Has inflation finally peaked?

Today’s report: Has inflation finally peaked?

The market continues to price the end of the Fed tightening cycle, something that has been a big prop for risk assets in recent sessions. This week’s round of softer overall inflation data out of the US, most recently highlighted by a much softer producer prices print, only further reinforces market sentiment that the end of Fed tightening is indeed upon us.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The Euro remains well supported on dips following a run to the topside through 1.1000 earlier this year. Any additional setbacks should be well supported ahead of 1.0500 in favor of the formation of the next major higher low and a bullish continuation. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Next key resistance comes in the form of the March 2022 high at 1.1185.

  • R2 1.1185– Monthly high, March 2022 – Strong
  • R1 1.1068 - 13 April, 2023 high – Medium
  • S1 1.0908- 12 April low – Medium
  • S2 1.0831 – 10 April low – Strong

EURUSD – fundamental overview

The Euro has blown through the 1.1000 barrier on a perceived policy divergence with the US. On the one side, the ECB continues to talk hawkish, while on the other side, the market is believing the Fed is getting closer to finishing with its tightening. The latest round of hawkish ECB speak has come from ECB's Wunsch, Nagel and Kazaks. Key standouts on Friday’s calendar come from German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, and Michigan sentiment.

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 1.2667.

  • R2 1.2667 – Monthly high, May 2022 – Strong
  • R1 1.2538 – 13 April high – Medium
  • S1 1.2344 – 10 April  low– Medium
  • S2 1.2275 – 3 April low – Strong

GBPUSD – fundamental overview

The Pound had a session of relative underperformance on Thursday, making gains against the Buck but lagging against the Euro, this on the back of softer UK economic data. UK industrial production was a miss, while GDP reads fell to flat versus 0.4% previous. Key standouts on Friday’s calendar come from German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, and Michigan sentiment.

USDJPY – technical overview

The major pair has seen a nice recovery following the massive correction out from multi-year highs. Setbacks have finally been well supported ahead of 125.00 in the 127s thus far. At this stage, it looks like the market could be 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 in favor of higher lows along the way.

  • R2 135.12 – 15 March high – Strong
  • R1 133.05– 12 April high – Medium
  • S1 130.62 – 5 April low – Medium
  • S2 129.64 – 24 March low – Strong

USDJPY – fundamental overview

The wave of broad based US Dollar selling we've been seeing has also factored into Yen demand, with interest rate differentials moving in the Yen's favor as the market prices the end of Fed tightening. Meanwhile, BOJ Ueda has maintained a dovish tone but the market hasn't been buying it as much. Warren Buffett's recent bullish call on Japan could also be factoring into price action. Key standouts on Friday’s calendar come from German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, and Michigan sentiment.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the late 2022 surge back above 0.6500. The recent weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift. Next key resistance comes in at 0.7284. Setbacks should be well supported ahead of 0.6500.

  • R1 0.6894 – 13 December 2022 high – Strong
  • R2 0.6794– 4 April high – Medium
  • S1 0.6685– 13 April low – Medium
  • S2 0.6619 – 10 April low – Strong

AUDUSD – fundamental overview

The Australian Dollar was up big in Thursday trade, initially on the back of solid Australian jobs numbers and then some more on the broad based US Dollar selling. Key standouts on Friday’s calendar come from German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, 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 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.

  • R2 1.3554 – 10 April high – Strong
  • R1 1.3500 – Psychological – Medium
  • S1 1.3300 – Figure – Medium
  • S2 1.3226 – 15 November 2022 low – Strong

USDCAD – fundamental overview

Yield differentials continue to swing back in favor of the Canadian Dollar, all while the Loonie gets an added prop from surging commodities and well bid stocks. Key standouts on Friday’s calendar come from German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, and Michigan sentiment.

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 0.6577 would be required to take the immediate pressure off the downside.

  • R2 0.6391 – 14 February high – Strong
  • R1 0.6350 – Mid-Figure – Medium
  • S1 0.6139– 16 March low – Medium
  • S2 0.6084 – 8 March low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has bid up on macro drivers this week, with the currency getting a boost from higher US equities and rallying commodities prices. The currency will also be digesting this latest round of New Zealand PMI data released earlier today. Looking ahead, we get German wholesale prices, Canada manufacturing sales, and US reads in the form of retail sales, industrial production, 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. A monthly close back above 4300 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in at 3806.

  • R2 4198 – 2 February/2023 high – Strong
  • R1 4156 – 12 April high – Medium
  • S1 3921 –  2 March low – Medium
  • S2 3806 – 13 March low – Strong

US SPX 500 – fundamental overview

We've finally reached a point in the cycle where the Fed recognizes unanchored inflation expectations pose a greater downside risk than over-tightening. This is significant, as it means less investor friendly monetary policy that risks potential recession in the months ahead. Overall, we expect inflation to continue to be a problem in H1 2023 that results in downside pressure into rallies.

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. The recent break back above 1808 strengthens the bullish outlook. Next major resistance comes in at the record high from 2020 at 2076, above which opens the next extension towards 2,500.

  • R2 2076 – Record high, 2020 – Very Strong
  • R1 2071 – 2022 high – Strong
  • S1 1982 – 10 April low – Medium
  • S2 1934 – 22 March 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 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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