We’ve been in a holding pattern this week. Most of the price action has been around digesting the latest slew of central bank decisions and trying to figure out just how much policy divergence we should be expecting, if any at all.
Audio update https://www.lmax.com/blog/wp-content/uploads/sites/4/2022/02/10feblmaxaudio.mp3 Technical highlights * EURUSD Stuck in consolidation * GBPUSD Well supported on dips * USDJPY Limited upside ahead * AUDUSD Testing critical support * USDCAD Signs of major bottom * NZDUSD Fresh multi-month low * US SPX 500 Overdue correction * GOLD (spot) Bullish consolidation
Fundamental highlights * EURUSD Goldman Sachs gets bullish * GBPUSD BOE Pill concerned about rate hikes * USDJPY Yield differentials favour US Dollar * AUDUSD RBA rate hikes priced for June, August * USDCAD Soft data and pullback in oil price * NZDUSD RBNZ pricing lifting Kiwi off lows * US SPX 500 Stocks vulnerable at record highs * GOLD (spot) Dealers report plenty of demand
30 Day Performance vs. US dollar (%)
Further reading * Have Bond Investors Gone Completely Insane?, R. Burgess, Bloomberg (February 10, 2022) * How Hertz bounced back from bankruptcy, Financial Times (February 9, 2022)
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EURUSD – technical overview Setbacks have been well supported below 1.1200, with the market sharply reversing course and pushing back towards the yearly high. A clear break back above 1.1500 will suggest the market could be getting ready to turn back up. Inability to sustain above 1.1500 will keep the pressure on the downside.
EURUSD – fundamental overview On Wednesday, the Euro traded up a bit on hawkish comments out from the Bundesbank and on Goldman Sachs issuing a bullish outlook. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
EURUSD – Technical charts in detail Watch now
GBPUSD – technical overview The market is in a correction phase in the aftermath of the run to fresh multi-month highs in 2021. At this stage, additional setbacks should be limited to the 1.3000 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high. Back above 1.3835 takes pressure off the downside.
GBPUSD – fundamental overview The Pound is coming off a session of underperformance after BOE Pill expressed concern with getting too aggressive on policy moves. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
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USDJPY – technical overview The longer-term trend is bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption back down towards the 100.00 area. It would take a clear break back above 117.00 to negate the outlook.
USDJPY – fundamental overview Higher US equities and yield differentials that continue to widen in favour of the Buck have resulted in Yen weakness in recent sessions. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
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AUDUSD – technical overview The Australian Dollar has been in the process of a healthy correction following the impressive run towards a retest of the 2018 high in 2021. At this stage, the correction is starting to look stretched and setbacks should be well supported above 0.7000 on a weekly close basis. A weekly close below 0.7000 will force a bearish shift.
AUDUSD – fundamental overview The Australian Dollar has been holding up well of late, getting help from a recent impressive Aussie retail sales print, news Australia will be reopening its borders for international travel, and a rates market pricing hikes in June and August. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
USDCAD – technical overview Finally signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.
USDCAD – fundamental overview The Canadian Dollar has been a clear underperformer in recent sessions, despite some upside against the Buck. Discouraging Canada trade data and a pullback in the price of oil have been responsible for the recent relative weakness. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
NZDUSD – technical overview Setbacks have intensified in recent weeks with the market trading down to fresh multi-month lows. A recent breakdown below the 0.6700 area opens the door for a drop towards 0.6500 in the sessions ahead.
NZDUSD – fundamental overview The New Zealand Dollar finally found some demand after getting slammed to multi-month lows the other week, with the currency propped up on the rebound in stocks, hawkish expectations from the RBNZ in 2022, improved Kiwi economic data and a better COVID outlook. Key standouts on today’s calendar come in the form of ECB speak, US initial jobless claims, and US inflation.
US SPX 500 – technical overview Longer-term technical studies are in the process of unwinding from extended readings off record highs. The latest breakdown below 4,272 opens the door for the next major downside extension towards 3,500. Back above 4,612 will be required at a minimum to take the immediate pressure off the downside.
US SPX 500 – fundamental overview With so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment in Q1 2022.
GOLD (SPOT) – technical overview The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600.
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 exhausted monetary policy, extended global equities, and coronavirus fallout. 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.