Policy divergence driving global markets

Today’s report: Policy divergence driving global markets

On Tuesday, PMI data out of the Eurozone and UK came in on the softer side, while PMI data out of the US was better than expected. All of this continues to highlight relative strength in the US economy, which means greater monetary policy divergence between the Federal Reserve and the ECB and BOE.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

Any additional setbacks should be well supported on dips below 1.0500 in favor of the start to the next major upside extension. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Back above 1.0770 will take the immediate pressure off the downside.

  • R2 1.0737 – 20 September high – Strong
  • R1 1.0695 - 24 October high – Medium
  • S1 1.0565 - 20 October low– Medium
  • S2 1.0523 – 18 October low – Medium

EURUSD – fundamental overview

Eurozone PMIs and consumer confidence reads were a disappointment on Tuesday, which opened some selling into the rally. Also adding to some of the Euro getting sold into rallies was the ECB's Euro Area Bank Lending Survey, which showed that firms net demand for loans continued to decrease substantially in Q3, with the decline being significantly stronger than expected. Odds for any move on rates at tomorrow's ECB meeting stand at almost 0%. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

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 1.3143.

  • R2 1.2425 – 19 September high – Strong
  • R1 1.2338 – 11 October high – Medium
  • S1 1.2090 – 19 October low – Medium
  • S2 1.2037 – 4 October low – Strong

GBPUSD – fundamental overview

The Pound was back to trading under pressure on Tuesday in the aftermath of a round of weak UK economic data highlighted by a rise in jobless claims, dive in CBI numbers, and weak PMIs. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

USDJPY – technical overview

At this stage, it looks like the market is 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 on dips.

  • R2 150.17 – 3 October/2023 high – Strong
  • R1 150.00 –  Psychological – Medium
  • S1 148.53 – 29 September low – Medium
  • S2 147.31 – 3 October low – Strong

USDJPY – fundamental overview

The Yen has steadied near recent lows on speculation over a possible BOJ policy shift next week. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base with the market trading down into a meaningful longer-term support zone. Only a monthly close below 0.6300 would give reason for rethink. Back above 0.6523 will take the immediate pressure off the downside and strengthen case for a bottom.

  • R1 0.6501– 29 September high – Strong
  • R2 0.6445 – 11 October high – Medium
  • S1 0.6300 – Figure – Medium
  • S2 0.6285 – 3 October/2023 low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been a standout outperformer on Wednesday thus far, with the currency getting a boost from above forecast Aussie inflation data. We've also heard from a hawkish RBA Bullock who said the central bank will not hesitate to increase the cash rate target. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

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 1.3786 – 5 October high – Strong
  • R1 1.3755 – 24 October high – Medium
  • S1 1.3569 – 10 October low – Medium
  • S2 1.3552 – 2 October low – Medium

USDCAD – fundamental overview

The Canadian Dollar has been trading with a softer tone into Wednesday as traders position for a dovish leaning Bank of Canada decision on account of the weak consumer and growth outlooks in Canada. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

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 0.6049 would be required to take the immediate pressure off the downside. A monthly close below 0.5800 would intensify bearish price action.

  • R2 0.6049 – 29 September high – Strong
  • R1 0.6056 – 11 October high – Medium
  • S1 0.5807 – 23 October/2023 low – Medium
  • S2 0.5800 – Figure – Strong

NZDUSD – fundamental overview

Finally, some relief for the New Zealand Dollar which has recovered out from yearly lows on the back of broad based risk on flow and some mild profit taking on US Dollar longs. Key standouts on Wednesday’s calendar come from Eurozone money supply, German Ifo reads, the Bank of Canada policy decision, US new home sales, and speeches from ECB Lagarde and Fed Chair Powell.

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 4200.

  • R2 4398 – 12 October high – Strong
  • R1 4279 – 20 October high – Medium
  • S1 4189 – 23 October low – Medium
  • S2 4166 – 31 May low – Strong

US SPX 500 – fundamental overview

Investors continue to struggle with the reality of a higher for longer Fed policy track in the face of ongoing worry around inflation, while also contending with an escalation in geopolitical risk. 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. Next major resistance comes in at 2100, above which opens the next extension towards 2500.

  • R2 2000 – Psychological – Strong
  • R1 1998 – 20 October high – Medium
  • S1 1908 – 16 October low – Medium
  • S2 1868 – 12 October 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 stable and 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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