The disconnect between currencies and stocks

Next 24 hours: Positioning ahead of Tuesday's US inflation data

Today’s report: The disconnect between currencies and stocks

We come into the new week contending with a disconnect in financial markets. On the one side, currency traders continue to worry about the Fed’s ongoing commitment to higher for longer policy, which has left the US Dollar in the driver’s seat.

Download complete report as PDF

Wake-up call

Chart talk: Technical & fundamental highlights

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 1.0770 will take the immediate pressure off the downside.

  • R2 1.0770 – 12 September high – Strong
  • R1 1.0757 - 6 November high – Medium
  • S1 1.0609 - 3 November low– Medium
  • S2 1.0517 – 1 November low – Medium

EURUSD – fundamental overview

Absence of data or economic flow on Friday has left the Euro trading sideways as the new week gets going. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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 1.2429.

  • R2 1.2429 – 6 November high – Strong
  • R1 1.2309 – 9 November high – Medium
  • S1 1.2187 – 10 November low – Medium
  • S2 1.2184 – 3 November low – Medium

GBPUSD – fundamental overview

UK GDP flatlines and other data points failed to impress, including industrial production and manufacturing production. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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.

  • R2 151.95 – 21 October/2022 high – Strong
  • R1 151.80 – 13 November/2023 high – Medium
  • S1 151.22 – 10 November low – Medium
  • S2 150.28 – 8 November low – Medium

USDJPY – fundamental overview

There had been expectations of a potential gesture towards a shift in the BOJ monetary policy outlook. But these expectations have since been let down in recent days, with the central bank holding to its ultra accommodative stance. This along with some softer Japan inflation data has opened fresh lows in the Yen, now on the verge of sinking below the 2022 low against the Buck to a new multi-year low. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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 0.6200 would give reason for rethink. Back above 0.6523 will take the immediate pressure off the downside and strengthen case for a bottom.

  • R1 0.6523– 30 August high – Strong
  • R2 0.6450 – 8 November high – Medium
  • S1 0.6338 – 10 November low – Medium
  • S2 0.6314 – 31 October low – Medium

AUDUSD – fundamental overview

Declines in metals and Asia Pacific FX have weighed on the Australian Dollar despite the latest hawkish RBA statement on monetary policy. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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 1.3899 – 1 November/2023 high – Strong
  • R1 1.3855 – 10 November high– Medium
  • S1 1.3746 – 9 November low – Medium
  • S2 1.3683 – 7 November low – Strong

USDCAD – fundamental overview

The Canadian Dollar remains well offered overall on the back of a recent run of developments including a more dovish leaning Bank of Canada, softer Canada economic data, and some setbacks in the price of oil. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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 0.6056 would be required to take the immediate pressure off the downside. A monthly close below 0.5800 will intensify bearish price action.

  • R2 0.6056 – 11 October high– Strong
  • R1 0.6002 – 6 November high – Medium
  • S1 0.5878 – 10 November low – Medium
  • S2 0.5839 – 2 November low – Medium

NZDUSD – fundamental overview

The New Zealand Dollar has been trying to shrug off a weak round of manufacturing PMIs. The latest reading saw the eighth month in contraction. Higher US equities have been helping to offset Kiwi downside. Key standouts on Monday’s calendar come from the German current account, US consumer inflation expectations, and some scattered central bank speak.

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 4308.

  • R2 4500 – Psychological – Strong
  • R1 4421 – 10 November high – Medium
  • S1 4340 – 10 November low – Strong
  • S2 4308 – 3 November low – Medium

US SPX 500 – fundamental overview

Investors continue to struggle with the reality of a higher for longer Fed policy track in the face of ongoing worry around inflation, while also contending with an escalation in geopolitical risk. 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.

  • R2 2071 – 8 March 2022/Record high– Strong
  • R1 2010 – 27 October high – Medium
  • S1 1920 – 13 November low – Medium
  • S2 1908 – 16 October low – Medium

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 stable and 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 (%)

Suggested reading

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Group has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry.

LMAX Group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Group does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Group or any other FX and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately.