The reflation trade narrative

GBPUSD – technical overview

The recent breakout through the 2019 high at 1.3515 is significant and now sets the stage for the next major upside extension back towards a retest of the 2018 high. Technical studies are however extended, leaving room for some setbacks over the coming sessions, before the market considers a meaningful bullish continuation. But look for setbacks to now be very well supported into the 1.3500 area.

• R2 1.4241 – 23 February/Multi-month high – Strong
• R1 1.4200 – Figure – Medium
• S1 1.3980 – 22 February low – Medium
• S2 1.3830 – 17 February low – Strong

GBPUSD – fundamental overview

The Pound has come under pressure after making fresh multi-month highs, with the currency getting hit on the combination of downbeat BOE Bailey comments about Q1 growth, discouraging BOE Haskel remarks around downside risks to consumer spending and the UK government saying reopening dates would not be brought forward. Key standouts on today’s calendar come in the form of US initial jobless claims, durable goods, GDP, and pending home sales.

USDJPY – technical overview

The recent breakdown below 104.00 opens the door for a deeper round of setbacks. Initial support comes in just ahead of 101.00, in the form of the 2020 low, which guards against the major psychological barrier at 100.00 and the 2016 low around 99.00. At this point, it would take a clear break back above 106.00 to take the immediate pressure off the downside.

• R2 106.23 – 17 February high – Strong
• R1 106.00 – Figure – Strong
• S1 104.41 – 10 February low – Strong
• S2 103.33 – 21 January low – Strong

USDJPY – fundamental overview

An improved risk backdrop into Thursday has helped to support the US Dollar and weaken the Yen on traditional correlations with risk sentiment. Key standouts on today’s calendar come in the form of US initial jobless claims, durable goods, GDP, and pending home sales.

EURCHF – technical overview

Lots of sideways price action here, with no clear directional insight. For the most part, price action has been confined between 1.0600 and 1.1100, and it will take a weekly close above or below for an indication of the next big move.

• R2 1.1100 – Figure – Medium
• R1 1.1060 – October 2019 high – Strong
• S1 1.0736 – 10 December low – Medium
• S2 1.0660 – 4 November low – Strong

EURCHF – fundamental overview

The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of renewed risk liquidation will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.

AUDUSD – technical overview

Technical studies have turned up in recent months, after the market traded down to its lowest levels since 2003 in 2020. There is evidence of a longer-term bottom following the latest push back through 0.7000, though at this stage, there is risk for a deeper pullback to allow for shorter term studies to unwind. Next big resistance comes in at 0.8000. Setbacks should now be well supported ahead of 0.7000.

• R2 0.8000 – Psychological – Strong
• R1 0.7980 – 25 February/Multi-month high – Medium
• S1 0.7724 – 17 February low – Strong
• S2 0.7600 – Figure – Medium

AUDUSD – fundamental overview

Stronger than expected Aussie capex and a rebound in global equities has opened another wave of upside in the Australian Dollar, with the currency sitting at three year highs against the Buck. Key standouts on today’s calendar come in the form of US initial jobless claims, durable goods, GDP, and pending home sales.

USDCAD – technical overview

Has been in major decline since topping out in 2021 above 1.4600. At this stage, with the decline now well extended, the market is likely to find solid support into the 1.2500 area ahead of a resumption of gains. Ultimately, only a weekly close below 1.2500 would suggest otherwise. Back above 1.3000 will strengthen the outlook.

• R2 1.2882 – 28 January/2021 high – Strong
• R1 1.2764 – 12 February high – Medium
• S1 1.2500– Psychological – Medium
• S2 1.2497 – 25 February/Multi-month low – Strong

USDCAD – fundamental overview

Ongoing broad based US Dollar selling on dovish Fed Chair communications, surging oil, and a recovery in stocks have all resulted in fresh multi-months highs in the Canadian Dollar. Key standouts on today’s calendar come in the form of Canada weekly earnings, US initial jobless claims, durable goods, GDP, and pending home sales.

NZDUSD – technical overview

There's a case to be made for a meaningful bottom, after the market bottomed out in 2020. The recent break back above 0.7000 further strengthens this outlook, with the market back in uptrend mode as per the weekly Ichimoku cloud and focused on pushing back towards longer-term resistance in the 0.7500 area. Any setbacks are expected to be well supported ahead of 0.7000.

• R2 0.7500 – Psychological – Medium
• R1 0.7455 – 24 February/Multi-month high – Medium
• S1 0.7158 – 17 February low – Medium
• S2 0.7096 – 18 January/2021 low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar was very strong on Wednesday, extending the multi-month run on the back of a less dovish communication from the RBNZ. The rally was also helped along on the government adding housing to the RBNZ's remit, which will make it harder for the central bank to maintain accommodative policy. Key standouts on today’s calendar come in the form of US initial jobless claims, durable goods, GDP, and pending home sales.

US SPX 500 – technical overview

Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. Look for rallies to be well capped ahead of 4000, with a break back below 3600 to strengthen the outlook.

• R2 4000 – Psychological – Strong
• R1 3965 – 16 February/Record high – Medium
• S1 3700 – Round number – Medium
• S2 3663 – 4 January low – Strong

US SPX 500 – fundamental overview

We're trading just off fresh record highs, and yet, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout should weigh more heavily on investor sentiment in 2021.

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 an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1700. Longer-term technical studies are however in the process of consolidating, with the market in search of a higher low ahead of a bullish continuation.

• R2 1876 – 29 January high – Strong
• R1 1856 – 10 February high – Medium
• S1 1760 – Previous resistance – Strong
• S2 1700 – Psychological – 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 exhausted monetary policy, extended global equities, and coronavirus fallout. 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.

BTCUSD – technical overview

The short-term outlook should be less constructive in the aftermath of this latest wave of parabolic price action through $55,000. Key indicators are tracking in extreme overbought territory across multiple timeframes, warning of a period of deeper correction and consolidation before any meaningful bullish continuation can be expected. At the same time, look for setbacks to now be well supported into the $35,000 - $40,000 area.

• R2 60,000 – Psychological – Strong
• R1 57,565 – 20 February/Record high – Medium
• S1 44,890 – 23 February low – Medium
• S2 42,000 – Previous resistance – Strong

BTCUSD – fundamental overview

Overall, ongoing adoption, continued innovation in the space, a warmer regulatory environment and healthy institutional investor appetite have all contributed to this latest wave of strong demand leading to fresh record highs into 2021. Market participants are also drawn to the asset as it proves to be an attractive store of value at a time when governments and central banks continue to print money at unprecedented rates. Still, the market has run a little too far and fast into February and we suspect we should be seeing more cool down ahead.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

The market has extended its run of record highs, since exceeding the previous peak from January 2018. At the same time, with medium-term and longer-term studies showing overextension, there could be a period of deep correction and consolidation that sets in before a meaningful bullish continuation through 2,000. Setbacks should now be well supported ahead of 1,000.

• R2 2100 – Psychological – Strong
• R1 2042 – 20 February/Record high – Medium
• S1 1355 – 23 February low – Strong
• S2 1270 – February low – Strong

ETHUSD – fundamental overview

Bitcoin is getting all of the attention, though it's Ether that's outperformed its older cousin over the past several months. All of the healthy investor risk appetite in global markets has helped to fuel demand for innovation and the Ethereum blockchain is very much at the centre of this when it comes to cryptocurrencies. At the same time, we would be concerned about a bubble in the defi space, with valuations for these projects soaring to alarming heights. We've also warned that any downturn in global sentiment is likely to have a more significant negative impact on the more risk correlated Ether.