Today’s report: Markets Position Ahead Of Key Data, Event Risk
We enter the new week with the US Dollar relenting a bit, following a period of healthy demand. Yet there hasn’t been much to dissuade participants from the long Dollar trade, and it seems the price action is more a function of profit taking ahead of key event risk than anything else. US durable goods on tap.
Chart talk: Major markets technical overview video
- inflation outlook
- BOE Haldane
- Participants position
- risk off
- China concerns
- OIL declines
- Dairy drag
- Fed liftoff
- net short
Chart talk: Technical & fundamental highlights
EURUSD – technical overview
The market has managed to find support for now ahead of 1.0800, with setbacks stalling out in favour of some corrective price action. Still, the broader downtrend remains firmly intact and any rallies are expected to be all capped below 1.1200 ahead of the next major downside extension and bearish continuation. Ultimately, only back above 1.1215 would take the pressure off the downside.
- R2 1.1216 – 10Jul high – Strong
- R1 1.1036 – 15Jul high – Medium
- S1 1.0922 – 23Jul low – Medium
- S2 1.0809 – 20Jul low – Strong
EURUSD – fundamental overview
The Euro enters the new week in a bit of a quiet consolidation following some illiquid summer trade in the previous week. Interestingly enough, solid US economic data last week failed to weigh on the single currency, with the market actually mounting a decent recovery. It seems the ongoing weakness in commodity markets has led to expectations for a more subdued inflation outlook, which in turn could keep the Fed from getting too aggressive with monetary policy reversal. Looking ahead, the economic calendar picks up this week, with German IFO business climate and US durable goods standing out in Monday trade. Also getting attention in the early week will be renewed bailout negotiation talks between Greece and its creditors.
GBPUSD – technical overview
Setbacks have been very well supported and the market could be looking to carve out a fresh higher low at 1.5350 in favour of the next major upside extension back towards and above the recent 2015 high at 1.5930. At this point, only back below 1.5350 would negate the constructive outlook and compromise the bullish structure.
- R2 1.5733 – 1Jul high – Strong
- R1 1.5675 – 15Jul high – Medium
- S1 1.5467 – 24Jul low – Medium
- S2 1.5352 – 8Jul low – Strong
GBPUSD – fundamental overview
A bit of a shift in sentiment towards the Pound in recent days, with the UK currency taking some hits post last week’s horrid UK retail sales showing and dovish comments from BOE Andy Haldane. This follows what had been a nice shot of news for the currency on earlier hawkish BOE Carney comments and a surge in UK wage growth. On Friday, BOE Haldane said the central bank should be in no rush to raise rates with the labour market still in recovery mode. Looking ahead, UK CBI trends and US durable goods are the standouts in Monday trade.
USDJPY – technical overview
Although the broader uptrend remains firmly intact, the market has been showing signs of exhaustion off fresh multi-year highs at 125.85. Last week’s bearish close has opened the door for deeper setbacks in the sessions ahead, potentially towards the recent 121.32 multi-day low. Monthly studies are highly overextended and have been warning of the need for additional consolidation and correction, to allow for these studies to unwind. As such, for the time being, rallies may continue to be well capped towards 125.00.
- R2 124.48 – 21Jul high – Strong
- R1 124.00 – Figure – Medium
- S1 122.92 – 14Jul low – Medium
- S2 122.42 – 13Jul low – Strong
USDJPY – fundamental overview
The market hasn’t been as quick to sell Yen in recent trade and the currency could even find some renewed demand in the sessions ahead. Softer commodities prices have resulted in a more subdued US inflation outlook, while a declining equity market is fueling concern of broader risk liquidation and a repatriation of flows back into the Yen. Dealers talk of plenty of USDJPY offers above 124.00, while also citing sell-stops below 123.00. Market participants will now be thinking a lot about Wednesday’s all important FOMC decision, but in the interim, we get today’s US durable goods orders.
EURCHF – technical overview
The market looks to be in the process of carving out a meaningful base. From here, there is risk for a recovery back towards the February, 1.0815 in the days ahead, with any setbacks expected to be very well supported above 1.0300 on a daily close basis. Friday’s push back above 1.0575 strengthens the constructive outlook and should accelerate gains. Ultimately, only a daily close below 1.0235 would compromise the recovery outlook and give reason for pause.
- R2 1.0700 – 19Mar high – Strong
- R1 1.0585 – 24Jul high – Medium
- S1 1.0473 – 23Jul low – Medium
- S2 1.0397 – 15Jul low – Strong
EURCHF – fundamental overview
Demand for the EURCHF rate has been impressive in recent trade, particularly in light of the downturn in equities markets and some broader risk off price action that normally would be supportive of the Franc. It seems the market is finding more comfort in the fact that the Greece saga is behind us and this has been helping to prop the rate a bit. Overall, reassurances from the SNB that it will continue to support dips in this market have also been well received by investors, happy to ride on the central bank’s back. However, if this equity pullback gains momentum, it could invite renewed downside pressure on the cross rate.
AUDUSD – technical overview
The downtrend remains firmly intact, with the market extending declines to fresh multi-year lows and gravitating closer to next key psychological barriers at 0.7000. Still, with daily studies looking a little stretched, the market could soon defer to a period of short-term consolidation and correction. But look for rallies to be very well capped ahead of 0.7600, with only a break back above to take the immediate pressure off the downside.
- R2 0.7496 – 10Jul high – Strong
- R1 0.7362 – 24Jul high – Medium
- S1 0.7260 – 24Jul/2015 low – Medium
- S2 0.7240 – May 2009 low – Strong
AUDUSD – fundamental overview
Although an equity pullback and ongoing underperformance in the commodities markets have been clear Aussie negatives, the biggest hit to the local currency in recent trade has been discouraging China data. Last week, the market was dealt a serious blow in the form of some alarmingly soft China PMIs, calling into question the legitimacy of recent growth data out of the world’s second largest economy. At the moment, the only bright spot for the Australian Dollar is perhaps a slowdown in the pace of US Dollar buying ahead of this week’s all important FOMC rate decision. But looking to today’s calendar, US durable goods is the key standout.
USDCAD – technical overview
Fresh multi-year highs for this pair, with the market finally surging through the 2009 peak at 1.3065. Daily studies are however tracking in overbought territory and this suggests that gains could soon stall out, with the market deferring to corrective downside before the uptrend reasserts. Still, look for any setbacks to be very well supported ahead of 1.2600 in favour of the next higher low and bullish continuation.
- R2 1.3150 – Mid-Figure – Medium
- R1 1.3103 – 24Jul/2015 high – Strong
- S1 1.3000 – Psychological – Medium
- S2 1.2948 – 23July low– Strong
USDCAD – fundamental overview
Not the busiest of weeks ahead for the Canada economic calendar, with the only notable standout coming on Friday in the form of GDP. However, there will be plenty to drive this currency ahead of the Friday event risk, with the market taking in a very busy US calendar which includes durable goods, consumer confidence, the FOMC rate decision and GDP. With the exception of some solid Canada retail sales last week, all has not been well for the Loonie, with the Bank of Canada forced to adopt a more accommodative policy in light of the major hits in the OIL market. The monetary policy divergence between the Fed and Bank of Canada has become even more pronounced in recent days, and the Canadian Dollar has sold to fresh multi-year lows. But with so much risk ahead on this week’s calendar, it will be worth keeping an eye on this pair.
NZDUSD – technical overview
Daily studies have been turning up from deep oversold territory, and there is risk for additional consolidation in the sessions ahead to allow for these studies to further unwind before the market considers a bearish continuation below the recent multi-year low at 0.6498. Still, any rallies should be well capped ahead of 0.6850 in favour of the existing downtrend.
- R2 0.6695 – 23Jul high– Strong
- R1 0.6624 – 24Jul high– Medium
- S1 0.6553 – 22Jul low – Medium
- S2 0.6498 – 16Jul/2015 low – Strong
NZDUSD – fundamental overview
The deterioration in the dairy sector has been a major drag on the New Zealand Dollar this year. GDT auctions continue to produce disheartening results and local dairy giant Fonterra has had no choice but to make serious cutbacks. This has also forced the RBNZ to go through a major policy adjustment, with a once hawkish central bank doing a full 180 and moving to policy accommodation. The New Zealand Dollar trades just off fresh multi-year lows, and is at risk for additional weakness, with the Fed on the verge of a liftoff. The added weight of a worsening China outlook following last week’s horrid PMI showing has not helped matters. Still, we have seen some signs of support for Kiwi in recent days, on comments from PM Key who expressed concern with the pace of Kiwi declines while also focusing on some of the positives in the economy.
US SPX 500 – technical overview
The market has stalled out just shy of the May record high, with the lack of bullish momentum suggestive of exhaustion and warning of deeper setbacks ahead. Look for Friday’s daily close back below 2100 to now strengthen the bearish outlook in favour of deeper setbacks below the critical March low at 2040 in the sessions ahead. At this point, only a break and daily close above 2137 would negate and open a bullish continuation.
- R2 2137.00 – 19May/Record – Strong
- R1 2121.00 – 23Jul high – Medium
- S1 2062.00 – 7May low – Medium
- S2 2040.00 – 11Mar low– Strong
US SPX 500 – fundamental overview
The US equity market is once again showing signs of exhaustion, with the market stalling ahead of the May record high and rolling over on some disappointing Q2 earnings numbers and soft China data. Overall, stocks are looking quite expensive at current levels and investors also need to be reminded of the risk for Fed rate liftoff, with the move to higher rates taking away from the incentive to be long stocks. It seems participants have been ignoring this fact despite it being priced in other asset classes. More clarity on this issue will be offered this Wednesday when the Fed meets.
GOLD (SPOT) – technical overview
The market remains under intense pressure, breaking to fresh multi-year lows below 1100. At this point, the downside break opens the door for the possibility of another drop towards major psychological barriers at 1000. However, it is worth noting that daily studies are extremely oversold and there is room for a short-term bounce. But a break back above 1175 would be required to take the immediate pressure off the downside.
- R2 1175.00 – 6Jul high – Strong
- R1 1146.00 – 17Jul high – Medium
- S1 1073.00 – 20Jul/2015 low – Medium
- S2 1000.00 – Psychological – Strong
GOLD (SPOT) – fundamental overview
The downside pressure in the GOLD market has intensified in recent days, with the primary driver coming from an accelerated Fed rate liftoff timeline. The expectation for higher rates in the US has invited a fresh wave of demand for the inversely correlated US Dollar and the resulting price action has seen another liquidation in the yellow metal below $1100. Recent data also shows China buying less GOLD as had been forecast, and this has been yet another let down for the commodity. In fact, the latest speculative positioning data shows the market actually net short the yellow metal for the first time. There seems to be very little out there GOLD bugs can source as a near term catalyst for a resurgence in demand, though additional equity weakness and rising inflation could be the sparks needed to get this market bid up again.
Feature – technical overview
USDSGD remains locked in a very well defined uptrend, with the market closing in on a retest of the multi-year peak from March at 1.3938. Look for any setbacks to now be very well supported ahead of 1.3500, while only a break back below 1.3284 would compromise and force a shift in the structure.
- R2 1.3938 – 13Mar/2015 high – Strong
- R1 1.3758 – 24Jul high – Medium
- S1 1.3609 – 22Jul low – Medium
- S2 1.3440 – 30Jun low – Strong
Feature – fundamental overview
The Singapore Dollar could be closing in on a retest of its multi-year lows against the US Dollar from back in March, following a batch of negative data in the previous week. Singapore industrial production came in much softer than expected, while the economy also saw an unexpected contraction in GDP. The Asian currency has already been exposed in recent months on a pronounced monetary policy divergence theme, with the US Dollar benefitting from an expected Fed rate liftoff this year. The focus will now shift to this Wednesday’s all important FOMC rate decision.