Investors underwhelmed

Next 24 hours: Pound reacts to mixed inflation data

Today’s report: Investors underwhelmed

The latest effort out of China to ease monetary policy has underwhelmed the market, and we’ve since seen this along with earlier downgraded outlooks from the major US banks on China growth opening setbacks in equities and some renewed demand for the US Dollar.

Wake-up call

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.

  • R2 1.1000 – Psychological – Strong
  • R1 1.0971 - 16 June high – Medium
  • S1 1.0804 - 15 June low – Medium
  • S2 1.0635 – 31 May low – Strong

EURUSD – fundamental overview

The Euro declined for a third consecutive day. The deflation trend is gathering pace after German producer prices collapsed. However, some of the downside has been mitigated by ongoing hawkish comments out of the ECB, the latest from Simkus who says wouldn’t be surprised to see a September rate hike. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

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 1.3000.

  • R2 1.2900 – Figure – Medium
  • R1 1.2849 – 16 June/2023 high – Medium
  • S1 1.2714 – 20 June low – Medium
  • S2 1.2629 – 15 June low – Medium

GBPUSD – fundamental overview

The Pound underperformed on Tuesday as Gilt yields reversed lower ahead of today’s UK inflation data. Traders now see risk for a CPI beat to be mostly priced in and are positioning accordingly. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

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.

  • R2 143.00 – Figure – Strong
  • R1 142.26 – 20 June/2023 high – Medium
  • S1 139.85 – 16 June low – Medium
  • S2 138.76 – 9 June low – Medium

USDJPY – fundamental overview

The Yen has managed to stabilize a bit on the back of upwardly revised Japan industrial production and capacity utilization numbers. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

AUDUSD – technical overview

There 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 0.6921 – 21 February high – Medium
  • R2 0.6900 – 16 June high – Medium
  • S1 0.6753 – 20 June low – Medium
  • S2 0.6731 – 12 June low – Strong

AUDUSD – fundamental overview

The Australian Dollar has taken a harder hit in recent sessions after the RBA Minutes came out leaning decidedly more dovish than the market was expecting. The central bank revealed it had been considering a pause after the June meeting, while describing the latest call as finely balanced. Odds for a July hike are down at about 33% from 50% before the Minutes. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

USDCAD – technical overview

Above 1.3000 signals an end to a period of longer-term 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 1.3384 – 12 June high – Strong
  • R1 1.3355 – 15 June high – Medium
  • S1 1.3178 – 16 June/2023 low – Medium
  • S2 1.3139 – 14 September low – Medium

USDCAD – fundamental overview

Some traders are feeling the Canadian Dollar is looking stretched to the topside and have opted to book profit on CAD longs, especially in the face of renewed downside pressure on commodities prices. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

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. A monthly close below 0.6000 would intensify bearish price action.

  • R2 0.6306 – 19 May high – Strong
  • R1 0.6248 – 16 June high – Medium
  • S1 0.6031 – 7 June low – Medium
  • S2 0.5985 – 31 May/2023 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has been holding up better than its peers in recent sessions, getting a boost from the better than expected New Zealand consumer confidence data. Westpac Q2 consumer confidence rose from 77.7 to 83.1. Key standouts on Wednesday’s calendar come from UK inflation, Canada retail sales, Fed Chair Powell testimony, and the Bank of Canada summary of deliberations.

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 4400 will be required to take the immediate pressure off the downside. Next key support comes in at 4260.

  • R2 4500 – Psychological – Strong
  • R1 4452 – 16 June/2023 high – Medium
  • S1 4341 – 13 June low – Medium
  • S2 4260 – 8 June low – Strong

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 despite market expectations that would argue otherwise.

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.

  • R2 2100 – Round Number – Strong
  • R1 2076 – Record high/2020 – Strong
  • S1 1925 – 15 June low – Medium
  • S2 1900 – Round Number – Strong

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.

Peformance chart: 30 Day Performance vs. US dollar (%)

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