Special report: US Jobs – Forget About NFPs
Today’s report: Why FX Moves Have Been Contained this Week
It's been a mixed bag for the developed currencies since the weekly open, though the moves have been mild, confined to well within 1% against the US Dollar. A lot of the contained price action could have something to do with the fact that we still have today's major event risk in the form of the US jobs report.
Wake-up call
Chart talk: Major markets technical overview video
- macro picture
- Pound outperforming
- jobs report
- intervention efforts
- external risk
- OIL
- Macro players
- data recovery
- US Dollar
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- How the Pound is Trading Ahead of the UK Election, M. Hunter, Financial Times (May 31, 2017)
- Today’s Brexit Barometer, Brexit Team, Bloomberg  (June 1, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market is showing signs of short-term exhaustion after extending its 2017 run. But with the medium-term structure still quite bullish, any setbacks that we do see in the sessions ahead should ideally be well supported in favour of the next higher low and bullish continuation towards key resistance around 1.1365, which represents the August 2016 peak. Only a break back below 1.1110 would now take the immediate pressure off the topside.
EURUSD – fundamental overview
Despite softer Eurozone inflation data this week and an overall healthy batch of US data, the Euro has held up well, consolidating just off recent 2017 highs. It seems the market is more comfortable waiting for more clarity from today’s US employment report, which could have a meaningful impact on Fed rate hike prospects for the remainder of 2017. Thus far in 2017, we have seen a reduction in Euro area structural risk with Eurozone economic data picking up and ECB officials talking about policy reversal (Draghi is an exception which could also be capping gains a bit). Meanwhile on the other side, the combination of soft US Dollar protectionist policy and softer US economic data have been weighing on the Buck. Until there is a shift here, the Euro should remain well bid. One component that could change this picture in today’s US jobs report is the hourly earnings component. If it ticks up, it could invite profit taking on Euro longs as it suggests the Fed will be needing to think about raising rates more than one time this year on the inflation implication. Other data out today includes Eurozone producer prices and the US trade balance.
GBPUSD – technical overview
This latest push through 1.2775, the December 2016 peak, is a significant development as it potentially ends a period of bearish consolidation, warning of the formation of a more meaningful longer-term base. The break ends a multi week consolidation mostly ranging between 1.2000-1.2700 with the bullish move paving the way for a measured moved upside extension equal in size back into the 1.3500 area in the days ahead. Still, there is risk for a short-term pullback, though any declines are now classified as corrective and should be well supported ahead of 1.2500 in favour of a higher low and bullish resumption.
GBPUSD – fundamental overview
The Pound continues to do a great job holding onto a recent run of gains in 2017 and outperforming on the week, suggesting the market believes the worst is now behind it as far as the Brexit outlook goes. Of course, soft US Dollar policies from the US government and a weak run of US data haven’t hurt the Pound’s cause, with the US Dollar under broad pressure in 2017. Still, there is plenty of risk associated with next week’s UK election and the Brexit process could be a bumpy one whatever the outcome of the election. For now, the market will overlook UK construction PMIs and focus in on the monthly employment report out of the US, which does have the ability to move the market either way, depending on the outcome. The US trade balance is also due but will be overlooked.
USDJPY – technical overview
A recent recovery run off the 2017 low has stalled out, with the market sharply reversing course to the downside. This latest daily close back below 112.00 now exposes a possible retest of the yearly low at 108.13. In the interim, look for any rallies to be well capped ahead of 113.00, with only a break back above the recent high at 114.37 to negate and take the pressure off the downside.
USDJPY – fundamental overview
There has been very little driving the Yen on the domestic front, with the currency continuing to take its cues from external drivers and broader macro themes. As is traditionally the case with this funding currency, most of the flow is predicated on risk sentiment, with any deterioration fueling Yen demand and any increased risk appetite inspiring Yen declines. For the most part, the market isn’t too sure which way it wants to lean right now. Looking ahead, the direction in this major pair will be of particular interest as it could get pulled in both directions from the US jobs report. If the report is strong, it could be Yen bearish because of the potential for a move further in favour of US Dollar yield differentials. At the same time it’s also could be Yen bullish on possible risk off from higher rate prospects. US trade data is also out but will be overlooked.
EURCHF – technical overview
A recent break above 1.0900 has taken the short-term pressure off the downside and could be warning of a more significant structural shift. Next key resistance comes in at 1.1000, with the psychological barrier coinciding with a high from August 2016. The establishment above 1.1000 would force a meaningful shift in the structure and open the door for longer-term upside. At the same time, while the market holds below 1.1000 the overall trend is still bearish and a break back below 1.0865 would renew downside pressure.
EURCHF – fundamental overview
The combination of artificially supported, record high US equities and rising geopolitical tension should be a worry for the SNB as any capitulation on the equity front is likely to invite massive safe haven Franc demand the central bank will be unable to offset, irrespective of negative rate policy. For now, the SNB is hoping global sentiment will remain artificially elevated and the ECB will take on a more hawkish policy approach as per reports the central bank is preparing for a taper (Draghi has not confirmed). But the key focus for this market going forward will unquestionably be on the performance in US equities given the influence on broader sentiment. Any signs of intensification to the downside will likely invite a pickup in Franc demand and unwanted downside pressure on EURCHF.
AUDUSD – technical overview
An impressive rally in 2017 has stalled out into significant medium-term resistance ahead of 0.7800. A recent break back below 0.7500 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7000 area in the days ahead. Ultimately, any moves to the topside are classified as corrective with a fresh lower top sought out and only a break back above 0.7611 to negate the outlook.
AUDUSD – fundamental overview
Although Aussie retail sales came in strong this week and this latest Aussie new home sales print pushed back up, it hasn’t been enough to offset some bearish developments that include softer Aussie capex, fear of a China slowdown and slumping iron ore prices. The market is also trying to figure out if the Fed will in fact follow through with two more rate hikes this year, which would add to Aussie bearishness, and data this past week, along with some hawkish Fed speak is confirming. The focus now shifts to the US employment report. If the report comes in soft, it will likely be supportive of the Australian Dollar as the focus shifts to broad based US Dollar declines and record high stocks. If the data is strong, it could open fresh downside as it increases the likelihood the Fed will follow through with guidance for at least two more hikes this year. US trade data is also out but will be overlooked.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high, beyond a previous peak from December 2016 at 1.3600. A period of healthy correction has now ensued and the market will be trying to carve the next higher low, with any additional weakness likely to be limited in favour of a push towards the next measured move upside extension objective in the 1.4000 area. Ultimately, only back below 1.3224 would give reason for pause and delay the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar is back under pressure this week, with a fresh round of Loonie offers building on the back of some mixed GDP results and another downturn in the price of OIL. Overall, the Loonie remains a sell on rallies for most players out there, with these participants getting some more help from a recent run of better US data and hawkish Fed speak that continues to point to the Fed raising rates two more times this year, something the market continues to bet against. Looking ahead, the market will overlook Canada international trade, Canada labour productivity and the US trade balance, with all of the focus on the US jobs report. But keep an eye on the price of OIL as well.
NZDUSD – technical overview
The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high, with outlook strengthened on a recent break to fresh 2017 lows. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only a daily close back above 0.7100 delays the bearish outlook.
NZDUSD – fundamental overview
New Zealand Dollar demand off recent 2017 lows has picked up, helped along by negative US Dollar sentiment in 2017, more stable commodities prices and an upbeat batch of recent Kiwi data including consumer confidence, the GDT auction, firmer producer prices and trade data. Meanwhile, local dairy giant Fonterra came out last week raising its milk price forecasts to give the currency another prop. But at the same time, with global equities continuing to look like they have run too far and with many out there keeping with bets the Fed will follow through with its policy guidance of two more hikes in 2017, these players are happy to sell Kiwi into rallies. A better run of the US over the past week and hawkish Fed Williams comments are also helping to cap. Looking ahead, all of the focus will be on the US jobs report.
US SPX 500 – technical overview
The market has been unable to break down below major support at 2320 thus far, leaving the pressure on the topside and the door open for that next big record push towards a measured move extension at 2480. However, if setbacks intensify and the market breaks down and closes below 2320, this will signal a shift in the structure and suggest a meaningful top is finally in place ahead of a more significant corrective decline.
US SPX 500 – fundamental overview
There has been a lot of talk about a potential top in the US equity market, with the rally pushing to record highs at an unnerving pace in the face of some disturbing fundamentals including exhausted (and reversing) Fed policy and rising geopolitical risk. And certainly this latest turmoil surrounding the US President has made things even more tense. But overall, the US equity market has done a good job proving it can easily buy back into any dip and keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on its forward guidance promises. Still, with asset prices where they are right now and with the Fed still very capable of following through with guidance in 2017, there is risk it could all come crashing down, with any additional upside limited before a major capitulation. Certainly a better run of US data over the past week and hawkish comments from Fed Williams strengthen the bearish case. Looking ahead, the main focus will be on the US employment report. Interestingly, a strong report with higher hourly earnings could actually weigh on the market as it forces investors to reconsider long exposure with the Fed likely to be more pressured to follow through with guidance.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016, putting in a series of higher lows and higher highs. This latest round of setbacks have been well supported above the previous higher low at 1195, with the 1215 area now sought out as the next higher low ahead of a fresh upside extension beyond the 2017 high at 1295 and towards the 2016 peak at 1375 further up. At this point, only a break back below 1215 would compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity in demand, 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. Certainly the US Dollar back under pressure in 2017 is adding to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid, gold may continue to find bids on risk off macro implications.
Feature – technical overview
USDSGD has been trending lower in 2017, making a series of lower highs and lower lows. The most recent lower top has just been confirmed at 1.4130 following last week’s break to a fresh 2017 low, with the drop now opening the door for the next measured move downside extension into the 1.3600-1.3700 area. At this point, rallies should be well capped ahead of 1.4000, with only a break back above 1.4130 to compromise the bearish outlook.
Feature – fundamental overview
The Singapore Dollar has done a great job overlooking a soft run of data including non-oil domestic exports and disappointing GDP, with the emerging market currency rallying to a fresh 2017 highs on the momentum from a wave of US Dollar selling in 2017. Meanwhile, China’s revamped fix methodology has been another source of additional Singapore Dollar demand.  But we have seen some profit taking on Singapore Dollar longs, with the emerging market currency not wanting to get ahead of itself after this latest run, especially with US data picking back and Fed Williams still leaving the door open for two or even three more Fed hikes this year. Another round of strong US employment data later today could open the door for more profit taking on Singapore Dollar longs.