Tough week for investors

Today’s report: Tough week for investors

Risk assets are looking heavy as the week gets set to close out. The primary catalyst comes from this week’s Fed decision which leaned more hawkish on the revelation the central bank expects the terminal rate to rise above 5%.

Wake-up call

Chart talk: Technical & fundamental highlights

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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

The Euro traded higher in the immediate aftermath of the hawkish ECB decision, before coming under pressure to close out the day as odds for a recession shot up. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 1.2668– 27 May high – Strong
  • R1 1.2447 – 14 December high – Medium
  • S1 1.2107 – 7 December low – Medium
  • S2 1.1900 – 30 November low – Strong

GBPUSD – fundamental overview

The Pound took a big hit on Thursday despite the as expected 50 basis point rate hike from the BOE. The market was unsettled by the fact that the decision to raise rates was not unanimous, with two members wanting no hike at all. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 130.00 area before the market considers the possibility of uptrend resumption. Rallies should now be well capped ahead of 140.00.

  • R2 139.90 – 13 December high – Strong
  • R1 138.18 – 15 December high – Medium
  • S1 133.62 – 2 December low – Medium
  • S2 133.00 – Figure – Medium

USDJPY – fundamental overview

The Yen was back to getting hit hard on Thursday, this on the back of yield differentials shifting back in favor of the US Dollar on account of the diverging monetary policy between the Fed and BOJ. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 0.6669 – 7 December low – Strong

AUDUSD – fundamental overview

The Australian Dollar was hammered in Thursday trade on the back of a discouraging China retail sales report and on the back of broad based risk off flow from the more hawkish Fed outlook. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 1.3700 – Figure – Medium
  • R1 1.3676 – 6 December high – Medium
  • S1 1.3381 – 28 November low – Medium
  • S2 1.3316 – 24 November low – Strong

USDCAD – fundamental overview

Canada existing home sales were not impressive, while ongoing downside pressure in commodities and risk assets also weighed on the Canadian Dollar. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 0.6285– 1 December low – Medium
  • S2 0.6156 – 28 November low – Strong

NZDUSD – fundamental overview

While the New Zealand Dollar managed to outperform its commodity currency cousins on account of solid NZ GDP data and a more hawkish outlook for the RBNZ, it was unable to hold up against the US Dollar, with risk off flow too much to ignore. Key standouts on Friday’s calendar come from UK retail sales, German, Eurozone, and UK PMI reads, Eurozone trade, Eurozone inflation, Canada housing and wholesale sales, and US PMIs.

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 4150 – 13 September high – Strong
  • R1 4137 – 13 December high – Strong
  • S1 3863 – 8 November high – 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 Q4 2022 and Q1 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 1825 – 13 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: 30 Day Performance vs. US dollar (%)

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