Today’s report: What to make of the return of risk on flow
The market has been looking for any excuse to sell the US Dollar and buy back into stocks. On Thursday, it got what it was looking for, in the form of a soft run of US economic data, highlighted by a downward revision to the personal consumption component of GDP.
Wake-up call
- soft data
- GBPUSD
- Japan inflation
- shrugs off
- business barometer
- Sentiment turnaround
- Policy outlook
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Rounding Up the Usual Suspects After a New Low, J. Authers, Bloomberg (September 29, 2023)
- The Race for Semiconductor Supremacy, B. Marino, Financial Times (September 28, 2023)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
Any 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.EURUSD – fundamental overview
German inflation eased and Eurozone economic confidence pulled back. Still, the Euro managed to mount a recovery, with most of the price action attributed to an overextended market in need of correction and some broad based US Dollar outflows on softer US economic data. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.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 1.3143.GBPUSD – fundamental overview
The Pound has been on a nice recovery run over the past couple of sessions, with most of the price action attributed to a beaten down market in search of a correction, and broad based US Dollar outflows on softer US economic data. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.USDJPY – technical overview
At 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.USDJPY – fundamental overview
Rising JGB yields and broad US Dollar outflows helped to inspire a mild recovery in the Yen, though the rally has already been sold on the back of softer than expected inflation data out of Japan early Friday. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.AUDUSD – technical overview
There 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.AUDUSD – fundamental overview
The Australian Dollar has been getting a nice boost from the broad based US Dollar selling and recovery in risk assets. This comes despite softer economic data in the form of Aussie retail sales and job vacancies. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.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.USDCAD – fundamental overview
The CFIB business barometer plunged to a post pandemic low, while oil reversed course and headed south on Thursday after posting another yearly high. These two developments kept the Canadian Dollar from putting in a recovery like most of its peers. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.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 0.6015 would be required to take the immediate pressure off the downside. A monthly close below 0.6000 would intensify bearish price action.NZDUSD – fundamental overview
The New Zealand Dollar has gotten a nice boost from this latest wave of broad based US Dollar outflows and recovery in global risk sentiment. The currency was already holding up relatively well after the latest New Zealand GDP data came in better than expected. Key standouts on Friday’s calendar come from German retail sales, UK GDP, an ECB Lagarde speech, German unemployment, Eurozone inflation, Canada GDP, US core PCE, Chicago PMIs, and Michigan sentiment.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 4600 will be required to take the immediate pressure off the downside. Next key support comes in at 4200.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, 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 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. Next major resistance comes in at 2100, above which opens the next extension towards 2500.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.