How to define ‘transitory’

Today’s report: How to define 'transitory'

There is growing worry the Fed just won’t be able to keep with its overly accommodative policy track. Several months back, the Fed once again tweaked policy in anticipation of inflation being transitory.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market has been looking for a higher low since topping out in 2021 up at 1.2350. Ideally, this next higher low is sought out ahead of 1.1600 in favour of the next major upside extension back through 1.2350 and towards a retest of the 2018 high at 1.2555 further up.

  • R2 1.1976 – 25 June high– Strong
  • R1 1.1896 - 6 July high – Medium
  • S1 1.1772 - 14 July low – Medium
  • S2 1.1704 – 31 March/2021 low – Strong

EURUSD – fundamental overview

Absence of economic data out of the Eurozone on Thursday had the market mostly focused on the US side of things. There were some doubts that started to creep in around the Fed being able to stick to its line of inflation being transitory and we saw yields benefit the Buck as a consequence. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Technical studies are in the process of consolidating from stretched levels after the push to fresh multi-month highs. This leaves room for additional consolidation, before the market considers a meaningful bullish continuation towards a retest of the 2018 high. But look for setbacks to now be very well supported into the 1.3500 area.

  • R2 1.4002 – 23 June high – Strong
  • R1 1.3911 – 12 July high – Medium
  • S1 1.3800 – Figure – Medium
  • S2 1.3732 – 6 July low – Strong

GBPUSD – fundamental overview

We got some hawkish talk from BOE Saunders on Thursday. Still this wasn't enough to keep the Pound propped up, with the market more focused on the possibility that the Fed will need to be leaning more in that direction as well. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

USDJPY – technical overview

The longer-term trend is still bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption over the coming sessions. It would take a clear break back above 113.00 to negate the outlook.

  • R2 111.00 – Figure– Medium
  • R1 110.70 – 14 July high – Strong
  • S1 109.53 – 8 July low – Medium
  • S2 109.19 – 7 June low – Strong

USDJPY – fundamental overview

Most of the demand for the Yen on Thursday came from mild risk off flow in financial markets. It seems the market is growing more wary about the Fed being able to keep with its overly accommodative bias. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

AUDUSD – technical overview

Technical studies have turned up in recent months, after the market traded down to its lowest levels since 2003 in 2020. There is evidence of a longer-term bottom following the latest push back through 0.7000, though at this stage, there is risk for a deeper pullback to allow for shorter term studies to unwind. Setbacks should now be well supported ahead of 0.7000.

  • R2 0.7599 – 6 July high – Strong
  • R1 0.7504 – 13 July high – Medium
  • S1 0.7410 – 9 July/2021 low – Strong
  • S2 0.7400 – Figure – Medium

AUDUSD – fundamental overview

A solid employment report out of Australia on Thursday wasn't enough to prop up the Australian Dollar, with the currency more worried about risk off flow coming from doubts over the Fed policy track. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

USDCAD – technical overview

Has been in major decline since topping out in 2021 above 1.4600. At this stage, with the decline now well extended, the market is likely to find solid support into the 1.2000 area ahead of a resumption of gains. Ultimately, only a weekly close below 1.2000 would suggest otherwise. A weekly close back above 1.2500 will strengthen the outlook.

  • R2 1.2655 – 21 April high – Strong
  • R1 1.2614 – 15 July high – Medium
  • S1 1.2425– 14 July low – Medium
  • S2 1.2252 – 23 June high – Strong

USDCAD – fundamental overview

More exiting of Canadian Dollar long exposure on Thursday. The Loonie took its hits from falling OIL and a stumbling US equity market. Canada home sales were also off for the third month and didn't help matters. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

NZDUSD – technical overview

The market has been very well supported in recent months and there is evidence of a longer-term base. Look for setbacks to hold up above 0.6800, with sights set on a run back towards the 0.7500 area.

  • R2 0.7106 – 6 July high – Strong
  • R1 0.7050 – Mid-Figure – Medium
  • S1 0.6918 – 13 July/2021 low– Medium
  • S2 0.6900 – Figure – Strong

NZDUSD – fundamental overview

A hawkish and upbeat RBNZ decision had helped to prop the Kiwi rate off the yearly low, but risk off flow has been too much for the currency to ignore into the end of the week. Key standouts on today’s calendar come in the form of Eurozone inflation reads, Canada housing starts, US retail sales, US business inventories, and Michigan sentiment.

US SPX 500 – technical overview

Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. Look for rallies to be well capped ahead of 4500, with a break back below 4139 to strengthen the outlook.

  • R2 4400 – Psychological – Strong
  • R1 4394– 14 July/Record high – Medium
  • S1 4289 – 8 July low – Medium
  • S2 4218 – 22 June low – Medium

US SPX 500 – fundamental overview

We're trading just off fresh record highs, and yet, 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 coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment into the second half of 2021.

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 an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600.

  • R2 1917 – 1 June high – Strong
  • R1 1850 – Mid-Figure – Medium
  • S1 1750 – 29 June low – Medium
  • S2 1724 – 13 April 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 coronavirus fallout. 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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