Next 24 hours: Investors try to find comfort in China's latest gesture
Today’s report: Boris Ups the Stakes
The Pound has managed to stabilise after taking a big hit in Wednesday trade from the news Prime Minister Boris Johnson would be looking to suspend parliament in an attempt to regain leverage in the Brexit process. Looking ahead, key standouts on the calendar come by way of German inflation data, Eurozone sentiment, US GDP and US pending home sales.
Wake-up call
- coalition government
- Johnson stuns
- trade uncertaintyÂ
- SNB policy
- Dovish Debelle
- OIL rebound
- business confidence
- less encouraged
- hard asset
- faces headwinds
- traditional markets
Suggested reading
- Fortune No Longer Favors the Bold In Markets, J. Authers, Bloomberg (August 29, 2019)
- Boris Johnson's Plan to Suspend Parliament Explained, R. Shrimsley, FT (August 28, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The major pair has extended its run of declines off the 2008 high, trading down to a fresh multi-month. But with the downtrend looking exhausted, the prospect for a meaningful higher low is more compelling, with a higher low sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below the psychological barrier at 1.1000 would compromise this outlook. Back above 1.1412 will strengthen the view.EURUSD – fundamental overview
The Euro is still trying to do its best holding up into dips and could receive some added prop today as the market digests the latest news that Conte will be getting a new mandate as Italian PM today, as Five Star and the DP are set to form a new government.  Looking ahead, Thursday’s calendar features German employment data, Eurozone sentiment indicators, German inflation reads, US GDP, US pending home sales and US initial jobless claims.EURUSD - Technical charts in detail
GBPUSD – technical overview
The recent breakdown below 1.2400 has opened the door for a fresh downside extension towards the major cycle low from 2016 in the 1.1800s. Longer-term studies continue to suggest the market should be looking to start turning back up, though at this stage, the pressure remains on the downside and it will take a break back above 1.2400 to take the immediate pressure off the downside and revive the outlook supporting a longer-term base.GBPUSD – fundamental overview
The Pound has managed to recover after getting stunned on Wednesday from the news Boris Johnson was planning to shut down parliament in an attempt to prevent opposition from frustrating the Brexit process and force the EU back to the table. Looking ahead, Brexit headlines will continue to play a large part in Sterling direction, especially with no first tier data due out of the UK. Later on, we'll get US readings in the form of GDP, pending home sales and initial jobless claims.USDJPY – technical overview
The longer-term downtrend remains firmly intact, with the major pair recently taking out major support in the form of the 2018 and 2019 lows respectively. Rallies should continue to be well capped below 110.00. Below the 2018 low now opens the door for the next major downside extension towards the 2016 low at 99.00.USDJPY – fundamental overview
The major continues to track alongside major macro themes, with risk sentiment and broad US Dollar sentiment dictating flow. The Yen had initially rocketed higher (USDJPY lower) on the weekly open, in response to the latest trade war escalation, but has since sold off and stabilised as tensions ease. Looking ahead, Thursday’s calendar features US readings in the form of GDP, pending home sales and initial jobless claims.EURCHF – technical overview
The market is trading at its lowest levels in two years, and at this point, it would take a daily close back above 1.1173 to take the immediate pressure off the downside. The latest breakdown below 1.1000 opens the door for the next major downside extension towards 1.0600.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, 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 under pressure over the past several months, but has also been well supported on dips. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7100 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported above 0.6700 on a weekly close basis.AUDUSD – fundamental overview
The Australian Dollar has been weighed down in recent sessions on the back of ongoing trade war uncertainty and the latest comments from RBA Debelle in which the central banker welcomed a lower Aussie rate. Looking ahead, Thursday’s calendar features US readings in the form of GDP, pending home sales and initial jobless claims.USDCAD – technical overview
Despite the recent breakdown to a yearly low, the longer-term structure remains constructive, with dips expected to be well supported for renewed upside, eventually back above the 2018/multi-month high at 1.3665. At this point, only a weekly close below the psychological barrier at 1.3000 would compromise this outlook.USDCAD – fundamental overview
Recovering OIL prices haven't been much help to the Canadian Dollar this week, with the Loonie under pressure this week, following an initial bid in the aftermath of the Monday risk on flow, resulting from eased tension on the trade front. Looking ahead, Thursday’s calendar features the Canada current account, Canada weekly earnings, and US readings in the form of GDP, pending home sales and initial jobless claims.NZDUSD – technical overview
Despite recent weakness, there's a case to be made for a meaningful low, with the market trading back down to medium-term cyclical low territory in the 0.6300 area. As such, look for setbacks to be well supported in the days ahead, in anticipation of renewed upside. Only a weekly close below 0.6300 would give reason for rethink. Back above 0.6600 will take the immediate pressure off the downside.NZDUSD – fundamental overview
The New Zealand Dollar took another hit today, after New Zealand ANZ business confidence readings came in much weaker than expected. Kiwi has already come under pressure to fresh yearly and multi-month lows amidst ongoing uncertainty around the US-China trade outlook and weaker China equities, and this latest negative data is only exacerbating the situation. Looking ahead, Thursday’s calendar features US readings in the form of GDP, pending home sales and initial jobless claims.US SPX 500 – technical overview
There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of renewed weakness targeting an eventual retest of strong longer-term previous resistance turned support in the form of the 2015 high at 2140. The initial level of major support comes in at 2729, with a break below to strengthen the outlook. A monthly close above 3000 would be required to compromise the outlook calling for a top.US SPX 500 – fundamental overview
Although we've seen the market extending to fresh record highs in 2019, on the back of the Fed policy reversal, with so little room for additional easing, given an already depressed interest rate environment, the prospect for a meaningful extension of this record run, on easy money policy incentives, should no longer be as enticing to investors as it once was. Meanwhile, tension on the global trade front should continue to be a drag on investor sentiment. 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
The recent breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1600, while in the interim, look for any setbacks to be well supported above 1400.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
Overall, look for additional upside to be limited for now, as the market continues to correct and consolidate, in the aftermath of a major surge in the second quarter of 2019. Any setbacks should be very well supported ahead of 7,000, with an eventual higher low sought out in favour of a bullish continuation back above the 2019 high at 13,748. Only a weekly close below 7,000 would compromise the constructive outlook.BTCUSD – fundamental overview
Bitcoin enjoyed a spectacular run in the second quarter of 2019, racing to fresh yearly highs, surging towards 14k, on the back of increased adoption and more openness from the traditional investor community. The news of tech giants now turning towards the world of crypto has invited a higher profile that should be a net positive in the long run. At the same time, it also exposes the ethos to fresh critique from higher ups at the central bank and government levels. The market is also going through a period of technical adjustment after the fierce run up, though we anticipate continued demand from institutional players starved for yield in a world where global equities are increasingly vulnerable.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of a major correction after a surge in the second quarter of 2019. Look for setbacks to be well supported above of previous resistance turned support at 150 on a weekly close basis, in favour of the next major higher low and bullish resumption back towards and through the 2019 high up at 363. Ultimately, only a weekly close below 150 would compromise the outlook.ETHUSD – fundamental overview
There was a lot more buzz around adoption following the Q2 2019 Bitcoin surge, with many mainstream names coming out in support of blockchain integration. Demand for web 3.0 applications is on the rise, and Ethereum is the blockchain with the biggest front end application potential. At the same time, profit taking in the aftermath of the rapid Q2 appreciation has triggered a healthy period of correction, while critique of the space from the likes of President Trump and Fed Chair Powell, along with worry associated with fallout in the global economy, are stories that could keep the more risk correlated crypto asset weighed down in the second half of the year. Risk off in the global economy is expected to result in Eth underperformance relative to Bitcoin.