Soft data inspires hope for less aggressive Fed

Next 24 hours: Pound under pressure on soft inflation data

Today’s report: Soft data inspires hope for less aggressive Fed

Currencies didn’t move all that much on Tuesday, but were all over the place, trying to make sense of many different things going on all at once. The Euro managed to extend its run to another fresh 2023 high before pulling back on dovish comments from ECB Knot.

Wake-up call

Chart talk: Technical & fundamental highlights

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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 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 February 2022 high at 1.1496.

  • R2 1.1300 – Figure – Medium
  • R1 1.1276 - 18 July/2023 high– Medium
  • S1 1.1128 - 13 July low – Medium
  • S2 1.0943 – 10 July low – Medium

EURUSD – fundamental overview

The Euro finally broke a winning streak which had amounted to 8 days, but not before extending to yet another yearly high. The pullback that ensued was triggered by dovish comments from ECB Knot. While Knot stated that a hike will be needed in July, he argued that post summer moves were at most a possibility. Key standouts on Wednesday’s calendar come from UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 1.3500.

  • R2 1.3167 – Monthly High/April 2022 – Strong
  • R1 1.3143 – 14 July/2023 high – Medium
  • S1 1.2975 – 13 July low – Medium
  • S2 1.2854 – 11 July low – Medium

GBPUSD – fundamental overview

Plenty of profit taking in the Pound on Tuesday, with the market perhaps looking a little stretched and traders not wanting to get caught long into today's UK inflation data. Key standouts on Wednesday’s calendar come from UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 ahead of 135.00 in favor of the next higher low.

  • R2 141.47 – 11 July high – Medium
  • R1 140.37 – 12 July high– Medium
  • S1 137.24 – 14 July low – Strong
  • S2 137.00 – Figure – Medium

USDJPY – fundamental overview

Not much movement at all in the Yen on Tuesday, though in recent sessions we've seen mild renewed selling of the Yen on expectations the BOJ will continue to offer up more of the same accommodative policy later this month. Key standouts on Wednesday’s calendar come from UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 0.7000– 16 June high – Strong
  • R2 0.6895 – 13 July high – Medium
  • S1 0.6780 – 13 July low – Medium
  • S2 0.6676 – 12 July low – Medium

AUDUSD – fundamental overview

The Australian Dollar has held up relatively well in the face of the selloff in China, with the currency getting a boost from surging metals prices and a hawkish leaning RBA Minutes. Key standouts on Wednesday’s calendar come from UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 1.3387 – 7 July high – Strong
  • R1 1.3244 – 18 July high – Medium
  • S1 1.3093 – 14 July/2023 low – Medium
  • S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

The Canadian Dollar had a whipsaw day of price action on Tuesday. The currency was initially weighed down on softer Canada inflation data before rallying into the close on the back of surging commodities prices. Key standouts on Wednesday’s calendar come from UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 0.6500 – Psychological – Strong
  • R1 0.6412 – 14 July high – Medium
  • S1 0.6260 – 18 July low – Medium
  • S2 0.6132 – 6 July low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar came under added pressure on Tuesday on fear that recent soft inflation data out of the US and Canada was warning of soft inflation data out of New Zealand early Wednesday. Key standouts on Wednesday’s calendar come from New Zealand inflation, UK inflation, Eurozone inflation, Eurozone construction output, Canada housing starts, and US housing starts and building permits.

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 4500 will be required to take the immediate pressure off the downside. Next key support comes in at 4376.

  • R2 4600 – Round Number – Strong
  • R1 4563 – 18 July/2023 high – Medium
  • S1 4376 – 10 July low – Medium
  • S2 4328 – 26 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 2076 – Record high/2020 – Strong
  • R1 1986 – 24 May high – Medium
  • S1 1900 – Round Number – Medium
  • S2 1893 – 29 June low – 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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