Next 24 hours: Yen Shines Bright in Thursday Trade
Today’s report: BOJ Shocks Market, US GDP Ahead
The big story on Thursday has been the fallout from the Bank of Japan policy decision. Earlier today, the BOJ caught the market off guard, leaving policy on hold. Looking ahead, key standouts on Thursday's economic calendar include, German unemployment, Eurozone confidence readings, German inflation, US GDP and US initial jobless claims.
Wake-up call
Chart talk: Major markets technical overview video
- German unemployment
- retail sales
- BOJ shocks
- solid offers
- clear underperformer
- OIL recovery
- less dovish
- US GDP
- alternative investment
- USDMXN
Suggested reading
- Managing Debt in an Overleveraged World, M. Spence, Project Syndicate (April 27, 2016)
- The Failure of Hedge Fund Neutrality, L. Abramowicz, Bloomberg Gadfly (April 27, 2016)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market is finally showing signs of topping out after stalling ahead of critical medium-term resistance at 1.1500. The recent break below 1.1234 strengthens this outlook and exposes deeper setbacks in the sessions ahead towards next key support at 1.1145 further down. Any rallies from here are expected to be well capped ahead of the recent 2016 peak at 1.1465.
EURUSD – fundamental overview
Price action in the Euro was rather subdued in the aftermath of the FOMC decision, with the market getting very little from the monetary policy statement. While the Fed did scale back its concern for global risk, this was offset by a cautious tone reflecting a potential commitment to remain on hold for the time being. Looking ahead, plenty of data to take in, with German unemployment, Eurozone confidence readings and German inflation kicking things off, followed by US GDP and initial jobless claims.
GBPUSD – technical overview
The latest break and daily close above 1.4515 suggests the market could finally be poised to carve a meaningful base. Look for this outlook to be strengthened on a push above 1.4668 in the sessions ahead. However, inability to establish back above 1.4668 will keep the medium-term pressure on the downside and open the door for another drop.
GBPUSD – fundamental overview
The impressive recovery run in the Pound could finally be running out of steam, with the UK currency unable to extend gains on Wednesday, despite an on net, better than expected UK GDP reading and more polls showing the Bremain camp in the lead. It seems the focus for the Pound may have been more on the disastrous UK CBI retail sales survey, suggesting the economy will slow more than expected this quarter. Not much reaction to a fairly balanced and neutral FOMC decision. Looking ahead, lack of first-tier UK data will leave the market focused on US GDP and initial jobless claims.
USDJPY – technical overview
The corrective rally out from recent yearly and multi-month lows in the 107.00s has stalled out. The market is adhering to the prevailing downtrend and now possibly looking to carve the next lower top ahead of a fresh downside extension towards a measured move at 106.50. A break back above 111.89 would be required to delay the bearish outlook.
USDJPY – fundamental overview
The market was caught off guard in a big way early Thursday after the BOJ left policy on hold. The ensuing collapse in the price of USDJPY was clearly reflective of this fact, with the major pair more than tripling its average daily range. Expectations going into the decision were that the BOJ would add some new stimulus measures and the letdown triggered a heavy round of stop loss selling in the major pair. The BOJ also went ahead and pushed out the timeline for its inflation target objective to 2017, while maintaining it would ease further if needed. It’s more clear now that after recently adding stimulus and moving to negative rates, the BOJ would like to allow for more time to see these latest moves work through the system before considering fresh measures. Looking ahead, US GDP and initial jobless claims stand out.
EURCHF – technical overview
The latest round of setbacks from fresh multi-month highs at 1.1200 have been well supported, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to continue to be supported above 1.0800, in favour of a higher low and the next major upside extension through 1.1200, towards 1.1500 further up. Only a close below 1.0810 would delay the outlook.
EURCHF – fundamental overview
Many traders have assigned the latest recovery in the cross rate to SNB action that ultimately will have a hard time supporting the market should risk sentiment roll over. There have been signs of potential topping in equities markets and if this intensifies, it will invite renewed unwanted demand for the safe haven Franc. Dealers cite sizable offers into 1.1000 with no buy stops reported until above 1.1025. The SNB remains committed to a policy of weakening the Franc, but it will be interesting to see how the central bank’s efforts fair in the event of a risk liquidation.
AUDUSD – technical overview
An impressive run for this pair could finally be stalling out after extending gains to fresh 2016 highs. The run is starting to look a little stretched and there is risk for a pullback and potential bearish resumption. Still, a break back below 0.7477 would be required to strengthen this outlook and take the immediate pressure off the topside. Until then, a test of next key medium-term resistance in the 0.7850-0.8000 area should not be ruled out.
AUDUSD – fundamental overview
Setbacks in the Australian Dollar have finally been supported in the aftermath of Wednesday’s shockingly soft Aussie inflation data. Still, Aussie remains the standout underperformer on the week and is at risk for deeper setbacks with odds for an RBA rate cut in June increasing dramatically, to well over 50%. We didn’t see much of a reaction to the on balance neutral Fed policy decision, though Aussie did extend declines against the New Zealand Dollar after the RBNZ came out less dovish than expected. Looking ahead, the market will take in US GDP and initial jobless claims.
USDCAD – technical overview
Overall, pressure remains on the downside, with the market taking out next major support in the form of the October 2015 base at 1.2832 and extending into the 1.2500s thus far. The breakdown now opens the door for the possibility of a fresh downside extension towards a measured move at 1.2500 before any form of a base and meaningful bounce. Back above 1.2990 would be required to take the immediate pressure off the downside.
USDCAD – fundamental overview
For the moment, the fate of the Canadian Dollar mostly rests on the direction in the OIL market, with the recovery in the black gold fueling a good deal of demand in the correlated commodity currency. Still, economic data has also been solid as reflected through last week’s impressive Canada retail sales and hotter CPI. Meanwhile, on the other side, data out of the US has been less than impressive, with this week’s below forecast durable goods and consumer confidence only adding to the Loonie’s bid tone. Not much of a reaction to an on balance, as expected FOMC policy decision. Looking ahead, the key focus on the economic calendar will be on US GDP and US initial jobless claims.
NZDUSD – technical overview
Despite gains to fresh 2016 highs, the market still remains confined to a broader downtrend with rallies expected to be well capped around the key psychological barrier at 0.7000. Still, a break back below 0.6759 will be required to strengthen the bearish outlook and expose fresh declines towards next key support at 0.6546 further down. Ultimately, only a weekly close above 0.7000 compromises the bearish outlook.
NZDUSD – fundamental overview
Any expectations the RBNZ would upgrade its easing bias on Thursday were sorely let down after the central bank left policy on hold and failed to signal any certainty for additional rate cuts at upcoming meetings. While the RBNZ did still maintain an accommodative stance, the policy decision was on net Kiwi positive. Clearly this was reflected in OIS pricing, with odds for a June cut dropping from 88% to 58%. Looking ahead, the key focus for the remainder of the day will be on US GDP and initial jobless claims.
US SPX 500 – technical overview
This latest multi-day rally is classified as corrective, with any additional upside expected to be well capped below 2100 on a weekly close basis in favour of the next major downside extension below 1800 and towards a measured move at 1500 further down. Look for a break back below 2021 to strengthen this outlook and accelerate declines.Ultimately, only a weekly close above 2100 will delay.
US SPX 500 – fundamental overview
Stocks have extended the impressive rally out from the 2016 low in February, breaking to fresh yearly highs in the previous week back above 2100, within a stone’s throw from the 2015 record high. But the stock market is also once again looking vulnerable at lofty heights, with the rally continuing to feel like it has very little behind it. The fact that monetary policy is exhausted on a global scale is not something that should be a comfort to investors. Moreover, there is clearly a debate going on within the Fed and the case for slowing down the normalisation process may not be as much of a done deal as the market is pricing, something that could once again spook investors. The market hasn’t done much to react to this latest on balance, neutral monetary policy statement and will now look ahead to today’s US GDP and initial jobless claims results.
GOLD (SPOT) – technical overview
The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1191. From here, any setbacks should be well supported ahead of 1191, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.
GOLD (SPOT) – fundamental overview
Overall, GOLD has been very well supported in recent dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and extended global equities. Whether the US Dollar is bid is becoming less relevant, with risk sentiment likely to be the primary driver going forward. Renewed weakness on this front will continue to bolster the yellow metal. Looking ahead, US GDP and initial jobless claims are the key standouts.
Feature – technical overview
USDMXN finally looks poised to start thinking about turning back up after a period of intense correction from earlier this year. Overall, the structure remains constructive, with the most recent dip supported ahead of 17.0000. Look for a break and close back above 17.9900 over the coming sessions to strengthen the outlook. Ultimately, only a weekly close below 17.0000 would give reason for pause.
Feature – fundamental overview
The Peso has received a bit of a boost from this week’s solid Mexico retail sales, disappointing round of US data and higher OIL prices. However, global risk appetite remains the key determinant in this market’s direction and with signs of risk coming off again, the emerging market currency could come back under pressure. We didn’t get much of a reaction from the Wednesday FOMC decision, though volatility could pick up today with US GDP and initial jobless claims due.