Next 24 hours: Mild profit taking on Dollar longs
Today’s report: Stagflation risk ramping up
US yields continue to drive higher in the face of a Fed monetary policy outlook that continues to press higher for longer, despite escalating growth concerns. Fresh yearly highs in the price of oil and a sixth session of declines in banking and real estate stocks have only added to stagflation fears.
- H2 recession
- Quiet calendar
- Verbal intervention
- retail sales
- oil rally
- Kiwi outlook
- Policy outlook
- Dealers report
Chart talk: Technical & fundamental highlights
EURUSD – technical overviewAny additional setbacks should be well supported on dips below 1.0500 in favor of the start to the next major upside extension. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Back above 1.0672 will take the immediate pressure off the downside.
- R2 1.0770 – 12 September high – Strong
- R1 1.0672 - 22 September high – Medium
- S1 1.0500 - Psychological – Medium
- S2 1.0482 – 6 January/2023 low –Strong
EURUSD – fundamental overviewThe Euro continues to dump hard, with the latest setbacks coming from weak credit and money supply data. Risk for an H2 2023 recession has ramped up, and all of this at a time when Fed policy continues to point to higher for longer. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
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 1.3143.
- R2 1.2347 – 21 September high – Strong
- R1 1.2253 – 25 September high – Medium
- S1 1.2110 – 27 September low – Medium
- S2 1.2000 – Psychological – Strong
GBPUSD – fundamental overviewThe Pound extended its run of declines on Wednesday, though setbacks were more mild than against the other major currencies. It seems absence of economic data and a lot of dovishness being priced in already, helped to mitigate declines. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
USDJPY – technical overviewAt this stage, it looks like the market is 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 on dips.
- R2 150.00 – Psychological – Strong
- R1 149.71– 27 September/2023 high – Medium
- S1 147.32 – 21 September low – Medium
- S2 147.00 – Figure – Strong
USDJPY – fundamental overviewThe Yen remains under pressure at fresh yearly lows against the Buck in the aftermath of last Friday's dovish BOJ decision. Adding insult to injury, the Japanese government has turned to even more fiscal spending to ease inflation pain. The Yen hasn't gotten any help from the BOJ Minutes, which more or less echoed dovish sentiment. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
AUDUSD – technical overviewThere are signs of the potential formation of a longer-term base with the market trading down into a meaningful longer-term support zone. Only a monthly close below 0.6300 would give reason for rethink. Back above 0.6523 will take the immediate pressure off the downside and strengthen case for a bottom.
- R1 0.6617– 10 August high – Strong
- R2 0.6523 – 30 August high – Medium
- S1 0.6331 – 27 September/2023 low – Strong
- S2 0.6300 – Figure – Medium
AUDUSD – fundamental overviewThe Australian Dollar remains under pressure on the back of the hurting China markets and downbeat global sentiment. The currency sunk to a fresh yearly low on Wednesday but has since managed a mild recovery despite softer than expected Aussie retail sales data. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
USDCAD – technical overviewAbove 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 1.3593 – 12 September high – Medium
- R1 1.3543 – 27 September high – Medium
- S1 1.3400 – Figure – Medium
- S2 1.3380 – 19 September low – Strong
USDCAD – fundamental overviewThe Canadian Dollar hasn't been able to escape fallout in global markets, with the intense downturn in risk sentiment weighing on the Loonie. However, with oil extending its run of yearly highs and the Bank of Canada looking more hawkish than most other central banks, we have see the Canadian Dollar hold up relatively well. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
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 0.6015 would be required to take the immediate pressure off the downside. A monthly close below 0.6000 would intensify bearish price action.
- R2 0.6133 – 4 August high – Strong
- R1 0.6015 – 1 September high – Medium
- S1 0.5859 – 5 September/2023 low – Medium
- S2 0.5841 – 10 November 2022 low – Medium
NZDUSD – fundamental overviewThough the New Zealand Dollar remains weighed down on broad based US Dollar demand and risk off flow, the currency has held up better than its Aussie cousin in recent sessions, perhaps on sustained momentum from last week's better than expected Thursday Kiwi GDP report. Key standouts on Thursday’s calendar include German inflation data, Eurozone sentiment and confidence reads, US GDP, US initial jobless claims, US pending home sales, and a Fed Powell speech.
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 4600 will be required to take the immediate pressure off the downside. Next key support comes in at 4200.
- R2 4467 – 18 September high – Strong
- R1 4358 – 22 September high – Medium
- S1 4238 – 27 September low – Medium
- S2 4200 – Round Number – 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, especially with the growth outlook looking up in recent months. 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 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. Next major resistance comes in at 2100, above which opens the next extension towards 2500.
- R2 1988 – 20 July high – Strong
- R1 1953 – 1 September high – Medium
- S1 1871 – 10 March high – Medium
- S2 1805 – 28 February/2023 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 (%)