The market continues to reluctantly reprice Fed rate expectations and the result has been rather intense, with stocks coming under more pressure and the US Dollar in the driver’s seat.
Audio Updatehttps://www.lmax.com/blog/wp-content/uploads/sites/4/2023/02/22feblmaxaudio.mp3Technical highlights* EURUSD Into correction after breaking 1.1000 * GBPUSD Stalls out into key resistance zone * USDJPY Room for one more healthy drop * AUDUSD Setbacks should be supported * USDCAD Well supported on dips * NZDUSD Additional upside limited * US SPX 500 Looking for downtrend resumption * GOLD (spot) Setbacks seen as higher lows
Fundamental highlights EURUS Euro gets some help from solid readings * GBPUSD Pound shines on hot PMI results * USDJPY BOJ Tamura comments get attention * AUDUSD Aussie hit on softer wage data * USDCAD Soft Canada CPI forces shift in forecasts * NZDUSD RBNZ hikes rates 50bps as expected * US SPX 500 Inflation headache not going away * GOLD (spot) Dealers report* plenty of demand
30 Day Performance vs. US dollar (%)Further reading Soft, Hard or No Landings? Time to Have Your Say, J. Authers, Bloomberg (February 20, 2023) * Why The Next Hot Housing Market Is In the Metaverse, D. Kamin, NY Times* (February 19, 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 2022 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 1.0500. Next major resistance at 1.1185.
R2 1.0941 – 3 February high – Medium
EURUSD – fundamental overviewIt was hard for the Euro to avoid downside pressure from risk off flow and and ongoing repricing of Fed expectations. However, Tuesday’s solid round of economic data out of the Eurozone and ongoing hawkish talk from ECB officials has managed to mitigate the fallout. Eurozone composite PMIs and German ZEW reads were both above forecast. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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GBPUSD – technical overviewSigns have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The recent weekly close back above the September high at 1.1739 strengthens this prospect. Any setbacks should now be well supported ahead of 1.1500. Next key resistance comes in at 1.2668.
GBPUSD – fundamental overviewThe Pound was a standout outperformer again on Tuesday. The currency had already been benefitting from a strong UK retail sales print before getting another big boost on a very hot UK composite PMI print. Naturally, this has shifted BOE rate expectations back to the topside, which has fueled all of this demand we’re seeing. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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USDJPY – technical overviewThe major pair has been in the throes of a long overdue correction that was waiting to play out after a parabolic run to the topside to multi-year highs. At this stage, the correction could be getting close to having played out fully, with the market finally approaching critical previous resistance turned support in the 125.00 area.
USDJPY – fundamental overviewThe Yen has been a victim of yield differentials and broad based US Dollar demand. We’ve also been seeing some attention around BOJ Tamura comments after the central banker said a policy review would soon be needed. This could stoke expectations the central bank will pursue an assessment after the first new BOJ leadership in a decade is installed this spring. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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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. Next key resistance comes in at 0.7284.
AUDUSD – fundamental overviewThe Australian Dollar had already been under pressure from broader macro forces of risk off, before finding additional downside earlier today from the softer than expected Aussie wages data. The data contrasts with much higher CPI inflation, highlighting real income pressure on Australian households. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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 under pressure from risk off flow and sliding oil prices, before taking an added hit on Tuesday from the softer than expected Canada inflation data. This has shifted expectations more towards a no hike from the central bank in March. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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 overviewEarlier today, the RBNZ went ahead and hiked rates 50 basis points to 4.75% as widely expected. Although the RBNZ’s expectations for the official cash rate are marked slightly lower for Q2 2023, they are left unchanged thereafter at 5.50% for Q4 2023 and 5.32% for Q4 2024. Key standouts on Wednesday’s calendar come from German inflation reads, German Ifo data, Canada housing, and the Fed Minutes late in the day.
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. Next major resistance comes in at 2000.
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.