Lots of dovish talk going around

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Today’s report: Lots of dovish talk going around

The conversation around lower rates has been a theme this week after US data disappointed, Canada CPI came in soft, BOE Bailey offered up dovish comments, and China slashed rates. The net result is a US Dollar back under pressure on a broad basis.

Wake-up call

Chart talk: Technical & fundamental highlights

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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.

  • R2 1.0898 – 2 February high – Medium
  • R1 1.0839 - 20 February high – Medium
  • S1 1.0695 - 14 February/2024 low – Medium
  • S2 1.0656 – 10 November low – Strong

EURUSD – fundamental overview

The Euro got a boost from second tier data releases in the form of car registrations, the current account, and construction output numbers. Meanwhile, the ECB said wages slowed in Q4 but remained elevated, which should keep the market from getting aggressive on rate cut calls. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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.

  • R2 1.2700 – Figure – Medium
  • R1 1.2693 – 13 February high – Medium
  • S1 1.2518 – 5 February/2024 low – Medium
  • S2 1.2500 – 13 December low – Strong

GBPUSD – fundamental overview

The Pound did a good job trading to the topside, despite BOE Bailey's comments that rate cuts could happen before inflation was back to target. The central banker also added the current market's pricing of rate cuts was not unreasonable. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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 145.90, with only a weekly close below to delay the constructive outlook.

  • R2 151.00 – Figure – Medium
  • R1 150.89 – 13 February/2024 high – Medium
  • S1 148.92 – 12 February low – Medium
  • S2 147.62– 7 February low – Strong

USDJPY – fundamental overview

Yen declines have stalled out for a moment on the back of some jawboning from Japanese officials. On the data front, Japan's trade deficit came out slightly lower than expected. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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.

  • R1 0.6625– 30 January high – Strong
  • R2 0.6579 – 20 February high – Medium
  • S1 0.6442– 13 February/2024 low – Strong
  • S2 0.6400 – Figure – Medium

AUDUSD – fundamental overview

The Australian Dollar has managed to shrug off a below forecast Aussie Westpac leading index and is on pace to put in its sixth higher daily close. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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 1.3600 – Figure – Medium
  • R1 1.3587 – 13 February/2024 high – Medium
  • S1 1.3413 – 9 February  low – Medium
  • S2 1.3358 – 31 January low – Strong

USDCAD – fundamental overview

The Canadian Dollar has seen some underperformance over the past 24 hours after Canada inflation data came in softer than expected. Odds for a rate cut by April have risen to about 50%, with the market pricing a done deal by June. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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.

  • R2 0.6223 – 4 December high– Strong
  • R1 0.6200 – Figure – Medium
  • S1 0.6038 – 5 February/2024 low– Medium
  • S2 0.6000 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is getting a nice boost on Wednesday after Kiwi producer prices came in above forecast. Key standouts on Wednesday’s calendar come from UK public debt and CBI trends, Canada housing, Eurozone consumer confidence, Fed speak, and the Fed Minutes late in the day.

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 4842.

  • R2 5100 – Figure – Strong
  • R1 5049 – 13 February/Record – Strong
  • S1 4920– 13 February low – Strong
  • S2 4842 – 31 January low – Strong

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, with the inflation outlook still uncertain, the central bank not willing to fully play into market expectations for aggressive rate cuts, which could prove to be a disappointment for investors and start to weigh more heavily 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.

  • R2 2175 – 4 December/Record high– Strong
  • R1 2100 – Round Number – Medium
  • S1 1984 – 14 February/2024 low– Medium
  • S2 1973 – 13 December 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 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 (%)

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