Next 24 hours: Dollar attempts comeback after early setbacks
Today’s report: RBA holds but leaves door open for more rate hikes
The market is still mostly hung up on shifting Fed rate expectations in the aftermath of last week’s Fed decision and US jobs report. We’re also coming out of a Monday session that produced some mixed results on the US earnings front, which perhaps caused more reason for concern.
Wake-up call
- retail sales
- construction PMIs
- household spending
- hawkish communication
- Commodities weakness
- Aussie rally
- less dovish
- Macro themes
Peformance chart: 30-Day Performance vs. US dollar (%)
Suggested reading
- Federal Reserve’s Sizeable Irrelevance Is the ‘Inflation’ Lesson, J. Tamny, Forbes (February 4, 2024)
- To Rebuild Trust, Banks Have a Lot of Work To Do, P. Fitzpatrick, RCM (February 5, 2024)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro has been in a multi-month consolidation since bottoming out in 2022. Setbacks have since been exceptionally well supported on dips below 1.0500, with a higher platform sought out ahead of the next major upside extension. Look for a push through the 2023 high at 1.1276 to strengthen the constructive outlook and extend the recovery run towards 1.2000. Only back below 1.0400 negates.EURUSD – fundamental overview
Monday's round of Eurozone data was solid on the whole, and recent comments out from ECB officials haven't exactly leaned overly dovish. And yet, the Euro sunk to a fresh yearly low on Monday, with the single currency feeling the pressure of a US Dollar in demand post Fed decision and US jobs data. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.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 1.2849.GBPUSD – fundamental overview
The Pound took a hard hit on Monday, with the UK currency more a victim of broad US Dollar demand than anything else. UK PMI data came in solid, while ONS reported the unemployment rate was much lower at the end of 2023 than previously thought. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.USDJPY – technical overview
The market remains confined to a strong uptrend, with sights set on a retest and break of the multi-year high from 2022 at 151.95. A push through this level will open the next major upside extension towards 155.00. Key support comes in at 140.00, with only a weekly close below to delay the constructive outlook.USDJPY – fundamental overview
Japan's labor cash earnings came out below forecast, while household spending also disappointed, staying in negative territory for a tenth straight month. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.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 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.AUDUSD – fundamental overview
The Australian Dollar has managed to recover out from the yearly low in the aftermath of an RBA decision which produced an as expected hold on rates but a more hawkish leaning communication. The central bank left the door open for the possibility of more rate hikes ahead. Meanwhile, Aussie retail sales came in slightly better than expected, which also helped to support the currency. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.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
Most of the latest run of weakness in the Canadian Dollar has come from broad US Dollar demand in the aftermath of last week's Fed decision and US jobs report, along with notable downside pressure on commodities. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.NZDUSD – technical overview
Overall pressure remains on the downside with the market continuing to stall out on runs up into the 0.6500 area. At the same time, there are some signs of the market wanting to put in a longer-term base. Ultimately, a break back above 0.6500 would be required to take the medium-term pressure off the downside and encourage this prospect. A monthly close below 0.5800 will intensify bearish price action.NZDUSD – fundamental overview
The New Zealand Dollar has followed its Aussie cousin higher on Tuesday, with the Kiwi rate getting a boost from the more hawkish than expected RBA decision. Key standouts on Tuesday’s calendar come from German factory orders, German, Eurozone and UK construction PMIs, Eurozone retail sales, Canada building permits, Canada Ivey PMIs, Eurozone consumer inflation expectations, Fed speak, and the New Zealand GDT auction.US SPX 500 – technical overview
Longer-term technical studies continue to look quite extended after pushing to fresh record highs, begging for a deeper correction ahead. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close above 5000 will be required to delay the outlook. Next key support comes in at 4714.US SPX 500 – fundamental overview
The Fed has finally bent to the will of the market, with the December 2023 policy decision revealing rate projections coming down from previous and more in line with what the market has been looking for. This has translated to more investor friendly policy going forward, opening the door for a run to fresh record highs in early 2024. At the same time, the central bank is still not willing to fully play into market expectations for aggressive rate cuts to the tune of 6 in 2024, which could prove to be a disappointment for investors and start to weigh on stocks.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 1900 on a monthly close basis ahead of the next major upside 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 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.