Next 24 hours: Aussie and Cad Move On US Holiday Tuesday
Today’s report: How Legit is the Dollar’s Run?
It would be premature to read too much into this US Dollar recovery, especially amidst the lighter US holiday trading conditions. But at the same time, the move has been healthy enough to turn heads and it will be interesting to see if the Buck can build on the momentum.
Wake-up call
Chart talk: Major markets technical overview video
- ECB speak
- inflation report
- Strong ISM
- global risk
- digests RBA
- higher OIL
- GDT auction
- Artificial support
- Macro accounts
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Mesas, Valleys, Plateaus, and Cliffs, J. Hussman, Hussman Funds (June 30, 2017)
- US-China Tensions Rising, J. Han, Financial Times (July 3, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
This latest break to fresh 2017 highs beyond 1.1300 has confirmed a higher low at 1.1110 opening this latest extension towards 1.1500, which also coincides with critical longer-term resistance in the 1.1400-1.1700 area. But daily studies are looking stretched, suggesting any additional upside could be difficult, with the greater risk building for some form of a meaningful bearish reversal in the sessions ahead. Still, the uptrend in 2017 is well intact and a break below back below a confirmed higher low at 1.1110 would be required to shift the broader focus back to the downside.
EURUSD – fundamental overview
The Euro finally relented in Monday trade, with the single currency retreating from a 2017 high set in the previous week. The move happened in a lighter, thinner market, with many in the US already off the desks celebrating an extended July 4th long holiday weekend. It seems the combination of profit taking into the 4th, an extended period of Dollar weakness, strong technical resistance and some well received US data in the form of ISM manufacturing, all helped to propel the Buck. Eurozone manufacturing PMIs were solid, but any positives from the data were offset by the US Dollar supportive drivers and dovish comments from ECB’s Mersch and Weidmann. Looking ahead, the US market is closed and the only standouts on the day come from Eurozone producer prices and an ECB Praet speech.
GBPUSD – technical overview
The market has entered a period of choppy consolidation over the past several sessions but is now expected to be very well supported on dips in favour of a higher low and bullish continuation towards a measured move extension objective at 1.3500 in the weeks ahead. A breakout above critical resistance at 1.2775 back in April triggered a structural shift in the major pair warning of a longer-term base. Only back below 1.2360 would compromise this outlook. Still, in the shorter-term, choppy consolidation in the 1.2500-1.3000 area should not be ruled out before the market ultimately breaks higher.
GBPUSD – fundamental overview
UK manufacturing PMIs came in softer than expected on Monday and this put some initial downside pressure on the Pound, before setbacks accelerated as the day went on, with the market booking profits on longs ahead of the US July 4th holiday. The Pound stalled just shy of its 2017 high from May at 1.3048, with the bearish reversal that ensued ending a sequence of multi-session gains. Also seen influencing the weaker Pound was US Dollar demand from an impressive US ISM manufacturing print. Looking ahead, trading conditions will be thin with the US market closed for holiday, though we do get some UK construction PMI data and the UK inflation report hearings, which could factor into price action.
USDJPY – technical overview
Despite the latest recovery rally, the overall pressure remains on the downside. In the interim, look for any additional upside to remain capped below 114.00, though only a break back above the recent high at 114.37 will negate the outlook and take the pressure off the downside.
USDJPY – fundamental overview
The more hawkish policy trajectories at the Fed, ECB and BOE have unquestionably impacted the Yen in recent days, with the Japanese currency tracking lower as yield differentials widen in favor of the US Dollar, Euro and Pound. Meanwhile, US equities continue to be supported at every turn, refusing to show any signs of sustained weakness, contributing further to Yen weakness on the traditional inverse correlation with risk. Certainly Monday’s impressive US ISM manufacturing print, at its highest level since August 2014, contributed to this latest push through stops above 113.00. However, there is risk all of this central bank hawkishness spooks the global equities market, which could inspire renewed Yen demand on traditional correlations (USDJPY lower). Looking ahead, trading conditions are expected to thin out quite a bit, with the US closed for the July 4th holiday.
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 1.0800 would renew downside pressure.
EURCHF – fundamental overview
Overinflated, record high US equities 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 have an extremely difficult time offsetting, irrespective of the central bank’s negative rate policy and intervention efforts. The SNB is hoping global sentiment will remain artificially elevated and the ECB will continue to paint a more hawkish picture. But it looks like it really should come down to 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
Despite the latest rally, the market continues to be very well capped into medium-term resistance around 0.7800. Ultimately, any moves to the topside are therefore classified as corrective with the market expected to stall out and roll over again. Look for a break back below 0.7536 to strengthen this outlook and accelerate declines.
AUDUSD – fundamental overview
An impressive run has stalled out for now, with medium-term players stepping in on the offer as the market trades into a critical resistance zone ahead of 0.7800. Monday’s wave of broad based US Dollar demand has been behind a good portion of the pullback into Tuesday, after US ISM manufacturing came in stronger than expected. Still, Aussie setbacks have been somewhat supported, helped along by an early Tuesday release of much better than expected Aussie retail sales. The market will now spend the remainder of the day digesting the fallout from this latest RBA policy decision.
USDCAD – technical overview
The latest round of setbacks have taken the pressure off the topside for now, with the market trading back into a longer-term range. The recent break below 1.3200 has opened the door for a more pronounced decline through major psychological support at 1.3000. Ultimately however, the longer-term uptrend remains intact and setbacks should be well supported below the 1.3000 barrier. Still, we would now need to see a bounce in the sessions ahead and break back above 1.3044 at a minimum to strengthen the constructive outlook.
USDCAD – fundamental overview
This latest wave of central bank hawkishness has not been lost on the Bank of Canada by any stretch, with BoC Governor Poloz putting a stamp on the central bank’s shifting outlook last week. Odds for a 2017 BoC hike have ramped up considerably and this has been a major prop for the Loonie, with one Canadian bank even calling for a rate hike as soon as the upcoming meeting on July 12th. Of course, talking the Loonie without talking OIL is a hard thing to do, and last week’s healthy recovery in the commodity provided another excuse to pile into Canadian Dollar longs. Still, the Loonie’s run is now looking like it could be overdone, with profit taking kicking in on Monday, even in the face of another round of gains in the price of OIL. Positioning ahead of the US July 4th holiday and an impressive US ISM manufacturing print have been primary drivers behind the bearish reversal day for the Canadian Dollar. Looking ahead, trading conditions will be exceptionally thin in North America, with the US out on holiday. This will leave the primary focus on Canada manufacturing data.
NZDUSD – technical overview
Despite the intense surge over the past several days, the overall pressure remains on the downside with the market expected to be very well capped in the 0.7300s. The longer-term chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. Only a clear break back above 0.7400 would compromise the outlook, while back below 0.7186 strengthens the bearish case.
NZDUSD – fundamental overview
The New Zealand Dollar has put in an impressive rally over the past several days, but is starting to show signs of exhaustion. Monday’s round of broad based US Dollar demand, helped along by an impressive US ISM manufacturing reading has contributed to this latest minor slide. Meanwhile, data out of New Zealand has been softer of late, while fear of vulnerability in global equities is acting as an additional strain at what many argue to be elevated levels for Kiwi. Looking ahead, trading conditions will be thinner on Tuesday given the US closure for July 4th but we could see Kiwi volatility anyway on fallout from this latest RBA decision and in reaction to the GDT auction due later on.
US SPX 500 – technical overview
The record run continues with the intense bullish momentum intact and the door open for that next push towards a measured move extension at 2480. Any setbacks have been exceptionally mild thus far and at a minimum, a break back below 2400 would be required to take the immediate pressure off the topside. But only a break below 2320 would signal a meaningful shift in the structure.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it’s easily supported into any dip and can keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on forward guidance. But this bet will be put to the test in a big way going forward, with the Fed upgrading its commitment to policy normalisation and other major central bank jumping on the monetary policy reversal bandwagon. The major takeaway is that central banks are sending a clear message that an era of artificial support is finally coming to an end.
GOLD (SPOT) – technical overview
The market has come under intense pressure since rallying to a fresh 2017 high in June, with setbacks accelerating. However, overall, setbacks have been very well supported for many months now, with the yellow metal putting in a series of higher highs and higher lows since basing out in 2016. As such, look for additional declines to be limited, with the market ideally holding above the previous higher low at 1214 on a daily close basis ahead of the next major upside extension and bullish resumption.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about 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 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
USDZARÂ is showing signs of the formation of a meaningful base since bottoming out around 12.30 earlier this year. The latest push back above 13.21 strengthens this outlook and sets the stage for a continuation of gains towards next key resistance at 13.71 further up. Any setbacks should ideally be well supported ahead of 12.55, with only a break back below this level to negate the constructive outlook.
Feature – fundamental overview
The South African Rand is finally succumbing to a wave of negative drivers including domestic woes, US Dollar supportive yield differentials and a potentially vulnerable global equity market. On the local front, the focus right now is on the ANC conference, scheduled to run until tomorrow. The government has been under intense pressure, given an endless stream of corruption accusations. Meanwhile, the debate on the opposition motion of no-confidence in Zuma also hangs in the balance and is scheduled for next month. Monday’s broad based wave of US Dollar demand has further contributed to Rand weakness, with the setbacks in the EM currency driven off solid US ISM manufacturing.