Today’s report: Paris Attacks Shake Up Markets in Early Week
Risk correlated FX has taken a hit in the early hours of the week, following the violent wave of attacks in Paris this weekend. Markets have since stabilized, though with Fed policy normalisation still at the forefront of investor minds, more risk off flow is to be expected.
Wake-up call
Chart talk: Major markets technical overview video
- Eurozone CPI
- chief economist
- Japan GDP
- Paris attacks
- outperformer
- Declining OIL
- retail sales
- Fed normalization
- safe-haven demand
- USDZAR
Suggested reading
- Debt Market Distortions Go Global, D. Kruger, Bloomberg (November 15, 2015)
- Investing Needs to be Scary, S. Ro, Business Insider (November 9, 2015)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market remains confined to a longer-term downtrend, with the latest break below the July base at 1.0807 opening the door for the next downside extension, exposing a retest of the multi-year base from earlier this year at 1.0462. Look for any intraday rallies to be well capped ahead of 1.1000, while only back above 1.1300 would take the immediate pressure off the downside.
EURUSD – fundamental overview
The Euro has been weighed down in the early hours of the week, with the market pulling back on risk off trade, in the aftermath of the weekend Paris attacks. Still, the market remains confined to a consolidation off recent lows, with the broader downside pressure coming from diverging monetary policy expectations. On Friday, the Euro attempted a minor rally following the softer US retail sales reading, but came back under pressure on better Michigan confidence. Looking ahead, Eurozone CPI and US Empire manufacturing are the standout releases on Monday.
GBPUSD – technical overview
The market continues to show signs of topping off the 2015 peak at 1.5930, putting in a series of lower tops. The latest topside failure has stalled just over 1.5500 with a fresh lower top confirmed at 1.5509 ahead of the next major downside extension below critical psychological barriers at 1.5000 and towards medium-term support in the form of the 2015 low at 1.4566. At this point, look for intraday rallies to be well capped ahead of 1.5350.
GBPUSD – fundamental overview
Comments from the Bank of England’s chief economist that it’s an akward and risky time to be contemplating liftoff, have weighed on the Pound into this latest recovery rally, with the UK currency also taking a hit on some broad US Dollar, safe haven demand post this weekend’s Paris attacks. On Friday, the Pound had been bid up on softer US retail sales, but gave back much of those gains on the subsequent release of solid Michigan confidence. But overall, it’s the monetary policy divergence theme that should continue to dictate trade. Looking ahead, the economic calendar for the UK is quiet for the remainder of the day, after an early release of some mixed Rightmove house price data, In the US, Empire manufacturing is the only standout.
USDJPY – technical overview
A period of multi-week consolidation has finally been broken, with the market clearing key resistance at 121.74 and surging into the mid-123.00s thus far. However, gains have stalled out for now around the 78.6% fib retrace off of the yearly high to August low move, and the market will need to establish a daily close above 123.60 to strengthen the case for a more meaningful bullish resumption and full retracement back to the 125.85 peak. Inability to establish above 123.60 could open the door for the formation of a lower top and renewed downside pressure. A daily close below 122.00 will strengthen this prospect.
USDJPY – fundamental overview
A wave of safe haven buying on the open has resulted in some downside pressure in the major pair, with the Yen benefitting from the risk off flow. Still, setbacks have been well supported thus far, with monetary policy divergence at the front of centre of flows. The release of weaker than expected Japan GDP data has resulted in the country slipping back into technical recession, which fuels speculation the Bank of Japan will indeed be forced into expanding stimulus over the coming months. Looking ahead, US Empire manufacturing is the only notable economic release scheduled for the remainder of the day.
EURCHF – technical overview
The market has entered a period of multi-week consolidation following an impressive recovery earlier in the year. At this point, the recovery structure remains intact, with only a break back below 1.0714 to compromise. As such, look for setbacks to continue to be well supported ahead of 1.0714 in favour of the next major upside extension through 1.1050 and towards 1.1200 further up.
EURCHF – fundamental overview
SNB Jordan was out earlier this month reminding the market the central bank remains committed to a policy directed at weakening an overvalued local currency. Overall, despite ECB dovishness and this latest round of equity selling on the back of safe-haven flows post the weekend Paris attacks, setbacks in the EURCHF rate have been well supported, with the market choosing to prioritize the SNB’s policy commitment. Dealers do however cite decent sell-stops below 1.0700 and if this level is taken out, it could open the door for an acceleration of declines.
AUDUSD – technical overview
The market continues to show signs of topping out in favour of a resumption of the broader underlying downtrend, with a fresh lower top sought out at the recent 0.7382 high. Intraday rallies should continue to be well capped, with deeper setbacks projected in the sessions ahead back towards the recent multi-year base just shy of 0.6900. At this point, only a daily close back above 0.7400 would threaten the bearish outlook.
AUDUSD – fundamental overview
The Australian Dollar is coming off a solid week of trade, with the currency outperforming across the board on impressive local leads, highlighted by a blowout Aussie employment report. This has reduced odds for another RBA rate cut, keeping yield differentials from running further in the US Dollar’s favour. However, there have been setbacks off the recent recovery highs, with Friday’s above forecast Michigan confidence and the weekend Paris attacks, contributing to setbacks in the early week. Looking ahead, US Empire manufacturing is the only standout on today’s calendar.
USDCAD – technical overview
The market is focused back on the topside after recently being well supported in the 1.2800 area, with the latest recovery strengthening the case for a bullish continuation to fresh multi-year highs beyond the recent 11-year peak from September at 1.3457. Any setbacks from here should ideally be propped above 1.3000 on a daily close basis, though ultimately, only a break below 1.2800 would force a shift in the constructive outlook.
USDCAD – fundamental overview
Ongoing weakness in OIL prices, solid US Michigan confidence and safe haven flows, on the back of the weekend Paris attacks, are all helping to keep pressure on the Loonie, with the currency closing in on a retest of its 11-year lows against the Buck from September. Later today, the market will take in Canada manufacturing shipments, international securities transactions and existing home sales, along with data in the US, featuring Empire manufacturing.
NZDUSD – technical overview
The impressive rally out from recent multi-year lows has finally stalled out after being well capped ahead of 0.6900. From here, look for the formation of a meaningful lower top, in favour of an acceleration to the downside and bearish resumption. Ultimately, only a daily close above 0.7000 will negate and potentially force a shift in the structure.
NZDUSD – fundamental overview
Kiwi setbacks on risk off flow from the weekend Paris attacks, have been somewhat supported early Monday, with the market responding to the better than expected New Zealand retail sales print. Still, overall, the monetary policy divergence theme between the Fed and RBNZ is what is likely to continue to drive price action, with deeper setbacks favoured as the Fed prepares to embark on a path to monetary policy normalization while the RBNZ is still prepared to consider additional easing. Looking ahead, US empire manufacturing is the only notable release on the Monday calendar.
US SPX 500 – technical overview
Signs of potential exhaustion following an impressive recovery rally off the August lows. The market has stalled out above 2100, shy of the 2137 record peak from earlier this year, with the latest break back below 2070 strengthening the case for some form of a lower top and additional setbacks ahead. Look for a daily close below 2058 to confirm and accelerate, while back above 2117 negates and exposes a direct retest of the record high.
US SPX 500 – fundamental overview
Stocks have come under intensified pressure in recent trade after trading up to within 1% of the May record high earlier this month. The prospect of higher rates is a negative for stocks, as it takes away from the free money incentive to be long risk assets. Perhaps even more concerning for equity bulls right now is the rising wage growth component in this month’s employment report. This could be something that forces the Fed into a more aggressive path to policy normalization than it might want. Friday’s solid Michigan confidence data further solidifies prospects for a December rate hike, while the market is also lower in the early hours of the week on risk off flow in the aftermath of the weekend Paris attacks.
GOLD (SPOT) – technical overview
The market has come back under intensified pressure over the past several days, with the recent break below 1100 opening an acceleration to fresh yearly and multi-year lows. However, daily studies are looking stretched and the market could be poised for a corrective bounce in the sessions ahead. Still, the market will need to establish back above 1100 to take the immediate pressure off the downside.
GOLD (SPOT) – fundamental overview
GOLD has come back under intense pressure in recent days, dropping to fresh multi-year lows, as the market ramps up expectations for a December Fed liftoff and more aggressively buys US Dollars. Still, despite the US Dollar demand, GOLD is expected to find solid support into this latest dip, given the struggling global economy and uncertainty in the air, particularly now that accommodative central bank policies are so extended and additional stimulatory options are limited. Longer term macro players have also been accumulating the metal as a hedge against an overinflated equity market that could be on the verge of a major capitulation. The weekend Paris attacks have contributed to safe haven demand in the early week.
Feature – technical overview
USDZAR has broken to yet another fresh record high, with the market taking out the previous September peak, opening the door for the next major upside extension. From here, look for the rally to extend towards psychological barriers at 14.5000 in the sessions ahead, while any setbacks should be very well supported ahead of 13.5000. Ultimately however, only back below 13.0120 would negate the highly constructive outlook.
Feature – fundamental overview
The SARB wil have a difficult decision on its hands when it meets on Thursday, with the central bank having to contend with a currency at record lows and a struggling local economy. The market is split on whether the central bank will raise rates to offset the rapid depreciation in the Rand, though recent comments from the SARB Governor suggest the central bank will hold off on a tightening. Ahead of Thursday’s rate decision, we get South Africa CPI and retail sales, with inflation to be the more heavily watched release, given its direct impact on policy. Inflation is expected to tick up, adding pressure to the SARB, but ultimately, it is unlikely the central bank will move ahead of the Fed. Interestingly enough, the Rand has avoided a drop to another record low in the early week, despite the safe haven flow from the weekend Paris attacks. Perhaps the recovery in GOLD prices has offset.