recession in Australia had climbed to 50% from 35% in May. At the same time, risk on flow and higher US equities have managed to offset, with Aussie driving to multi-session highs. Looking ahead, Monday’s economic calendar is exceptionally thin with only US consumer inflation expectations standing out.
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 1.3568 – 15 May high – Strong
- R1 1.3462 – 5 June high – Medium
- S1 1.3313 – 9 June low – Medium
- S2 1.3301 – 14 April low– Strong
USDCAD – fundamental overviewLast week, Fitch affirmed Canada's AA+ rating and the Canadian Dollar remained in demand post the earlier BoC rate hike and accompanying hawkish speak. Key standouts on Friday’s calendar come from some ECB speak and Canada employment data.
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 0.6140 – 9 June high – Medium
- S1 0.6031 – 7 June low – Medium
- S2 0.5969 – 31 May/2023 low – Strong
NZDUSD – fundamental overviewConcerns over slowing growth in New Zealand have resulted in a lagging New Zealand Dollar that has also been weighed down by expectations the RBNZ will be leaning more towards accommodation, all while other central banks continue to lean more hawkish. At the same time, broad based US Dollar selling and risk on flow have been helping to more than offset and drive Kiwi higher. Looking ahead, Monday’s economic calendar is exceptionally thin with only US consumer inflation expectations standing out.
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 key support comes in at 4260.
- R2 4350 – Psychological – Medium
- R1 4325 – 9 June/2023 high – Medium
- S1 4260 – 8 June low – Medium
- S2 4106 – 24 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 (%)