Market forced to reconsider Fed outlook

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 1.2500. Next key resistance comes in at 1.3500.

• R2 1.2996 – 27 July high – Strong
• R1 1.2875 – 26 July low – Medium
• S1 1.2726 – 7 July low – Medium
• S2 1.2591 – 29 June low – Strong

GBPUSD – fundamental overview

Most of the downside in the Pound on Thursday was from a repricing of the Fed outlook after US GDP, jobless claims, and durable goods all came in better than forecast. The data supports the idea that no recession is in sight and opens the door for additional Fed rate hikes. At the same time, we also saw some GBP weakness on weak CBI numbers. Key standouts on Friday’s calendar come from the Bank of Japan policy decision, German inflation reads and German import prices, Eurozone sentiment and confidence indicators, Canada GDP, US personal income, personal spending, core PCE, 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 ahead of 135.00 in favor of the next higher low.

• R2 141.96 – 21 July high – Strong
• R1 140.00 – Psychological– Medium
• S1 138.76 – 19 July low – Medium
• S2 137.24 – 14 July low – Strong

USDJPY – fundamental overview

Thursday's round of Yen demand was more reflective of traditional flow, with the currency generating bids on the flight to safety reaction from a hawkish repricing of US rates on strong US economic data. We've also seen some Yen demand on speculation the BOJ will be looking to make some hawkish adjustments to monetary policy. Key standouts on Friday’s calendar come from the Bank of Japan policy decision, German inflation reads and German import prices, Eurozone sentiment and confidence indicators, Canada GDP, US personal income, personal spending, core PCE, 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. Next key resistance comes in at 0.7284. Setbacks should continue to be well supported in the 0.6500 area. Only a monthly close below 0.6500 would give reason for rethink.

• R1 0.7000– 16 June high – Strong
• R2 0.6821 – 27 July high – Medium
• S1 0.6676 – 12 July low – Medium
• S2 0.6595 – 29 June low – Strong

AUDUSD – fundamental overview

The Australian Dollar took a hard hit in Thursday trade on the back of a repricing of Fed rate expectations in the aftermath of a strong wave of US economic data. This resulted in broad based risk liquidation, with the correlated Australian Dollar suffering as a consequence. Key standouts on Friday’s calendar come from the Bank of Japan policy decision, German inflation reads and German import prices, Eurozone sentiment and confidence indicators, Canada GDP, US personal income, personal spending, core PCE, and Michigan sentiment.

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 1.3387 – 7 July high – Strong
• R1 1.3270 – 20 June high – Medium
• S1 1.3093 – 14 July/2023 low – Medium
• S2 1.3000 – Psychological – Strong

USDCAD – fundamental overview

The Canadian Dollar could not avoid selling off on broad based US Dollar demand post a strong wave of US economic data. At the same time, the Loonie held up better than its peers on higher oil and an uptick in the CFIB business barometer for July. Key standouts on Friday’s calendar come from the Bank of Japan policy decision, German inflation reads and German import prices, Eurozone sentiment and confidence indicators, Canada GDP, US personal income, personal spending, core PCE, 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. A monthly close below 0.6000 would intensify bearish price action.

• R2 0.6316 – 19 July high – Strong
• R1 0.6274 – 27 July high – Medium
• S1 0.6156 – 24 July low – Medium
• S2 0.6126 – 3 July low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar fell victim to a wave of strong US data which forced a hawkish repricing of Fed expectations. Risk off flow resulting from this repricing only added to downside pressure on the risk correlated currency. Key standouts on Friday’s calendar come from the Bank of Japan policy decision, German inflation reads and German import prices, Eurozone sentiment and confidence indicators, Canada GDP, US personal income, personal spending, core PCE, 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 4600 will be required to take the immediate pressure off the downside. Next key support comes in at 4376.

• R2 4608 – 27 July/2023 high – Strong
• R1 4600 – Round number – Medium
• S1 4496 – 17 July low – Medium
• S2 4376 – 10 July 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. Overall, we expect inflation to continue to be a problem in 2023 that results in downside pressure into rallies despite market expectations that would argue otherwise.

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 2100, above which opens the next extension towards 2,500.

• R2 2076 – Record high/2020 – Strong
• R1 1988 – 20 July high – Medium
• S1 1900 – Round Number – Medium
• S2 1893 – 29 June 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 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.