Next 24 hours: Canadian Dollar Extends Run in Quiet Monday
Today’s report: No Love for the US Dollar into Fed Week
As far as the big picture goes, it continues to be a story of a distaste for the US Dollar, with outflows ramping up and speculative positioning back to extreme Dollar bearishness on a plethora of negative Dollar drivers, leaving the Buck at a 13 month low.
Wake-up call
Chart talk: Major markets technical overview video
- manufacturing PMIs
- Michael Gove
- USD weakness
- Franc appreciation
- post Debelle
- retail sales
- FinMin Joyce
- Fed meeting
- Exhausted CB
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Ethical Investing is Taking Off, J. Kynge, Financial Times (July 21, 2017)
- ‘Tiger’ Investors Chase Around Like Cubs, N. Kaissar, Bloomberg (July 21, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
This run of 2017 highs has finally extended into a major longer-term range resistance zone in the 1.1500 to 1.1700 area. This comes at a time when daily studies are looking stretched, suggesting any additional upside could be difficult, at least over the short-term, with the greater risk building for some form of a meaningful bearish reversal. But the market may want to take out that monumental range high from 2015 at 1.1715 first, before it considers finally relenting into an anticipated period of healthy correction. Right now, a daily close below 1.1620 would be required to take the immediate pressure off the topside.
EURUSD – fundamental overview
The Euro has rallied up to its highest levels in nearly 2 years, with the latest jump coming in the aftermath of last Thursday’s ECB policy decision. While there was nothing overly hawkish in the event risk, the market chose to speculate the ECB would begin unwinding its QE programs in due course. At the same time, US data has been struggling, the Fed Chair has been less hawkish and doubts over the ability for President Trump to be able to implement economic reform have increased. Dealers are now talking major buy-stops above the 2015 peak at 1.0715. As far as today’s data goes, key standouts come in the form of German manufacturing PMIs, US manufacturing and US existing home sales.
GBPUSD – technical overview
Although the market has managed to extend to a fresh 2017 high in recent trade, the market continues to struggle to sustain gains beyond 1.3000. On a medium to longer-term basis, the breakout in April through 1.2775 does suggest the major pair has put in a meaningful base off the October 2016 +30 year low at 1.1840. Still, on a short-term basis, there is risk for more choppy consolidation in the 1.2500 to 1.3000 area before seeing that next big push to a measured move extension objective at 1.3500.
GBPUSD – fundamental overview
The Pound was the only major currency to underperform in the previous week, despite pushing up to a fresh 2017 high. But the market was unable to sustain the rally, weighed down on softer UK inflation readings and ongoing worry over the outlook for the UK economy in the world of Brexit. Brexiteer Michael Gove shook things up a bit on Friday after saying the UK would be willing to allow EU citizens to enjoy free movement until after Brexit, possibly suggesting the cabinet uniting behind a plan to exit the bloc. Still, an ongoing wave of US Dollar selling and solid UK retail sales have perhaps helped to limit setbacks in the Pound somewhat. Looking ahead, the only notable standouts on the calendar come from US manufacturing and existing home sales data.
USDJPY – technical overview
The market remains confined to a multi-day range. The latest topside failure above 114.00 strengthens this outlook, leaving the door open for a drop back towards range support in the 108.00s, also coinciding with the 2017 low from April. Ultimately, it would take a clear break through 115.50 to negate this outlook and shift the focus back on the topside.
USDJPY – fundamental overview
Last Thursday’s dovish leaning BOJ decision hasn’t been enough to weaken the Yen, despite the central bank pushing out the date it expects to meet its inflation target. Record high US equities have also been unsuccessful in weakening the Yen of late. For the moment, the broad based selloff in the US Dollar on the back of struggling US data, a less hawkish Fed Chair and more trouble at the White House, increasing speculation the President will not be able to deliver economic policy reform, have all been playing a larger part in the flows, with the Yen rallying impressively over the past week. Looking ahead, the only notable standouts on the calendar come from US manufacturing and existing home sales data.
EURCHF – technical overview
The market has pushed up to a fresh 2017 high through a critical psychological barrier at 1.1000, opening the door for an extension to retest the major 2016 peak at 1.1200. Only a break back below 1.0980 would take the pressure off the topside.
EURCHF – fundamental overview
Elevated risk sentiment is a big friend to an SNB committed to doing what it can to discourage appreciation in the Franc and this along with hawkish ECB expectations and ongoing SNB activity have helped to push this exchange rate back above the 1.1000 psychological barrier. However, the SNB could have a much tougher battle on its hands in the days ahead if it wishes to keep the Franc from appreciating. Any capitulation in US equities is likely to rattle global sentiment and invite an intense wave of unwanted Swiss Franc demand on the safe haven flow.
AUDUSD – technical overview
The latest surge through major resistance in the 0.7800 area suggests the market could be in the process of carving out a meaningful longer-term base. The next major resistance level comes in at 0.8163, the high from May 2015. A clear break above there would confirm the bullish structural shift. However, shorter-term technicals are now well overextended and risk is building for a healthy bearish reversal in the sessions ahead. A daily close below 0.7876 would set up this anticipated pullback.
AUDUSD – fundamental overview
The Australian Dollar is starting to show signs of wanting to reverse lower following an impressive run through major technical resistance at 0.7800. Last week’s hawkish RBA Minutes and continued selling in the US Dollar were the primary drivers of the Aussie gains, though early Friday, Aussie got a bit of a reality shot on the back of comments from RBA Deputy Governor Debelle. The central banker downplayed any hawkishness from the RBA Minutes as being misconstrued, while he also made an effort to express discomfort with such a strong currency. We have since seen the Australian Dollar under mild pressure which could intensify if stops are taken out below 0.7850. Of course, broad based US Dollar outflows have helped to mitigate the weakness and if the US Dollar selling persists, the Australian Dollar could hold up for a break of 0.8000. Looking ahead, as far as the economic calendar goes, the only notable standouts come from US manufacturing and existing home sales data.
USDCAD – technical overview
There has been a clear shift in the outlook for this market over the past several days, with declines holding below 1.3000 and the market extending to fresh 2017 lows in the 1.2500s thus far. Technical studies are tracking in oversold territory, though a bounce may not come until the market retests the 2016 low at 1.2461. A daily close back above 1.2700 would now be required to take the immediate pressure off the downside.
USDCAD – fundamental overview
The Canadian Dollar has extended its impressive run in 2017, with the currency up nearly 10% since trading at 2017 lows in early May. The Bank of Canada’s hawkish policy shift that resulted in its first rate hike in seven years comes at a time when the Fed has been sounding less hawkish, US economic data isn’t pretty and the US administration continues to battle intense headwinds. Friday’s mostly in line Canada inflation data (core higher) and much better Canada retail sales have kept the Loonie trading at 2017 highs. Still, with the Loonie running so far and fast and with the Fed possibly scaling back as per Yellen’s recent testimony, it wouldn’t be unrealistic to start hearing messages from the BoC in the days ahead that shift back to less hawkish side. Looking ahead, Canada wholesale sales, US manufacturing and US existing home sales are the key standouts.
NZDUSD – technical overview
Despite an impressive rally in recent weeks, the market remains confined to a longer-term range, with strong resistance into the 0.7400-0.7500 area. As such, look for this latest run to stall out in favour of a more pronounced bearish reversal. Only a clear break back above 0.7500 would compromise the outlook, while a daily close back below 0.7394 strengthens the bearish case.
NZDUSD – fundamental overview
The New Zealand Dollar has extended its run to a fresh 2017 high, with some of the gains coming from New Zealand FinMin Joyce comments. The official wasn’t bothered by recent Kiwi strength, saying firms were coping well with an exchange rate justified by macro data. Still, it’s hard to ignore last week’s soft Kiwi inflation data and overall lackluster GDT auction results. But with the US Dollar getting hit hard across the board, with US equities at record highs, with commodities in recovery mode, and with the US administration continuing to battle intense headwinds, all of this has more than offset any of the Kiwi negatives as far as its relationship with the US Dollar goes. Looking ahead, as far as the economic calendar goes, the only notable standouts come from US manufacturing and existing home sales data.
US SPX 500 – technical overview
The market has extended its record run, trading into a key measured move extension objective at 2480. Setbacks continue to be quite shallow and only a daily close back below 2400 would take the immediate pressure off the topside.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it can hold up 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. Janet Yellen played right into the market’s hand earlier this month, when the Fed Chair’s overall tone was quite a departure from recent messages since the June Fed meeting. Yellen was decidedly less hawkish, expressing upgraded concerns about low inflation, while also adding rates would only need to go a little higher before policy was at a neutral level. Meanwhile, the market continues to shrug off a downturn in US economic data and a never ending string of turbulence out of the White House. Looking ahead, this week’s Fed meeting will likely have an impact on equity market sentiment, with anything that confirms a move back to the dovish side fueling more gains, while anything pushing back to the hawkish to likely inspire an intense round of profit taking.
GOLD (SPOT) – technical overview
Setbacks have been well supported ahead of 1200, with the latest push back above 1230 setting the stage for a bullish resumption towards 1300. Only below 1200 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 exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity supported around 1200, 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 will hold up 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. A recent push back above 13.00 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 Rand has held up exceptionally well despite last week’s surprise SARB move to cut rates for the first time in 5 years. The deteriorating growth outlook had the central bank wanting to lean in this direction and an improving inflation outlook allowed the central bank to make the move. And yet, with broad US Dollar selling continuing to be a major theme and with US equities sitting at record highs, the Rand has been able to hang on even with the lower rates. But overall, there is risk for renewed Rand downside when considering South Africa political instability including a never ending string of Zuma corruption charges, recessionary forces, yield differentials shifting in favor of the major central banks and the looming prospect for a material reversal in elevated global equities.