Preparing for and positioning into this week’s Fed decision

Next 24 hours: Trying to get off to a good start

Today’s report: Preparing for and positioning into this week's Fed decision

It’s been very difficult for the Fed to justify shifting its policy stance as much as investors would like to see this play out. On the whole, we’re looking at US economic data that continues to come in relatively solid, all while inflation remains a serious concern.

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 1.0522 - 26 October low– Medium
  • S2 1.0523 – 18 October low – Medium

EURUSD – fundamental overview

ECB Muller said that a deep recession is not needed to tame inflation. ECB Vasle said he expects Eurozone inflation to slow further. ECB Nagel emphasized Eurozone inflation was still far from target, but admitted tight policy was showing its effects. Nagel also stressed future decisions would be made on a meeting by meeting basis. German inflation data turned up on the whole. The German DIHK business lobby stated German companies had cut their investment and hiring plans, as they saw no sign of a self-sustaining pick-up in Europe's biggest economy. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 1.2338.

  • R2 1.2289 – 24 October high – Strong
  • R1 1.2176 – 25 October high – Medium
  • S1 1.2069 – 26 October low – Medium
  • S2 1.2037 – 4 October low – Strong

GBPUSD – fundamental overview

The Pound has been confined to some tight range trade in recent sessions, not wanting to make any new directional commitments as it positions into this week's BOE decision. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 151.00 – Figure – Strong
  • R1 150.78 –  26 October/2023 high – Medium
  • S1 149.10 – 23 October low – Medium
  • S2 148.74 – 17 October low – Medium

USDJPY – fundamental overview

The combination of hotter inflation data out of Japan and comments from Suzuki that excessive FX moves were undesirable, had a lot to do with the latest round of upside in the Yen. Still, overall, the outlook continues to point towards further Yen weakness. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 0.6200 would give reason for rethink. Back above 0.6523 will take the immediate pressure off the downside and strengthen case for a bottom.

  • R1 0.6445– 11 October high – Strong
  • R2 0.6400 – 25 October high – Medium
  • S1 0.6270 – 26 October/2023 low – Medium
  • S2 0.6170 – 13 October/2022 low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been able to standout in the early week as a mild outperformer on the back of Monday's much better than expected Aussie retail sales showing. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 1.3900– Figure – Medium
  • R1 1.3881 – 27 October/2023 high – Medium
  • S1 1.3730 – 25 October low – Medium
  • S2 1.3661 – 24 October low – Medium

USDCAD – fundamental overview

There has been a serious repricing of Bank of Canada expectations after last week's dovish central bank decision. We've since seen the Canadian Dollar trade to a fresh yearly low against the US Dollar. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 will intensify bearish price action.

  • R2 0.5930 – 16 October high – Strong
  • R1 0.5873 – 24  October high – Medium
  • S1 0.5773 – 26 October/2023 low – Medium
  • S2 0.5740 – 3 November 2022 low – Medium

NZDUSD – fundamental overview

The New Zealand Dollar is trying to recover from yearly lows on the back of a mild wave of broad based profit taking on US Dollar longs, some recent solid local data, a boost from Aussie gains, and improved risk appetite. Key standouts on Monday’s calendar come from German CPI and growth, BOE consumer credit and mortgage approvals, Eurozone sentiment and consumer inflation expectations, and Dallas Fed manufacturing.

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 4300 – Round Number – Strong
  • R1 4267 – 24 October high – Medium
  • S1 4098 – 10 May low – Medium
  • S2 4048 – 4 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 2071 – 8 March 2022/Record high– Strong
  • R1 2010 – 27 October high – Medium
  • S1 1954 – 24 October low – Medium
  • S2 1908 – 16 October 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 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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