Next 24 hours: Yen Not Comfortable with Recent Strength
Today’s report: Investors Relieved into Monday Open
Risk markets have recovered on the Monday open after weekend threats failed to materialise. The market had been worried about a North Korea provocation and catastrophic damage in the US from Hurricane Irma, and was relieved when neither came to fruition.
Wake-up call
Chart talk: Major markets technical overview video
- post ECB
- Big week
- Weekend risk
- Franc weakness
- Dealers report
- jobs disappointment
- card spending
- Sentiment up
- macro demand
- USDSGD
Peformance chart: Five day performance v. US dollar
Suggested reading
- Stanley Fischer's Well-Timed Fed Exit, Mises Institute (September 8, 2017)
- BOJ: Rethinking the Mandate, T. Masanao,  Pimco (August, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has broken out to another fresh 2017 high, with the push beyond 1.2071 confirming a higher low at 1.1824, opening the door for the next measured move extension towards 1.2300. However, at the same time, weekly studies are well overextended, warning that additional upside could soon be limited in favour of a significant bearish reversal. But a break back below 1.1824 would now be required at a minimum to take the pressure off the topside.
EURUSD – fundamental overview
The Euro comes into the new week having digested the latest ECB decision which hasn’t offered much in the way of new insight. However, what little information the market did get, seemed to be enough to inspire a run to another +2.5 year high. The fact that Draghi made no direct attempt to jawbone the Euro was viewed as supportive and has suggested the bulk of QE decisions will be made in October. At the same time, the Euro run is also looking a little tired and the US Dollar could be looking for some momentum on reports Hurricane Irma was not as catastrophic as had been expected. As far as today goes, the economic calendar isn’t a factor, with the only event that stands out coming in the form of a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
GBPUSD – technical overview
The latest bullish reversal out from very strong previous resistance turned support at 1.2775 has opened the door for a healthy rally back towards a retest of the 2017 peak at 1.3268. Still, with technical studies looking a little stretched on the daily chart, any rallies beyond 1.3268 could be limited ahead of another reversal to the downside. Overall, the structure is now constructive, favoring an eventual push into the 1.3500-1.4000 area over the medium-term, but short-term, we still could see some more choppy consolidation.
GBPUSD – fundamental overview
The Pound is coming off an impressive week of performance against the Buck, with the Cable rate running back towards the 2017 high. However, as we have highlighted, there continues to be healthy two way flow, with plenty of offers emerging into this rally. There is certainly quite a bit of risk in the UK this week, which should make Sterling bulls a little more cautious from here. UK CPI and employment are due Tuesday, Wednesday and then followed up by an anticipated Bank of England policy decision on Thursday. Meanwhile, fallout from Hurricane Irma may not have been as bad as expected, which could be helping the Buck into the weekly open. As far as today’s calendar goes, it’s an empty slate on the data front and and the primary focus will be on the UK parliament debate on the repeal Bill before a late vote on whether to proceed to the next stage and a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
USDJPY – technical overview
The market had done a fabulous job holding up above 108.00 despite repeated attempts to break the barrier in 2017. But we have finally seen that bearish break below 108.00 which could set up a bearish structural shift, exposing a deeper drop towards a measured move extension around 102.00. At the same time, inability to sustain the drop below 108.00 in the sessions ahead would suggest a false break in favour of a continuation of the broader range trade, eventually resulting in a push back towards 115.00.
USDJPY – fundamental overview
Clearly there was a lot of worry into the weekend about another North Korea provocation and fallout damage from Hurricane Irma. Both of these threats contributed to some intense downside pressure in the major pair that had it taking out a major barrier at 108.00 on Friday. But with North Korea staying quiet and damage from Irma reported to be not as bad as anticipated, USDJPY has seen a quick recovery back above 108.00 into the Monday open. Looking ahead, the economic calendar is empty and the primary focus will be on a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
EURCHF – technical overview
The market recently pushed up to a fresh 2017 and multi-month high through massive resistance in the form of the 2016 peak at 1.1200, taking the rate above 1.1500 and to its highest level since the collapse of January 2015. However, medium-term studies are unwinding from extended readings, warning of an additional consolidation in the sessions ahead, possibly back into previous resistance turned support around 1.1200, before the market considers a higher low and resumption of gains through 1.1539 and towards 1.2000.
EURCHF – fundamental overview
The sell-off in the Franc in recent weeks has been a welcome development for the SNB, with the central bank committed to weakening its overvalued currency. In early August, the EURCHF rate traded to its highest level since the great collapse of January 2015. However, the SNB may have also been taking extra measures to weaken the Franc in anticipation of a tougher battle ahead. An intensified capitulation in US equities is likely to rattle global sentiment and invite a wave of unwanted Swiss Franc demand on the safe haven flow. And so, building a cushion in anticipation of this risk may have been a part of the central bank’s strategy.
AUDUSD – technical overview
The market has broken back above the recent 2017 high at 0.8066, extending the run into the 0.8100s thus far. There is now risk for a continuation of gains towards a measured move in the 0.8250 area, though at the same time, medium-term studies are extended and suggest additional upside could be limited in favour of a reversal back to the downside. A drop back below 0.7975 would however be required at a minimum to take the immediate pressure off the topside.
AUDUSD – fundamental overview
The Australian Dollar comes into the new week off fresh +2 year highs, though it hasn’t been all good for the commodity currency after last week’s Aussie retail sales and trade data came in weaker than expected. Most of this latest run of Aussie strength has come from another downturn in the US Dollar, but dealers are reporting healthy Aussie offers above 0.8000. Into Monday, flows have been mixed with Aussie supported on relief of no new provocation from North Korea, but weighed down on US Dollar demand after reports surfaced of the fallout from Hurricane Irma not being as bad as expected. Looking ahead, the economic calendar is empty and the primary focus will be on a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
USDCAD – technical overview
Despite this latest intense breakdown to a fresh 2017 and +2 year low, stretched medium-term technical studies continue to warn of the possibility for a significant bullish reversal to allow for these studies to unwind. But right now, the market would need to break back above 1.2242 to encourage this prospect.
USDCAD – fundamental overview
The Canadian Dollar had extended its +2 year high against the Buck on Friday, before the rally finally stalled out after the Canada employment report was digested. Although the headline data didn’t appear to be all that bad, upon closer glance, it was quite deceiving. All of the gains came from the part time sector, while the full time jobs component was a disaster, dropping off by more than 80k. We have since seen the Loonie come under a little pressure and with the market having run so far and fast in recent months, risk seems to be building for a healthy round of profit taking on Canadian Dollar longs, especially after some may now be concerned the Bank of Canada was too aggressive with the rate hike move in the previous week. Looking ahead, we get Canada housing starts, though most of the focus will be on a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
NZDUSD – technical overview
Medium term studies have turned down after the market pushed up to a plus two year high through 0.7500 in late July. A recent break below 0.7200 warns of the possibility for a more meaningful reversal, that could be setting the stage for a drop all the way back down towards the 2017 low in the 0.6800s. From here, look for any rallies to be well capped below 0.7400 on a daily close basis in favour of the next downside extension towards the psychological barrier at 0.7000.
NZDUSD – fundamental overview
The New Zealand Dollar has been a notable laggard in the FX market, but has finally was able to participate in this last week’s run of broad based US Dollar weakness. But overall, there have been too many negative drivers for the market to ignore, which should continue to inspire offers into rallies. New Zealand government growth and budget cuts, discouraging economic data and uncertainty around the upcoming election have all been behind the currency’s underperformance. Into Monday, Kiwi has held up on improved credit card spending and improved risk appetite after North Korea held off from another provocation. Looking ahead, the economic calendar is empty and the primary focus will be on a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea.
US SPX 500 – technical overview
After extending the record run in early August, the market has cooled off, acknowledging the need for a period of consolidation at a minimum to allow for highly extended longer-term studies to unwind. Still, while the market holds above 2400 on a weekly close basis, the uptrend remains firmly intact. A weekly close below 2400 would be required to signal the possibility for a more meaningful top and bearish structural shift.
US SPX 500 – fundamental overview
The US equity market continues to be well supported on dips. But at the same time, there is a growing sense investors could be getting ready for a more significant reversal, with the record run so extended. Moreover, the fact that Fed monetary policy is normalising could be resonating a little more, with Fed balance sheet reduction coming into play and another rate hike still on the cards this year. We’ve also seen a strong trend of stocks rallying on softer US data given the implication it will slow the Fed’s normalisation process. But the market’s failure to extend its record run over the past several days could suggest the strong uptrend may be coming to an end. Into Monday, there has been another run up on the positives of no new North Korea provocation and less damage from Irma. But if the market stalls out again and breaks back down, this will strengthen the case that investors are increasingly worried about an extended market.
GOLD (SPOT) – technical overview
Setbacks have been well supported, with the latest surge to fresh 2017 highs through 1300 setting the stage for a bullish continuation to the 2016 peak at 1375 further up. A higher low is now in place around 1265 and only back below this level would offset this latest wave of bullish momentum. Look for any dips to be well supported now around 1300.
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 well supported, 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 has added 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 for an extended period, GOLD will hold up on risk off macro implications.
Feature – technical overview
USDSGDÂ has been under pressure in 2017, with the market recently dropping down to a fresh yearly low below 1.3500, exposing a possible retest of the 2016 base down at 1.3315. However, stretched studies are warning of the possibility for a meaningful bullish reversal to allow for these studies to unwind and if the market holds above 1.3315 and breaks back above 1.3500, we could see the formation of another base in favor of significant medium-term upside back above 1.4000.
Feature – fundamental overview
The Singapore Dollar has enjoyed a nice rally in 2017, extending its run this past week. US Dollar selling has been a major supporter of the currency’s strength and we have seen some more of this on the back of White House instability, soft US Dollar policy talk, worry over the US debt ceiling negotiations outcome, disappointing US data and the possibility for a more dovish leaning Fed. Meanwhile, data out of Singapore has been solid, with last week’s PMI readings coming in above forecast. At the same time, given the correlation with the Yen, the Singapore Dollar also has the ability to benefit from safe haven flow, especially with this correlation being lost on the US Dollar right now. We have seen some SGD weakness on the Monday open as North Korea held off and Hurricane Irma wasn’t as bad, but the follow through has been quite mild. Looking ahead, Looking ahead, the economic calendar is empty and the primary focus will be on a UN Security Council meeting that will have the western allies pushing for more sanctions on North Korea. On Tuesday, we get Singapore retail sales.