US Dollar closes 2023 on the back foot

Today’s report: US Dollar closes 2023 on the back foot

This will be our last update for 2023 and we wish everyone out there a very happy, healthy and meaningful New Year. As we look at where things stand as the year closes out, a lot of what we’re seeing has been decided in the closing weeks of the year.

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

The Euro has been in a multi-month consolidation since bottoming out in 2022. Setbacks have since been exceptionally well supported on dips below 1.0500, with a higher platform sought out ahead of the next major upside extension. Look for a push through the yearly high at 1.1276 to strengthen the constructive outlook and extend the recovery run towards 1.2000. Only back below 1.0400 negates.

  • R2 1.1150 – 27 July high – Strong
  • R1 1.1140 - 28 December high – Medium
  • S1 1.1029 - 27 December low – Medium
  • S2 1.0994 – 22 December low – Strong

EURUSD – fundamental overview

The Euro remains well supported overall on diverging central bank policy developments in December. The Fed has shifted more dovish, while the ECB has been less dovish. This has resulted in a push to 5 month highs against the US Dollar. ECB Holzmann was on the wires saying it was premature to talk rate cuts. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The November 2022 monthly close back above 1.2000 strengthens this prospect. Any setbacks should now be well supported ahead of 1.2000. Next key resistance comes in at 1.2849.

  • R2 1.2849 – 2023 16 June high – Strong
  • R1 1.2828 – 28 December high – Medium
  • S1 1.2698 – 27 December low – Medium
  • S2 1.2612 – 14 December low – Medium

GBPUSD – fundamental overview

A report out from PwC got some attention after forecasting falling inflation would help the UK economy turn a page in 2024. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

USDJPY – technical overview

The market remains confined to a strong uptrend, with sights set on a retest and break of the multi-year high from 2022 at 151.95. A push through this level will open the next major upside extension towards 155.00. Key support comes in at 140.00, with only a weekly close below to delay the constructive outlook.

  • R2 144.96 – 19 December low – Strong
  • R1 142.85 – 27 December high – Medium
  • S1 140.25 – 28 December low – Medium
  • S2 140.00 – Psychological – Strong

USDJPY – fundamental overview

The Yen has retained a bid tone into the end of the week on the back of broad based US Dollar selling, comments from BOJ Ueda that odds of removal of negative rates in 2024 are not zero, and better than expected Japan industrial production and retail sales numbers. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base with the market trading down into a meaningful longer-term support zone. Only a monthly close below 0.6200 would give reason for rethink. Back above 0.6900 will take the big picture pressure off the downside and strengthen case for a bottom.

  • R1 0.6900– 16 June high – Strong
  • R2 0.6871 – 28 December high – Medium
  • S1 0.6724– 21 December low – Medium
  • S2 0.6655 – 14 December low – Medium

AUDUSD – fundamental overview

Risk assets have been bid, Chinese authorities have steadily ramped up support for the economy, while the price of iron ore has surged and the US Dollar sells off across the board. All of this has helped the Australian Dollar into year end. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

USDCAD – technical overview

Above 1.3000 signals an end to a period of longer-term 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.

  • R2 1.3415 – 15 December high – Strong
  • R1 1.3293 – 22 December high – Medium
  • S1 1.3177 – 27 December low– Medium
  • S2 1.3119 – 20 July low – Strong

USDCAD – fundamental overview

The latest run of renewed weakness in the Canadian Dollar and relative underperformance seems to be coming from a notable pullback in the price of oil. Canada's CFIB business barometer reading rose, though small and medium business optimism levels remain low. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

NZDUSD – technical overview

Overall pressure remains on the downside with the market continuing to stall out on runs up into the 0.6500 area. At the same time, there are some signs of the market wanting to put in a longer-term base. Ultimately, a break back above 0.6500 would be required to take the medium-term pressure off the downside and encourage this prospect. A monthly close below 0.5800 will intensify bearish price action.

  • R2 0.6412 – 14 July high– Strong
  • R1 0.6370 – 28 December/2023 high – Medium
  • S1 0.6232 – 21 December low – Medium
  • S2 0.6170 – 14 December low – Strong

NZDUSD – fundamental overview

Ongoing demand for the New Zealand Dollar has been driven off big picture flows around the Fed pivot, higher stocks, and higher commodities. On the data front, New Zealand in-store Boxing Day retail sales slipped 0.6% from a year ago, though the loss was offset by a 14% year over year rise in sales from liquor marts and food outlets. Looking ahead, the only notable release on the calendar comes from Chicago PMIs.

US SPX 500 – technical overview

Longer-term technical studies continue to look quite extended, begging for a deeper correction ahead. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close back above 4800 will be required to delay the outlook. Next key support comes in at 4536.

  • R2 4800 – Round Number – Strong
  • R1 4795 – 28 December/2023 high – Medium
  • S1 4643– 13 December low – Medium
  • S2 4536 – 30 November low – Strong

US SPX 500 – fundamental overview

The Fed has finally bent to the will of the market into year end, with the December policy decision revealing rate projections coming down from previous and more in line with what the market has been looking for. This has translated to more investor friendly policy going forward, which could now open the door for a run to fresh record highs in 2024. At the same time, we worry inflation remains a risk both the market and Fed are not taking as seriously as needed, which could once again force the Fed back into a more restrictive path and weigh heavily on stocks.

GOLD (SPOT) – technical overview

The 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 1900 on a monthly close basis ahead of the next major upside extension towards 2500.

  • R2 2175 – 4 December/Record high– Strong
  • R1 2100 – Round Number – Medium
  • S1 2015 – 15 December low – Medium
  • S2 1973 – 13 December low – Strong

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 inflation risk and a less stable and 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.

Peformance chart: YTD Performance vs. US dollar (%)

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