USD: Goldman Sachs On Monitoring Downside Risks To Its USD View
Goldman Sachs: "For the broad Dollar, the question on investors’ minds is whether we are heading for a 2017-style repeat. That year saw relatively little change on US tax and trade policy, set against more balanced global growth that was helped by foreign fiscal expansion, and the Dollar had its largest drawdown in the post-GFC era. The parallels to today are clear, and the risk of a repeat is rising. However, there are also clear parallels between today and early 2018—when the US announced new steel and aluminum tariffs, was engaged in testy trade negotiations with Canada and Mexico and preparing to raise tariffs on China. And, there are also important differences. Most prominently, better global growth in 2017 was likely supported by China’s earlier stimulus measures that boosted growth around the region and in Europe. Today, China’s fiscal support is more targeted and less global, and we think the potential for European fiscal stimulus looks more modest. Ultimately, our baseline forecasts are more aligned with the 2018 parallels than 2017. But we continue to monitor the important downside risk to our Dollar forecast that the balance of US policy changes and the foreign response is different than we expect. When we drill down into our forecasts for the individual crosses, these risks fall into five categories: i) tariff changes are smaller or later than we expect, ii) the composition of the tariffs is different, iii) the foreign fiscal policy response is greater, iv) foreign currency management is tighter, and v) the monetary policy response to countervailing growth and inflation impulses is more nuanced. While each of these risks is drawing closer, in different ways, we remain comfortable with our baseline forecasts. As a result, our strongest view is that FX markets appear to be underpricing what we perceive as relatively thick tail distributions that should make Dollar calls attractive for a variety of investor types."
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USDCAD TECHS: Key Support Holds For Now
- RES 4: 1.4663 2.0% 10-dma envelope
- RES 3: 1.4564 3.500 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4516 High Jan 21
- PRICE: 1.4327 @ 16:10 GMT Jan 24
- SUP 1: 1.4261 Low Jan 20
- SUP 2: 1.4245 50-day EMA
- SUP 3: 1.4120 Low Dec 11
- SUP 4: 1.4011 Low Dec 5
USDCAD has traded in a volatile manner this week. Recent price action highlights an important short-term resistance at 1.4516, the Jan 21 low and a support at 1.4261, the Jan 20 low. The trend condition remains bullish and a clear breach of 1.4516 would confirm a resumption of the bull cycle. For bears, a clear break of 1.4261 and 1.4245, the 50-day EMA, would instead highlight a possible reversal.
US TSYS: Treasuries Well Off Early Lows After S&P Flash PMIs Decline
- Treasury futures look to finish mildly firmer Friday, well off early session lows after this morning's S&P Global US composite PMI surprisingly fell in the January flash release to its lowest since April after the 55.4 in December marked a 32-month high.
- However, firms' expectations of output over the coming year remain strong looking at policies under the second Trump administration and inflationary pressures saw a four-month high which helped limit the dovish reaction from the headline services miss.
- Meanwhile, U.Mich long-run inflation expectations were trimmed in the final January release from what had been a particularly sharp increase to the highest since 2008. 3.2% is still elevated though, having twice in the past three months exceeded what had been a typical 2.9-3.1% range since mid-2021.
- The Greenback declined during the APAC session as headlines crossed from US President Trump around not wanting to use tariffs on China,. The theme has prevailed throughout the session (later bolstered by weaker than expected US PMI), cementing USD index losses in the region of 0.7%, and extending the weekly decline to around 2%.
- After the bell, the Tsy Mar'25 10Y futures contract trades +3 at 108-15 vs. 108-07.5 low, well within technicals: resistance above at 109-04/109-06 (High Jan 21 / High Dec 31) vs. support at 108-00/107-06 (Low Jan 16 / 13 and the bear trigger). Curves well off early highs, 2s10s +0.110 at 35.143 vs. 38.045 high, 5s30 +0.270 at 41.706 vs. 44.753 high.
AUDUSD TECHS: Pierces The 50-Day EMA
- RES 4: 0.6441 38.2% retracement of the Sep 30 - Jan 13 downleg
- RES 3: 0.6429 High Dec 12
- RES 2: 0.6384 High Dec 13
- RES 1: 0.6331 High Jan 24
- PRICE: 0.6320 @ 16:08 GMT Jan 24
- SUP 1: 0.6245 20-day EMA
- SUP 3: 0.6165/31 Low Jan 17 / 13 and the bear trigger
- SUP 3: 0.6100 Round number support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
A bearish trend condition in AUDUSD remains intact and the recent recovery is considered corrective. However, the pair has traded higher today and in the process pierced resistance at 0.6327, the 50-day EMA. A clear break of the EMA would strengthen a short-term bullish condition and signal scope for a stronger recovery. This would open 0.6384, the Dec 13 high. The key support and bear trigger has been defined at 0.6131, the Jan 13 low.
