Currencies: A sigh of relief

After the sharp swings seen over the past two weeks across several asset classes, investors appear to have regained their composure. As a result, the dollar is once again seeing some profit-taking and is struggling to follow through on the positive price action recorded two weeks ago.

While concerns first hit the technology sector before spreading to precious metals, the market as a whole remains relatively resilient. Investors are not exiting the market broadly, but are rotating, reinvesting in other segments, starting with mid-caps. "Value” stocks are back in favor, at the expense of growth names. While this kind of move is typically seen when traders fear a recession, it is not the case this time. Attractive valuation levels largely explain this rotation, all the more so as analysts have meaningfully raised their earnings expectations for mid- and small-cap stocks. As a result, the S&P 500 is now expected to be carried by the 493 stocks that make it up, while the Magnificent Seven are losing some of their shine.

This week will be marked, from Wednesday, by the delayed release of jobs figures, which were initially scheduled for last Friday but which were delayed, due to the mini shutdown seen in the United States. Unemployment is expected to remain steady at 4.4% with 69,000 job creations, compared with 50,000 recorded the previous month. Inflation data will round out the week with the consumer price index (CPI), due out on Friday. Economists forecast a drop of 0.2% year-on-year to 2.5%.

Technically, the EUR/USD has started a rebound, holding at 1.1794, which should nevertheless run into 1.1925/60 in order to preserve the expected consolidation towards 1.1475. Conversely, a break above 1.1960 would weaken this scenario, even if all is not lost for bears as long as 1.2085 remains a cap. Meanwhile, the USD/JPY briefly moved above 156.45 before running into 157.50, setting up a new consolidation phase towards 153.75/40. The USD/CHF has formed a pullback towards its former congestion area, now resistance at 0.7830. A fresh bearish wave is expected. Amongst commodity currencies, USD/CAD appears to have finished its rebound, with a further decline towards 1.3435. The resistance to watch sits at 1.3765. The aussie is still expected to head towards 0.7130, while the kiwi should move to 0.6170/85, while holding above 0.5925.