Signs of elevated stress in global financial system

Next 24 hours: Another round of carry unwind

Today’s report: Signs of elevated stress in global financial system

We’ve been seeing signs of elevated stress in the global financial system. Commodities prices have been hit hard, particularly the growth correlated pro-cyclicals. Meanwhile, the US Dollar has been broadly bid.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The Euro has been in a multi-month consolidation since bottoming out in 2022. Setbacks have since been exceptionally well supported on dips below 1.0500, with a higher platform sought out ahead of the next major upside extension. Look for a push through the 2023 high at 1.1276 to strengthen the constructive outlook and extend the recovery run towards 1.2000. Only back below 1.0400 negates.

  • R2 1.0982 – 8 March high – Strong
  • R1 1.0949 - 17 July high – Medium
  • S1 1.0798 - 5 July low– Medium
  • S2 1.0666 – 26 June low – Strong

EURUSD – fundamental overview

The Euro extended declines on Tuesday as sovereign bond yields widened out. Eurozone consumer confidence wasn't as bad as expected but didn't help to bolster the Euro much at all. Key standouts on Wednesday’s calendar come from German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

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 door is now open for the next major upside extension towards the 2023 high at 1.3143. Any setbacks should be well supported ahead of 1.2500.

  • R2 1.3100 – Figure – Medium
  • R1 1.3045 – 17 July/2024 high – Strong
  • S1 1.2888– 23 July low – Medium
  • S2 1.2861 – 12 June high – Medium

GBPUSD – fundamental overview

There weren't too many market moving headlines out of the UK on Tuesday, though we did see the Pound hold up relatively well in the face of broad based Dollar demand, perhaps getting some help on safe haven flow away from the Euro amidst French political uncertainty. Key standouts on Wednesday’s calendar come from German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

USDJPY – technical overview

The market remains confined to a strong uptrend, most recently extending to a multi-year high through 160.00. Key support comes in at 151.95, with only a weekly close below to delay the constructive outlook. Next major resistance comes in at 165.00.

  • R2 159.45 – 12 July high – Medium
  • R1 158.86 – 16 July high – Medium
  • S1 155.37 – 18 July low – Medium
  • S2 154.55 – 4 June low – Strong

USDJPY – fundamental overview

A large carry trade unwind via Aussie and Mexican Peso sales against the Yen, along with increased odds for a BOJ rate hike at the end of the month were behind the latest run of Yen demand. Key standouts on Wednesday’s calendar come from German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

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 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.

  • R1 0.6799– 11 July high – Strong
  • R2 0.6703 – 22 July high – Medium
  • S1 0.6600 – Figure– Medium
  • S2 0.6576 – 10 June low – Strong

AUDUSD – fundamental overview

The Australian Dollar continues to get hit hard on the back of a massive commodities slide and downside pressure in US equities. Key standouts on Wednesday’s calendar come from Aussie PMIs, German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

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 1.3847 – 16 April/2024 high – Strong
  • R1 1.3792 – 11 June high – Medium
  • S1 1.3600 – Figure – Medium
  • S2 1.3587 – 11 July low – Strong

USDCAD – fundamental overview

This week's Bank of Canada survey revealed a sharp rise in anxiety over taxes and regulation. Meanwhile, lower commodities prices are also weighing on the correlated Canadian Dollar. Odds for a rate cut from the Bank of Canada later today sit at greater than 90%. Key standouts on Wednesday’s calendar come from German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

NZDUSD – technical overview

Overall pressure remains on the downside with the market continuing to stall out on runs up into the 0.6500 area. At the same time, there are some signs of the market wanting to put in a longer-term base. Ultimately, a break back above 0.6500 would be required to take the medium-term pressure off the downside and encourage this prospect. A monthly close below 0.5800 will intensify bearish price action.

  • R2 0.6154 – 8 July high – Strong
  • R1 0.6098 – 17 July high – Medium
  • S1 0.5942 – 3 May low – Medium
  • S2 0.5900 – Figure – Strong

NZDUSD – fundamental overview

This week's distressing trade data along with an ongoing slide in commodities prices and downturn in US equities have proven to be a big weight on the New Zealand Dollar. Key standouts on Wednesday’s calendar come from German consumer confidence, German and Eurozone PMIs, UK PMIs, Canada housing data, Canada manufacturing sales, the Bank of Canada policy decision, US PMIs and new home sales, and Fed speak.

US SPX 500 – technical overview

Longer-term technical studies continue to look quite extended, begging for a deeper correction ahead. The latest rally has extended to reach and even exceed a 355 point measured move extension target objective in the 5,640 area, adding to the case for an imminent correction. At this stage, additional upside should be limited to allow for overbought studies to unwind. There is now room for a pullback towards previous resistance turned support in the form of the previous record high from April around 5,290.

  • R2 5700 – Round Number – Strong
  • R1 5679 – 16 July/Record high– Strong
  • S1 5501 – 19 July low – Medium
  • S2 5450 – 2 July low – Strong

US SPX 500 – fundamental overview

Though we have seen a healthy adjustment of investor expectations towards the amount of rate cuts in 2024, the market still hopes policy will end up erring more towards the investor friendly, accommodative side of things. This bet has kept stocks well bid into dips and consistently pushing record highs. Still, if there is a sense the Fed will need to be more sensitive towards erring on the side of higher rates, it could invite major disruption to the stock market.

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 this next major upside extension into the 2500-3000 area. Setbacks should now be well supported above 2200 on a monthly close basis.

  • R2 2500 – Psychological– Strong
  • R1 2484 – 17 July/Record high – Medium
  • S1 2384 – 22 July high – Strong
  • S2 2350– July 4 low – Medium

GOLD (SPOT) – fundamental overview

The yellow metal has pushed record highs in 2024 with solid demand from medium and longer-term accounts. These players are more concerned about inflation, geopolitical 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 end. [audio mp3="https://www.lmax.com/blog/wp-content/uploads/sites/4/2024/07/24jullmaxaudio.mp3"][/audio]

Peformance chart: 30-Day Performance vs. US dollar (%)

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Daily Reports Global FX Insights   joelkruger  

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