Global liquidity concerns intensify

Today’s report: Global liquidity concerns intensify

The Dollar was on an absolute tear this week, posting fresh yearly and multi-year highs against many currencies. Notable price action was seen against the Euro, which sunk below parity and to its lowest levels in twenty years, and against the Yen, which has been in a freefall to its lowest levels in nearly 25 years.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market has come under intense pressure in recent months, with setbacks accelerating below the critical multi-year low from 2017 at 1.0340. This sets up a test of monumental support in the form of parity. At the same time, technical studies are tracking in oversold territory, suggesting additional setbacks should be limited. Back above 1.0500 would be required to take the immediate pressure off the downside.

  • R2 1.0400– Figure – Medium
  • R1 1.0278 - 6 July high – Medium
  • S1 0.9952 - 14 July/2022 low– Strong
  • S2 0.9900 – Figure – Medium

EURUSD – fundamental overview

The Euro extended declines to fresh multi-year lows below parity, this time taking hits from an energy crisis that has spawned political instability, highlighted by the resignation of Italy's Draghi. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, and Michigan sentiment.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The market continues to be exceptionally well supported on dips below 1.2000. Unless we see a monthly close below 1.2000, we expect this to continue to be the case. Look for a break back above 1.2200 to take the immediate pressure off the downside.

  • R2 1.2214– 29 June high – Medium
  • R1 1.2056 – 8 July high – Medium
  • S1 1.1760 – 14 July/2022 low – Medium
  • S2 1.1700 – Figure – Strong

GBPUSD – fundamental overview

The Pound continued to get hit hard on the back of the broad based demand for US Dollars and worry around the outlook in the UK, particularly at time when the political situation is less than stable. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, and Michigan sentiment.

USDJPY – technical overview

The market has rocketed higher to its highest levels since 1998 after breaking through the 2002 high. Technical studies are however looking stretched, with scope for a sizable consolidation and correction in the weeks ahead. Look for additional upside from here to be well capped ahead of 140.00. A break back below 134.00 would take the immediate pressure off the topside.

  • R2 140.00 – Psychological – Strong
  • R1 139.39 – 14 July/2022 high – Medium
  • S1 135.93 – 11 July low – Medium
  • S2 134.26 – 23 June low – Strong

USDJPY – fundamental overview

More downside pressure in the Yen to fresh multi-year lows on Thursday, this on the back of the much hotter than expected US inflation reads, which only further highlights the US Dollar yield differential advantage against the Yen. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, and Michigan sentiment.

AUDUSD – technical overview

Overall pressure remains on the downside and conditions remain quite choppy. A break back above 0.7070 would be required at a minimum to take the immediate pressure off the downside. Until then, scope exists for deeper setbacks towards 0.6500.

  • R1 0.6965 – 28 June high – Medium
  • R2 0.6875 – 8 July high – Medium
  • S1 0.6682 – 14 July/2022 low – Medium
  • S2 0.6600 – Figure – Strong

AUDUSD – fundamental overview

A deteriorating China outlook, risk off flow and broad demand for the US Dollar have all been behind the latest dump in the Australian Dollar. Having said that, setbacks could have been worse if not for this latest better than expected employment data out of Australia. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, and Michigan sentiment.

USDCAD – technical overview

A recent surge back above 1.3000 signals an end to a period of 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 1.3500 area. Setbacks should be very well supported down into the 1.2500 area.

  • R2 1.3224 – 14 July/2022 high – Strong
  • R1 1.3200 – Figure  – Medium
  • S1 1.2820 – 28 June low – Medium
  • S2 1.2681 – 10 June low – Medium

USDCAD – fundamental overview

The market has all but forgotten the 100 basis point rate hike from the Bank of Canada on Wednesday, instead focusing more on an overleveraged Canada housing market and the potential for severe fallout going forward. Downside pressure in oil and stocks also haven't done anything to help the Loonie. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, and Michigan sentiment.

NZDUSD – technical overview

Overall pressure remains on the downside and conditions remain quite choppy. A break back above 0.6400 would be required to force a shift in the structure and suggest we are seeing a more significant bullish reversal. Until then, scope exists for fresh yearly lows and a retest of the major psychological barrier at 0.6000.

  • R2 0.6327 – 27 June high – Medium
  • R1 0.6260 – 29 June high – Medium
  • S1 0.6061– 14 July/2022 low – Medium
  • S2 0.6000 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has extended declines to a fresh yearly low, this on the back of ongoing monetary policy divergence with the FOMC and broad based risk off flow. This week's 50 basis point hike from the RBNZ was all but expected, but the more downbeat communication has also weighed on the currency. Key standouts on Friday’s calendar include Eurozone trade, US retail sales, NY empire manufacturing, US industrial production, business inventories, 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. Back above 4,206 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in around 3,400.

  • R2 4031 – 10 June high – Medium
  • R1 3950 – 28 June high – Medium
  • S1 3708 – 14 June low – Medium
  • S2 3637 – 17 June/2022 low – Strong

US SPX 500 – fundamental overview

With so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with rising inflation and slower growth should continue to weigh more heavily on investor sentiment in 2022.

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 1700 on a monthly close basis.

  • R2 1880 – 13 June high – Strong
  • R1 1815 – 4 July high – Medium
  • S1 1700 – Round Number – Strong
  • S2 1698 – 14 July/2022 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 exhausted monetary policy, extended global equities, and inflation risk. 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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