Markets versus the Fed

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. The latest weekly close back above the September high at 1.1739 strengthens this prospect. Any setbacks should now be well supported ahead of 1.1100. Next key resistance comes in at 1.2668.

• R2 1.2243– 19 December high – Strong
• R1 1.2211 – 9 January high – Medium
• S1 1.1841 – 5 January low – Medium
• S2 1.1800 – Figure – Medium

GBPUSD – fundamental overview

The Pound was an underperformer on Monday, this on the back of dovish BOE comments. BOE Pill said the labor market was softening and inflation pressures were easing. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.

USDJPY – technical overview

Longer-term technical studies are in the process of unwinding from severe overbought readings. Look for additional corrective price action back down towards the 126.00 area before the market considers the possibility of uptrend resumption. Rallies should now be well capped ahead of 140.00.

• R2 138.18 – 15 December high – Strong
• R1 134.78 – 6 January high – Medium
• S1 131.45 – 21 December low – Medium
• S2 129.51 – 3 January low – Medium

USDJPY – fundamental overview

The Yen was up modestly to start the week as the US-Japan rate differential narrowed. Japanese markets were also closed on Monday for holiday. Mitsubishi UFJ was on the wires after making calls for the BOJ to end YCC in Q2. On the data side, Japan inflation reads came in a little hotter than expected. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the recent 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.

• R1 0.7000 – Psychological – Strong
• R2 0.6950 – 9 January high – Medium
• S1 0.6700 – Figure – Medium
• S2 0.6630 – 20 December low – Strong

AUDUSD – fundamental overview

The China reopening and restart of coal exports to China are major drivers behind this latest wave of strength in the Australian Dollar. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.

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 1.3706 – 16 December high – Strong
• R1 1.3600 – Figure – Medium
• S1 1.3357 – 9 January low – Medium
• S2 1.3316 – 24 November low – Strong

USDCAD – fundamental overview

The Canadian Dollar was already running higher after a strong Canada employment report, but has found more demand on a sharp rebound in Canada building permits and rallying commodities. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.

NZDUSD – technical overview

Overall pressure remains on the downside with risk for the current recovery rally to stall out and form a lower top for the next major downside extension. A break back above 0.6577 would be required to take the immediate pressure off the downside.

• R2 0.6443 – 5 December high – Medium
• R1 0.6412 – 9 January high – Medium
• S1 0.6191– 6 January low – Medium
• S2 0.6156 – 28 November low – Strong

NZDUSD – fundamental overview

Despite gains against the US Dollar in recent sessions, the Kiwi rate has underperformed against its peers on the back of a sharp decline in housing data and fresh doubts about just how much the RBNZ will need to shift to a less hawkish policy stance. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.

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 3492.

• R2 4000 – Psychological – Strong
• R1 3954 – 9 January high – Medium
• S1 3763 – 22 December low – Medium
• S2 3699 – 3 November 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.

• R2 1900 – Round Number – Strong
• R1 1882 – 9 January high – Medium
• S1 1774 – 15 December low – Medium
• S2 1719 – 23 November 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.