Today’s report: Closing Out a Choppy, Directionless Q1 2019
The US Dollar has been in demand in this latter portion of the week and this latest wave of buying has come from downside risk abroad, after Thursday’s economic data out of Europe was soft and the Pound could not ignore some new uncertainty around the state of Brexit. Watch out for added volatility on month-end, quarter-end flow.
Wake-up call
- Eurozone weakness
- Friday vote
- Japan year-end
- policy strategy
- core PCE
- Canada growth
- RBNZ Orr
- Fed policy
- Global uncertainty
- further out
- real progress
Suggested reading
- China’s Yuan Is Now in the Driver’s Seat, J. Authers, Bloomberg (March 27, 2019)
- Brexit: Curtain Falls on Theresa May’s Premiership, R. Shrimsley, FT (March 27, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has been confined to choppy trading conditions over the past several weeks. We are however coming off an intense round of setbacks since topping out at a +3 year high in 2018, with the drop taking the price back into an area that roughly coincides with a bullish breakout zone from 2017. This suggests that additional setbacks could continue to be very well supported, with the greater risk from here, for the formation of a meaningful higher low, ahead of a push back to the topside. At this point, we will need to see a break back above the current 2019 high around 1.1570 to encourage this prospect.
EURUSD – fundamental overview
Softer Eurozone data has contributed to Euro weakness into Friday, after Thursday’s economic confidence readings came in at their lowest level since 2016 and German inflation reads were soft. We’ve also seen the German 2-10 spread narrowing to its lowest point since 2016. Looking ahead, we get some second tier Eurozone releases, followed up by an anticipated US core PCE read later in the day. The market will also be watching those month-end, quarter-end flows, along with updates out from Brexit and US-China trade talks.
EURUSD – Technical charts in detail
GBPUSD – technical overview
The major pair has put in an impressive recovery off the multi-month low in early January, helping to support the case for a longer-term developing uptrend off the 2016 low. Pullbacks are now viewed as corrective on the daily chart, with dips expected to be supported ahead of 1.2700. Look for a weekly close back above 1.3400 to strengthen the outlook.
GBPUSD – fundamental overview
On the Brexit front, the Prime Minister’s plan for a third vote on her deal was approved for today, but with the DUP leader already saying she was unable to support it, there was little room for the Pound to feel good. Ultimately, while Brexit uncertainty remains, elimination of the walking of the edge of a cliff risk that had been overly priced into the Pound from mid-2018 into January of this year, should leave the Pound well bid on dips and in position to outperform and reprice itself higher going forward. Looking at the calendar, we’ll get some added activity on month end, quarter end flow, and the market will continue to pay close attention to developments relating to US-China trade talks. On the data side, we get a batch of UK releases highlighted by first tier UK GDP. Later in the day, we get US core PCE.
USDJPY – technical overview
The major pair has stalled out after an impressive run up from the 2019 low. Look for this topside failure to set the stage for the next major downside extension back towards the 2019 flash crash low down in the 104.00s. The recent break back bellow 110.00 strengthens the bearish outlook. Ultimately, only back above 112.15 delays the bearish outlook.
USDJPY – fundamental overview
Overall, the major pair should continue to place a bigger focus on global risk sentiment and US Dollar yield differentials. Fiscal, year end flows in Japan are mostly complete and haven’t even factored all that much into price action. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.
EURCHF – technical overview
The market has broken down below an important consolidation base, opening the door for the possibility of the start to an intensified wave of bearish momentum back down towards the 1.0600 area. At this stage, it will be important to see how the market responds to trading below 1.1200, with any quick recovery above to put the market back into this medium-term consolidation.
EURCHF – fundamental overview
The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of sustained risk liquidation in 2019, will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we’re at in the monetary policy cycle.
AUDUSD – technical overview
The market has been very well supported since breaking down in early January to multi-year lows. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7400 to strengthen this outlook. Look for setbacks to continue to be well supported ahead of 0.7000.
AUDUSD – fundamental overview
The Australian Dollar has been supported on the recent dovish shift in Fed policy and this latest wave of cross related demand in reaction to this week’s dovish RBNZ decision. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.
USDCAD – technical overview
Overall, the structure remains constructive, with dips expected to be well supported for fresh upside back above the 2018/multi-month high at 1.3665. Back below the psychological barrier at 1.3000 would be required to delay the outlook.
USDCAD – fundamental overview
The Canadian Dollar Dollar has managed to stabilise this week, after the currency took a hit in the previous week on worrying US-China trade talk updates and softer Canada retail sales. We have seen an ongoing offer in the Loonie overall and this week’s softer Canada trade data has contributed to the flow. At the same time, OIL is holding up well following an impressive recovery in Q1 2019, and this, along with a dovish shift in Fed policy, have helped to prevent the Canadian Dollar from a more intensified pullback. Looking ahead, The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, Canada GDP and US core PCE stand out on the calendar.
NZDUSD – technical overview
While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there’s a case to be made for a meaningful low in place at 0.6425. As such, look for setbacks to be well supported ahead of 0.6500 in anticipation of additional upside, with only a break back below 0.6500 to put the focus back on the multi-month low from October at 0.6425. A push through 0.7000 will strengthen the constructive outlook.
NZDUSD – fundamental overview
The New Zealand Dollar is trying to recover from an intense round of setbacks after the RBNZ surprised with a dovish communication in this week’s policy decision. RBNZ Governor was out clearing up any doubts about this position after confirming the shift to an easing bias was not a miscommunication. Overall, we believe the bigger surprise here is in the RBNZ’s ability to deliver a message like this in a timely manner after the Fed had recently reversed its policy outlook. But the fact that Kiwi would be moving in this direction in light of the bigger macro picture shouldn’t be as surprising. This helps reconcile the support into the post RBNZ dips. Earlier today, consumer confidence readings came in above forecast, lending some more support off the RBNZ sell off low. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.
US SPX 500 – technical overview
There have been legitimate signs of a major longer term top, with deeper setbacks projected in the months ahead. Any rallies should now continue to be very well capped, in favour of renewed weakness that targets an eventual retest of strong longer-term resistance turned support in the form of the 2015 high at 2140. The projection is based off a measured move extension derived from the previous 2018 low from February to the record high move. Next key support comes in at 2722, with a break to strengthen the outlook.
US SPX 500 – fundamental overview
Although we have seen attempts to push the market higher in Q1 2019, on the Fed’s more cautious outlook, exhausted monetary policy tools post 2008 crisis suggest the prospect for fresh record highs at this point in the cycle are not realistic. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.
GOLD (SPOT) – technical overview
There are signs that we could be seeing the formation of a more significant medium to longer-term structural shift that would be confirmed if this latest recovery can extend back through big resistance in the form of the 2016 high at 1375. Look for setbacks to be well supported, with only a close back below 1250 to compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war threats. All of this should 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.
BTCUSD – technical overview
At this stage, any upside moves are classified as corrective ahead of what could be the next downside extension and bearish continuation. It would take a break back above the December high at 4385 to take the immediate pressure off the downside. Next critical support comes in the form of the July and September 2017 lows, around 2,000 and 2,975 respectively.
BTCUSD – fundamental overview
Bitcoin is showing signs of stability in Q1 2019 after an abysmal performance in 2018. At the moment, the market still faces headwinds in the form of regulatory uncertainty and ready to go front end applications with meaningful use cases, though looking out, there continue to be many encouraging signs the market is here to stay and will be seeing increased adoption.
BTCUSD – Technical charts in detail
ETHUSD – technical overview
Recovery rally attempts have stalled out into a meaningful previous support zone, to keep the pressure on the downside, with risk for a bearish continuation below 100, towards the next critical support zone in the 50-75 area. At this point, it would take a sustained break back above 170 to take the immediate pressure off the downside.
ETHUSD – fundamental overview
Ongoing regulatory challenges, technological obstacles and a global economic downturn are some of those headwinds that need to be considered in the months ahead. At the same time, longer term prospects are looking quite bright and valuations are increasingly attractive with adoption showing signs of ramping up over the longer term.