Financial markets got a bit of a break on Monday. Stocks managed to recover and the US Dollar sold off. But we’re not sure we should be reading too much into the moves as anything more than some corrective price action ahead of a continuation of the bearish price action.
Audio Updatehttps://www.lmax.com/blog/wp-content/uploads/sites/4/2023/02/28feblmaxaudio.mp3Technical highlights* EURUSD Correction close to playing out * GBPUSD Room for more weakness * USDJPY Don’t rule out one more drop * AUDUSD Setbacks should be supported * USDCAD Sights set on additional upside * NZDUSD Well capped into rallies * US SPX 500 Looking for downtrend resumption * GOLD (spot) Setbacks seen forming higher low
Fundamental highlights EURUSD ECB peak rates priced into 2024 for first time * GBPUSD UK in agreement over Northern Ireland * USDJPY Mixed signals from incoming BOJ Ueda * AUDUSD Aussie setbacks mitigated on corporate profits * USDCAD CAD upside capped on wide deficit print * NZDUSD Kiwi contends with soft data, dovish RBNZ * US SPX 500 Inflation headache not going away * GOLD (spot) Dealers report* plenty of demand
30 Day Performance vs. US dollar (%)Further reading Balloon Economy Joins the Great Landing Debate, J. Authers, Bloomberg (February 28, 2023) * The Business of Formula 1, S. Agini, Financial Times* (February 28, 2023)
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GOLD EURUSD – technical overviewThe Euro is in the throes of a correction following a run to the topside through 1.1000 earlier this year. Any additional setbacks should be well supported ahead of 1.0200 in favor of the formation of the next major higher low and a bullish continuation. Ultimately, only a monthly close back below parity would give reason for concern.
R2 1.0805 – 14 February high – Strong
EURUSD – fundamental overviewThe Euro rebounded on Monday as local rates were back on the rise, with peak rates now priced into 2024 for the first time. Meanwhile, ECB Lagarde had also signaled her intention for the ECB to hike rates by 50bps in March. The 10-yr Bund traded to its highest level since 2011. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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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 overviewUK Gilt yields gapped higher on Monday, with the Pound shooting up as a result. Meanwhile, the UK said it was in agreement with the EU on Northern Ireland on the Brexit trade terms. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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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 overviewBOJ Governor nominee Ueda was out with some mixed signals the other day. On the one hand, Ueda said the central bank couldn’t continue buying JGBs forever. On the other hand, he also pledged to keep policy easy. In the end, not much change in the Yen. Economic data out of Japan earlier today was mixed and hasn’t factored into price action. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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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. Setbacks should be well supported ahead of 0.6500.
AUDUSD – fundamental overviewThe Australian Dollar has found some support into the latest dip, getting a boost from a spike in Q4 company operating profits. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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 overviewCanada’s Q4 current account deficit widened out to CAD 10.64 billion from CAD 8.41 billion, while oil was back under pressure. This kept the Loonie well offered into rallies, despite some upside from broader macro flow away from the Buck. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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 overviewComments from RBNZ Conway that we could soon see a turning point on inflation, along with a discouraging Monday New Zealand retail sales print have contributed to added downside pressure on a New Zealand Dollar already under pressure from a repricing of Fed expectations and broad based risk off flow. Key standouts on Tuesday’s calendar come from German import prices, Canada GDP, US trade, wholesale inventories, Case Shiller, Chicago PMIs, and consumer confidence.
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 3885.
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.