Yield differentials sway back to the Buck

Next 24 hours: A reluctant repricing of US rates

Today’s report: Yield differentials sway back to the Buck

FOMC rate cut pricing has come down 3 basis points to an expectation of just 31 basis points of rate cuts from the Fed in 2024. The adjustment has been brought on by a stronger than expected US consumer confidence reading which has forced the market to drive yield differentials back in the Buck’s favor.

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 1.0900 – Figure – Medium
  • R1 1.0896 - 16 May high – Medium
  • S1 1.0805 - 23 May low– Medium
  • S2 1.0724 – 9 May low – Strong

EURUSD – fundamental overview

German wholesale prices rose at their fastest rate since January of 2023, and ECB Holzmann was on the wires saying he wouldn't automatically support the idea of rate cuts after June. These two headlines have helped to keep the Euro supported into dips after US consumer confidence came in strong and opened broad Dollar bids. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed 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 latest push to a fresh 2024 high beyond 1.2830 confirms the outlook and opens the door for the next major upside extension towards the 2023 high at 1.3143. Any setbacks should now be well supported ahead of 1.2000.

  • R2 1.2804 – 21 March high – Medium
  • R1 1.2801 – 29 May high – Medium
  • S1 1.2643 – 16 May low – Medium
  • S2 1.2578 – 15 May low – Medium

GBPUSD – fundamental overview

UK CBI trends data came in on the stronger side and helped to rally the Pound to its highest level against the US Dollar since March. At the same time, the Pound ran into some selling after US consumer confidence data came in strong and opened a push in yield differentials back towards the US Dollar. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed speak.

USDJPY – technical overview

The market remains confined to a strong uptrend, most recently extending to a multi-year high through 160.00. Key support comes in at 151.95, with only a weekly close below to delay the constructive outlook.

  • R2 157.99 – 1 May high – Medium
  • R1 157.42 – 29 May high – Medium
  • S1 153.60 – 16 May low – Medium
  • S2 151.86 – 3 May low – Strong

USDJPY – fundamental overview

We've been seeing mild demand for the major pair on the back of a stronger US consumer confidence report that has pushed yield differentials in the Dollar's favor. Dollar gains have however been capped on comments from BOJ Adachi who said a monetary policy response could be warranted against any prolonged Yen declines impacting the central bank's price target. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed 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 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.

  • R1 0.6800– Figure – Medium
  • R2 0.6715 – 16 May high – Medium
  • S1 0.6592– 24 May low – Medium
  • S2 0.6558 – 8 May low – Strong

AUDUSD – fundamental overview

The Australian Dollar hasn't really gone anywhere on this Wednesday. On the one side, we've seen Aussie demand from the hotter Aussie CPI read and an IMF upgrade of China's growth. On the other side, the currency has been weighed down by discouraging construction data. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed 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 1.3847 – 16 April/2024 high – Strong
  • R1 1.3785 – 30 April high – Medium
  • S1 1.3586 – 10 May low – Medium
  • S2 1.3547 – 9 April low – Strong

USDCAD – fundamental overview

The price of oil has been rallying and Tuesday's round of Canada data was better than expected. April industrial product prices were up 1.5% versus 0.9% expected. Yet, despite all of this, the Canadian Dollar has been sold, with the currency more focused on the stronger US consumer confidence data and the positive impact it's been having on US Dollar yield differentials. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed speak.

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 0.6200 – Figure – Medium
  • R1 0.6171 – 28 May high– Medium
  • S1 0.6083 – 22 May low – Medium
  • S2 0.6031 – 15 May low – Strong

NZDUSD – fundamental overview

The ANZ activity outlook and business confidence reads came in on the softer side of expectation which has weighed on the New Zealand Dollar on this Wednesday. The currency had already been getting sold as the day got going after US consumer confidence reads came in strong and pushed yield differentials back towards the US Dollar. Looking ahead, key standouts on the calendar for the remainder of the day come from German consumer confidence, Eurozone money supply, German inflation reads, Richmond Fed manufacturing, the Fed Beige Book, and more Fed speak.

US SPX 500 – technical overview

Longer-term technical studies continue to look quite extended, begging for a deeper correction ahead. At the same time, the latest bullish breakout to a fresh record high beyond the 2024 high opens the door for the next measured move upside extension targeting the 5650 area. Key support comes in at 4928.

  • R2 5400 – Round Number – Strong
  • R1 5352 – 23 May/Record high – Medium
  • S1 5257 – 23 May low – Medium
  • S2 5196 – 14 May low – Medium

US SPX 500 – fundamental overview

Though we have seen a healthy adjustment of investor expectations towards the amount of rate cuts in 2024, the market still hopes policy will end up erring more towards the investor friendly, accommodative side of things. This bet has kept stocks well bid into dips and consistently pushing record highs.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and this next major upside extension into the 2500-3000 area. Setbacks should now be well supported above 2000 on a monthly close basis.

  • R2 2500 – Psychological – Strong
  • R1 2451 – 20 May Record high – Medium
  • S1 2300 – Round Number – Medium
  • S2 2277– 3 May low – Strong

GOLD (SPOT) – fundamental overview

The yellow metal has pushed record highs in 2024 with solid demand from medium and longer-term accounts. These players are more concerned about inflation, geopolitical 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 end.

Peformance chart: 30-Day Performance vs. US dollar (%)

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