Trend reversal or minor correction?

Next 24 hours: Stocks higher....but so is the US Dollar

Today’s report: Trend reversal or minor correction?

As the week gets going, the market is trying hard to reverse the trend of lower stocks and a higher Dollar. But most of what we’ve been seeing hasn’t exactly established a firm case for this reversal of trend to continue for that much longer.

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

Technical studies are turning up from oversold territory, suggesting additional setbacks should be limited in favour of some form of a meaningful correction and consolidation. A weekly close back above parity will take the immediate pressure off the downside.

  • R2 1.0000 – 4 October high – Strong
  • R1 0.9927 - 6 October high – Medium
  • S1 0.9632 - 13 October low – Strong
  • S2 0.9536 – 28 September/2022 low – Strong

EURUSD – fundamental overview

The Euro traded higher on the news of Germany extending the lifetime of three nuclear power plants. Meanwhile, ECB Guindos was on the wires saying the exchange rate was being considered but was not targeted. At the moment, Euro long positions are second only to that of the US Dollar. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

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. A break above the September high at 1.1739 will solidify the recovery. Until then, look for setbacks to be well supported ahead of 1.0800.

  • R2 1.1496– 5 October high – Strong
  • R1 1.1440 – 17 October high – Medium
  • S1 1.1058 – 13 October low – Medium
  • S2 1.0924 – 12 October low – Medium

GBPUSD – fundamental overview

The Pound was up big on the news of the UK budget U-turn. A full fiscal plan is scheduled to be announced on October 31, while the universal energy support deadline is now in April. UK money markets are pricing 313 bps of rate hikes by May, with the base rate seen at 5.38%. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

USDJPY – technical overview

Technical studies are looking quite stretched on the longer-term chart, warning of consolidation and correction in the days and weeks ahead. Look for additional upside from here to be well capped ahead of 150.00. Next key support comes in at 143.52.

  • R2 150.00 – Psychological – Strong
  • R1 149.09 – 17 October/2022 high – Medium
  • S1 146.42 – 14 October low – Medium
  • S2 143.52 –5 October low – Strong

USDJPY – fundamental overview

The Yen has extended declines to fresh multi-year low levels, sinking below pre-intervention levels from September. Policy divergence continues to be a big deal here, with yields moving more and more in the US Dollar's favour. BOJ Kuroda has recently echoed his line that it is appropriate to keep with monetary easing. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

AUDUSD – technical overview

Overall pressure remains on the downside with the market confined to a well defined downtrend. A break back above 0.6682 would be required to take the pressure off the downside. Until then, scope exists for deeper setbacks towards 0.6000.

  • R1 0.6433 – 7 October high – Medium
  • R2 0.6348 –14 October high – Medium
  • S1 0.6170 –13 October/2022 low – Medium
  • S2 0.6100 – Figure – Strong

AUDUSD – fundamental overview

The Australian Dollar has benefitted from this latest wave of risk on flow and broad based US Dollar selling. Meanwhile, Australia Treasurer Chalmers was on the wires saying the country was facing pretty tricky territory. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

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 1.4000 – Psychological – Strong
  • R1 1.3978 – 13 October/2022 high – Strong
  • S1 1.3600 – Figure – Medium
  • S2 1.3503 – 4 October low – Strong

USDCAD – fundamental overview

The Canadian Dollar underperformed relative to its peer group on poor Canada survey data. The Bank of Canada business outlook survey put in the worst drop since the pandemic in 2020. Meanwhile, the opinion on hiring intentions has also crashed from 66 to 47. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

NZDUSD – technical overview

Overall pressure remains on the downside with the focus on a retest of the critical low from 2020 at 0.5469. A break back above 0.5814 would be required to take the immediate pressure off the downside.

  • R2 0.5814 – 6 October high – Strong
  • R1 0.5700 – Figure – Medium
  • S1 0.5512– 13 October/2022 low – Medium
  • S2 0.5500 – Psychological – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is pushing higher on this Tuesday, getting a lift from risk on flow and this latest wave of hotter than expected New Zealand inflation data. Key standouts on today’s calendar come from Eurozone and German economic reads, Canada housing starts, and US releases in the form of industrial production, NAHB housing and TIC flows.

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. Back above 3808 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in around 3200.

  • R2 3922 – 20 September high – Medium
  • R1 3808 – 5 October high – Strong
  • S1 3492 – 13 October/2022 low – Medium
  • S2 3400 – Round Number – Medium

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 2022 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.

  • R2 1766 – 25 August high – Strong
  • R1 1736 – 12 September high – Medium
  • S1 1615 – 28 September/2022 low – Medium
  • S2 1600 – Round Number – Strong

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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