We continue to see strong risk on flow on the back of the Fed pivot trade and the China reopening. What’s interesting right now, is the notable gap between what the Fed has been communicating and what the market is thinking.
Audio Updatehttps://www.lmax.com/blog/wp-content/uploads/sites/4/2023/01/10januarylmaxaudio.mp3Technical highlights* EURUSD Case for longer term bottom * GBPUSD Setbacks should be supported * USDJPY Closing in on previous resistance * AUDUSD Lower top sought out * USDCAD Well supported on dips * NZDUSD Additional upside limited * US SPX 500 Looking for downtrend resumption * GOLD (spot) Signs of next big run higher
Fundamental highlights EURUSD ECB sees strong wage growth ahead * GBPUSD Dovish comments from BOE Pill * USDJPY Mitsubishi UFJ calls for BOJ to end YCC * AUDUSD China reopening, coal export restart * USDCAD Canada building permits rebound sharply * NZDUSD Kiwi lags on weak housing data * US SPX 500 Inflation headache not going away * GOLD (spot) Dealers report* plenty of demand
30 Day Performance vs. US dollar (%)Further reading Earnings Season Will Hang on Price-to-Recession, J. Authers, Bloomberg (January 10, 2023) * Marcus Samuelsson’s New NYC Restaurant, N. Blasina, Financial Times* (January 9, 2023)
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GOLD EURUSD – technical overviewThe Euro recovery has finally run back above meaningful previous support turned resistance at 1.0635. The December close above this level further encourages the recovery outlook and makes a stronger case for the formation of a longer-term bottom. Any setbacks should now be well supported ahead of 1.0200.
R2 1.0787 – 30 May high – Strong
EURUSD – fundamental overviewThe Euro has run up to a seven-month high as the ECB sees strong wage growth over the coming quarters. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
EURUSD – Technical charts in detailWatch now
GBPUSD – technical overviewSigns 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.
GBPUSD – fundamental overviewThe Pound was an underperformer on Monday, this on the back of dovish BOE comments. BOE Pill said the labor market was softening and inflation pressures were easing. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
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USDJPY – technical overviewLonger-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.
USDJPY – fundamental overviewThe Yen was up modestly to start the week as the US-Japan rate differential narrowed. Japanese markets were also closed on Monday for holiday. Mitsubishi UFJ was on the wires after making calls for the BOJ to end YCC in Q2. On the data side, Japan inflation reads came in a little hotter than expected. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
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AUDUSD – technical overviewThere are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. The recent weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift.
AUDUSD – fundamental overviewThe China reopening and restart of coal exports to China are major drivers behind this latest wave of strength in the Australian Dollar. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
USDCAD – technical overviewA 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.
USDCAD – fundamental overviewThe Canadian Dollar was already running higher after a strong Canada employment report, but has found more demand on a sharp rebound in Canada building permits and rallying commodities. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
NZDUSD – technical overviewOverall 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.
NZDUSD – fundamental overviewDespite gains against the US Dollar in recent sessions, the Kiwi rate has underperformed against its peers on the back of a sharp decline in housing data and fresh doubts about just how much the RBNZ will need to shift to a less hawkish policy stance. Key standouts on Tuesday’s calendar come from BOE Pill, Bank of Canada Macklem, ECB Schnabel, BOJ Kuroda, and Fed Chair Powell speeches.
US SPX 500 – technical overviewLonger-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.
US SPX 500 – fundamental overviewWe’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 overviewThe 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. The recent break back above 1808 strengthens the bullish outlook.
GOLD (SPOT) – fundamental overviewThe 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.