Technical Analyst, Saxo Bank
EURUSD is a bit tricky at the moment. The cross has been in a downtrend for the past two months and has been quite stretched lately, but now there is a warning sign in the form of RSI divergence.
EURUSD closed lower yesterday but RSI did not which means RSI values are not confirming the lower EURUSD levels. RSI divergence is a sign of a weakening (bearish) trend.
However, RSI divergence can go on for quite some time but should be taken seriously.
The support around 1.0480 is strong – see weekly chart - and one should expect a correction. However, RSI divergence is not a reversal sign just a warning of trend exhaustion. A bottom and reversal pattern could be forming in next couple of days.
If EURUSD takes out 1.0620 expect upper falling trendline to be tested. And a possible move to at least 1.07.
However, despite a looming short-term correction the medium-term trend is bearish and if EURUSD is closing lower and RSI divergence is cancelled by lower values there is no strong support until around 1.0241. But I am very confident we’ll see a correction before reaching that level. (This is not meant as a recommendation!)
First indication of a correction unfolding is likely if RSI is closing above its falling blue trend line. A close back above the 40 threshold coulkd accelrate a corrective move higher
GBPUSD Bullish Engulfing candle was cancelled out with the bearish move yesterday (but as mentioned in previous update Bullish Engulfing patterns are not that reliable in the FX market) . Buyers ran out of steam after being rejected at the upper falling trendline cutting short the correction before it reached 1.23.
RSI is still showing negative sentiment but RSI divergence could be building as illustrated by the dashed blue line. However, the trend in GBPUSD is still down and could dip down to strong support at around 1.20 level
If GBPUSD Is breaking above the upper falling trend line it could be a strong indication of a correction unfolding. Resistance at around 1.2275
USDJPY is slowly ticking higher forming a rising wedge like pattern. There is no strong resistance until around 152 but a sell-off could hit before USDJPY is reaching that level. If USDJPY is breaking bearish out of the wedge i.e., below the lower rising trendline a move down to support at around 146.45 could be seen. Minor support at 148.50
If breaking bullish out of the wedge i.e., above the upper rising trendline the wedge pattern has been demolished.
RSI divergence is indicating a bearish breakout. However, if RSI is closing above its horizontal dashed line the divergence is cancelled. A bullish USDJPY break out of the wedge is likely to do that (pushing RSI above the dashed line thus cancelling the divergence) That would pave the road to 152 for USDJPY.
Dollar Index correction was very limited before bidders took back control. The Dollar Index is still above the lower rising trendline in the channel pattern and moving towards strong resistance at around 107.90
Now also RSI divergence is building – jury’s still out however, but indication is there and the Index could see trend exhaustion before hitting 107.90.
If breaking below lower rising trendline and below 105.34 a correction down to around 104.39 could be seen
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach