The big question heading into 2023

Today’s report: The big question heading into 2023

There are times when the super thin end of year trade results in some wild price action, where markets run aggressively in one direction or the other. But this was not to be the case this year, with markets mostly confined to some tight choppy consolidation into the final hours of 2022.

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

The Euro recovery has finally run back above meaningful previous support turned resistance at 1.0635. But we'll need to see a monthly close above this level to suggest the market has established a longer-term base. Inability to hold above 1.0635 on a monthly close basis could open the door for a resumption of declines.

  • R2 1.0787 – 30 May high – Strong
  • R1 1.0737 - 15 December high – Medium
  • S1 1.0443 - 7 December low – Medium
  • S2 1.0290 – 30 November high – Strong

EURUSD – fundamental overview

A recent round of more hawkish ECB speak has helped to drive the Euro higher into year end. At the same time, we have seen some selling into the rally on the back of Thursday's money supply reads showed a drop in lending growth to households and corporates. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

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. 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 1.2447– 14 December high – Strong
  • R1 1.2243 – 19 December high – Medium
  • S1 1.1993 – 22 December low – Medium
  • S2 1.1900 – 30 November low – Strong

GBPUSD – fundamental overview

No major updates out of the UK, with most traders off the desks through next week when activity is set to pick back up. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

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 134.51 – 14 December low – Medium
  • S1 130.57 – 20 December low – Strong
  • S2 130.00 – Psychological – Medium

USDJPY – fundamental overview

The Yen has been better bid this week as traders seemingly look to test the BOJ's resolve to defend its yield-curve policy control. There was also chatter of Yen purchases due to repatriation by exporters and Japanese institutional investors. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. The latest weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift.

  • R1 0.6917 – 13 September high – Strong
  • R2 0.6894 – 13 December high – Medium
  • S1 0.6700 – Figure – Medium
  • S2 0.6630 – 20 December low – Strong

AUDUSD – fundamental overview

Most of this latest wave of Aussie demand has come from the news that China is scrapping quarantine measures and from a rally in commodities prices. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

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 1.3809 – 3 November high – Medium
  • R1 1.3706 – 16 December high – Medium
  • S1 1.3484 – 27 December low – Medium
  • S2 1.3385 – 5 December low – Strong

USDCAD – fundamental overview

The Canadian CFIB Business Barometer recovered slightly in December coming in at 50.9 versus the 50.0 reading in November. Notable was the rise in intentions to increase staffing to the highest level since June. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

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 0.6577 – 3 June high – Strong
  • R1 0.6514 – 13 December high – Medium
  • S1 0.6231– 22 December low – Medium
  • S2 0.6156 – 28 November low – Strong

NZDUSD – fundamental overview

There hasn't been much going on out of New Zealand in the end of year holiday trade. Most of the price action here has revolved around correlations with broader market sentiment. Looking ahead, Friday’s economic calendar is exceptionally thin, with only Chicago PMIs standing out.

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 4137 – 13 December high – Strong
  • R1 4000 – Psychological – Strong
  • 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. This latest break back above 1808 strengthens the bullish outlook.

  • R2 1880 – 13 June high – Strong
  • R1 1834 – 27 December high – Medium
  • S1 1719 – 23 November low – Medium
  • S2 1665 – 8 November 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 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: YTD Performance vs. US dollar (%)

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