Today’s report: US Dollar Feeling Good into Holiday
The markets have transitioned into holiday mode, with volumes thinning out dramatically and not expected to pick up again until next Tuesday. Overall, the US Dollar has made an impressive comeback, driven off an offensive of hawkish Fed speak, with Fed Bullard leading the charge.
Wake-up call
Chart talk: Major markets technical overview video
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- retail sales
- German bank
- Annual report
- firm commodities
- OIL flow
- Regional banksÂ
- Investors sidelined
- Compelling case
- USDSGD
Suggested reading
- Sixteen Years A Bear, J. Authers, Financial Times (March 25, 2016)
- Hedge Funds Have a Performance Problem, N. Kaissar, Bloomberg Gadfly (March 24, 2016)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
Despite this latest round of setbacks, the recent push above the previous weekly high at 1.1219 suggests the market is still considering extending gains towards the next key resistance zone in the form of the 2016 high from February and October 2015 peak at 1.1377 and 1.1495 respectively. Overall, price action remains rather choppy, but it will take a break back below 1.1058 to take the immediate pressure off the topside.
EURUSD – fundamental overview
Another round of setbacks for the Euro on Thursday, with the single currency extending declines against the Buck for the fifth consecutive day. Mixed US data was offsetting, with initial jobless claims better, while durable goods disappointed. This left the market focused on Fed speak, with Fed Bullard once again propping the Buck after saying the next hike ‘may not be far off.’ Trade has thinned out exceptionally into this holiday Friday, and the market won’t get back to full trade until next Tuesday. As far as data goes, some growth data out of the US is the only noteworthy release.
GBPUSD – technical overview
The recovery rally out from a recent 7 year low has stalled out ahead of key resistance at 1.4668, potentially setting the stage for the next major lower top and bearish resumption. A daily close below 1.4053 will strengthen this outlook and expose a retest of 1.3836, which guards against the multi-year base at 1.3500 further down. Back above 1.4668 would be required to take the immediate pressure off the downside.
GBPUSD – fundamental overview
Not too much movement for markets into the holiday weekend, though we did see a notable Thursday recovery in the Pound, with the UK currency finding bids on the back of a well received UK retail sales print and referendum poll that showed the remain camp well in the lead. Still, with the US Dollar broadly bid on a wave of hawkish Fed commentary, and with Brexit risk an ongoing concern, Cable rallies were very well capped. Fed Bullard’s Thursday remark that the next hike ‘may not be far off’ was enough to keep any Sterling gains in check. Looking ahead, the only notable standout is some growth data out of the US.
USDJPY – technical overview
Last week’s break below the previous multi-month low from February was a significant development, as it potentially warns of a fresh downside extension ahead following a period of multi-day consolidation. At this point, a daily close below 111.00 would be required to strengthen this prospect, while inability to establish below 111.00 could invite another retest of the key multi-day range high towards 115.00.
USDJPY – fundamental overview
Renewed offers in the Yen over the past few sessions, with the currency dragged lower on the more favourable US Dollar yield differentials. Fed officials have been on the offensive post last week’s FOMC decision, seemingly uncomfortable with the perceived dovishness. Fed Bullard has been a real figurehead for this campaign, out Wednesday and Thursday, making it clear the market should not dismiss the possibility for a rate hike as soon as April. Still, with risk coming off a bit, USDJPY rallies continue to be well capped. A large German bank has now come out with a call for a drop below 110.00 on the view that risk markets will falter, and adds that it expects selling to intensify around 110.00 with spec and hedge fund types getting involved. But the German bank stops short of getting too bearish, expecting the Japanese government to step in to support the market ahead of the July Upper House election. Looking ahead, not much is expected in the thin holiday trade. We do get some growth data out of the US.
EURCHF – technical overview
The latest round of setbacks from fresh multi-month highs at 1.1200 have been well supported, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to continue to be supported above 1.0800, in favour of a higher low and the next major upside extension through 1.1200, towards 1.1500 further up. Only a close below 1.0715 would delay the outlook.
EURCHF – fundamental overview
The Swiss National Bank released its annual report on Thursday, which to no surprise, showed a good deal of intervention in 2015, mostly from the historic moves in January 2015. In total, the SNB purchased foreign currency worth CHF 86.1 Billion. The SNB remains committed to its current policy strategy of intervention and negative rates but is now having to battle broader macro forces, which could invite unwanted appreciation in the Franc. Tuesday’s terror attack in Brussels has resulted in some Franc demand, while a round of hawkish Fed speak and concurrent sell-off in equities on the back of the negative risk implication of higher US rates, has also inspired demand for the traditional safe haven.
AUDUSD – technical overview
The recent break above medium-term resistance at 0.7385 has forced a shift in the structure and now opens the door for a potential push towards next key resistance at 0.7849 further up. At this point, only a break back below the previous resistance at 0.7385 would take the pressure of the topside and open a broader resumption of the longer-term downtrend.
AUDUSD – fundamental overview
Although the Australian Dollar has come under pressure in recent days, on the back of the resurgence in broad based US Dollar demand, the currency has done a good job relative to its peers. An impressive recovery in the commodities markets has been helping to drive the relative strength, with the CRB index up over 12% from the February lows and iron ore surging nearly 20%. Still, the wave of hawkish Fed commentary and a potential downturn in global equities should make it difficult for the risk correlated currency to extend gains much further, with the greater risk for renewed downside pressure. It also isn’t in the RBA’s interest to see a higher Australian Dollar. Medium-term players have been selling into this rally. Trade has already thinned out for the long holiday weekend, and the only notable release on Friday’s calendar is some growth data out of the US.
USDCAD – technical overview
Signs of a potential bottom after the market stalled ahead of the critical October base at 1.2832. The market will need to establish back above 1.3406 to strengthen this outlook and accelerate gains, setting up the next medium-term higher low and bullish resumption. But while the market holds below 1.3406, there is still risk for a drop towards 1.2832.
USDCAD – fundamental overview
An impressive run in the Canadian Dollar off near 13 year lows in January looks like it could be coming to an end, with the Loonie back under pressure this week. The combination of hawkish Fed speak and healthy retreat in the price of OIL have been the primary drivers behind the renewed selling. Looking ahead, trade is expected to thin out for the long holiday weekend. The Canada economic calendar is empty on Friday, with the only noteworthy release coming in the form of some US growth data.
NZDUSD – technical overview
The market remains confined to a broader downtrend with rallies continuing to be very well capped ahead of medium-term resistance at 0.6900. However, a break back below 0.6546 will be required to strengthen the outlook and expose fresh declines towards next key support at 0.6347 further down. Ultimately, only a weekly close back above 0.6900 compromises the bearish outlook.
NZDUSD – fundamental overview
Some of the larger regional banks have been out with bearish calls for the New Zealand Dollar. CBA is looking for a drop in rates to 1.50% on the downside risks to the economy and subdued inflation, while ANZ sees also sees downside risks. This in conjunction with hawkish Fed comments, signs of renewed weakness in equities and a broad based resurgence is US Dollar demand, are expected to continue to invite offers from medium-term players into rallies. Looking ahead, trade has already thinned out for the long holiday weekend, and the only notable release on Friday’s calendar is some growth data out of the US.
US SPX 500 – technical overview
This latest multi-day rally is classified as corrective, with any additional upside expected to be well capped below 2050 on a weekly close basis in favour of the next major downside extension below 1800 and towards a measured move at 1550 further down. Ultimately, only a weekly close back above 2050 will delay the bearish outlook.
US SPX 500 – fundamental overview
Investors aren’t loving these latest Fed messages post last week’s dovish FOMC rate decision. Fed officials have gone on the offensive in response to the market’s FOMC reaction, with comments clearly leaning to the hawkish side. Fed Bullard’s warnings that an April hike should not be ruled out have been the most worrying for an investor base that wants anything but the removal of artificial easy money stimulus. Looking ahead, all is expected to be quiet in risk markets with the long holiday weekend upon us. Activity won’t pick up again until next Tuesday when markets return to full form.
GOLD (SPOT) – technical overview
The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1192. From here, any setbacks should be well supported ahead of 1191, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.
GOLD (SPOT) – fundamental overview
GOLD has pulled back a good deal over the past few sessions, with the yellow metal reacting to a resurgence in demand for the US Dollar on a wave of hawkish Fed speak. And yet, dealers continue to cite plenty of demand into dips, with even US Dollar strength unlikely to deter medium-term investors looking for an alternative in a shaky risk environment. Exhausted central bank policy is a major concern for the global economy at the moment, making the case for a rotation back into the hard asset increasingly attractive.
Feature – technical overview
USDSGD is finally looking to turn back up after a period of intense correction. Overall, the structure remains constructive, with dips seen well supported into the 78.6% fib retrace off the 2015-2016 low to high move at 1.3425. Look for the market to find the next meaningful base in the 1.3400s ahead of the next major upside extension. Ultimately, only a weekly close below 1.3400 would compromise the outlook.
Feature – fundamental overview
Renewed downside pressure in the emerging markets on the combination of this week’s terror in Brussels and a fresh wave of hawkish Fed comments. US equities are showing signs of topping out again and this is having a negative impact on the correlated Singapore Dollar. We have also seen some relative weakness on this week’s disappointing Singapore industrial production print coming in at -4.7% y/y versus the -3.7% y/y print expected. Looking ahead, not much activity is expected until next Tuesday, when the market returns to full form post the long holiday weekend.