Next 24 hours: The Source of Wednesday Volatility
Today’s report: Activity Picking Up on Inflation Day
Markets have been very quiet over the past several days, though activity is definitely picking up in Tuesday trade. We've already seen an uncharacteristic GBP surge in Asia trade, with the Pound perhaps finding added momentum on this latest referendum poll showing a sizable lead for the remain camp. UK and US CPI on tap.
Wake-up call
Chart talk: Major markets technical overview video
- ECB speak
- Phone poll
- Abe
- risk appetite
- RBA Minutes
- OIL demand
- Inflation expectations
- US CPI
- better bid
- USDSGD
Suggested reading
- BlackRock: Market Gone Too Far on Fed, A. Scaggs, Bloomberg (May 16, 2016)
- Market Shrugs at Japan's Profit Plunge, L. Lewis, Financial Times (May 16, 2016)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has undergone a healthy period of correction after stalling out at a fresh 2016 high several days back. At this point, it’s difficult to determine if this round of weakness will develop into something more meaningful, or if the market is now looking for a higher low ahead of the next upside extension through 1.1617 and towards more critical resistance at 1.1709 further up. Ultimately, while the market holds above 1.1217, scope exists for another push to the topside. A break back below 1.1217 would be required to force a shift in this bullish structure.
EURUSD – fundamental overview
The Euro is coming off exceptionally thin Monday trade, with volumes dropping off as a result of European market closures. But overall, the single currency remains well offered on rallies, even in the face of a weaker round of US empire manufacturing and NAHB housing data. Looking ahead, we initially get official speak and second tier Eurozone trade data, though ultimately, the market will once again be looking to Tuesday’s US economic data releases. Later today we get US housing starts, building permits, CPI and industrial production. On the official circuit, we will initially hear from ECB’s Praet, Nouy, Costa and EU’s Koenig. Later in the day we get Fed’s Williams and Kaplan. The biggest volatility generator is likely to be US CPI.
GBPUSD – technical overview
Although the recent surge through key resistance at 1.4670 may suggest this market is getting ready to carve a more meaningful base, inability to establish a daily close above the level keeps the pressure on the downside. A break back above 1.4770 will now be required to force a meaningful shift in the structure and strengthen the case for the formation of a material base. Until then, the structure is still bearish.
GBPUSD – fundamental overview
Interestingly, the Pound has been well bid this week, with momentum carrying over into early Tuesday trade. Perhaps some of the gains have come on the back of Monday’s softer US empire manufacturing and NAHB housing. However, this latest round of demand seems to be fueled off results from a phone referendum poll showing a substantial lead for the ‘remain’ camp. Looking ahead, plenty more volatility expected with the market initially absorbing UK inflation results and then looking ahead to a healthy batch of US data featuring housing starts, building permits, CPI and industrial production. On the official circuit, Fed Williams and Kaplan are slated to speak.
USDJPY – technical overview
The market has finally entered a healthy period of correction since stalling out a fresh multi-month lows ahead of the major psychological barrier at 105.00. Still, the overall pressure remains on the downside, with a lower top sought out below 111.89 ahead of the next major downside extension towards and below 105.00. Only back above 111.89 would negate and take the pressure off the downside.Â
USDJPY – fundamental overview
The Yen has barely nudged this week, and remains confined to some tight consolidation. FinMin Aso comments that stable FX is most important have been shrugged off, with more of the attention on PM Abe and his latest update on the sales tax. Abe has said that a decision on the sales tax hike will be made at the appropriate time. This comes after Monday chatter there would be a delay in the hike. Looking ahead, the major pair will be keen to see what comes of today’s US data, highlighted by US CPI. Other releases out on the day include, housing starts, building permits and industrial production. On the official circuit, Fed Williams and Kaplan are scheduled to speak.
EURCHF – technical overview
Setbacks continue to be very well supported, with the market turning back up in recent trade, clearing key resistance at 1.1062. Look for this latest push back above 1.1062 to strengthen the constructive outlook and accelerate gains towards a retest of the 1.1200 multi-month high from February. Any setbacks should be well supported ahead of 1.0900, while ultimately, only below 1.0800 would compromise the structure.
EURCHF – fundamental overview
Certainly, the Franc has done a good job weakening over the several days, though the price action continues to be suspect, with much of the weakness coming at a time when risk markets are fragile and there is demand for safe haven currencies. This begs the question just how much this latest round of Swiss Franc weakness has come by natural forces and how much has come from SNB efforts to weaken the currency. The SNB remains committed to a policy of weakening the Franc, but it will be interesting to see how the central bank’s efforts fair in the face of further risk liquidation.
AUDUSD – technical overview
Setbacks have extended well off the recent 2016 peak, with the market breaking back below the 200-Day SMA. At this point, the focus has shifted back on the downside, though there is risk for a decent corrective bounce now that the longer-term moving average has been tested and broken. Still, any rallies should be well capped ahead of 0.7600 in favour of the next downside extension towards the psychological barrier at 0.7000.
AUDUSD – fundamental overview
Tuesday’s RBA Minutes have proven to be a major disappointment to doves, with the central bank outlining the close call on cutting rates at the previous meeting, while offering no hints at additional rate cuts ahead. There has been a lot of talk of two more rate cuts this year, though these latest Minutes throw cold water on these expectations and have in turn triggered an Aussie short covering rally. Looking ahead, we get a healthy batch of US data, highlighted by US CPI. Other releases out on the day include, housing starts, building permits and industrial production. On the official circuit, Fed Williams and Kaplan are scheduled to speak.
USDCAD – technical overview
The market could finally be in the process of establishing a meaningful base following this latest impressive reversal out from multi-month lows below 1.2500. Look for a daily close back above 1.3000 to help strengthen this outlook and open an acceleration of gains towards next key resistance at 1.3219 further up. Any setbacks from here should ideally be supported ahead of 1.2600.
USDCAD – fundamental overview
The Canadian Dollar has been finding decent demand in the early week, with the Loonie propped on fresh multi-month highs in OIL and softer Monday US data in the form of empire manufacturing and NAHB housing. Tuesday’s economic calendar picks up quite and although OIL price action will still play a major role, the market will also be focused on Canada manufacturing shipments and US data featuring US CPI, housing starts, building permits and industrial production. On the official circuit, we get Fed Williams and Kaplan late in the day.
NZDUSD – technical overview
Despite recent gains to fresh 2016 highs, the market remains confined to a broader downtrend with rallies expected to continue to be well capped. The recent topside failure and impressive bearish reversal strengthens this outlook, opening a deeper correction in the sessions ahead. Look for a break back below 0.6716 to expose next key support at 0.6546 in the days ahead. Any rallies should now be well capped ahead of 0.7000.
NZDUSD – fundamental overview
Kiwi may be benefitting a bit from this latest pickup in RBNZ inflation expectations, but overall, inflation is still well subdued and below the central bank’s target. Tuesday’s results were only marginally higher than record low levels and the odds for a June RBNZ cut still stand at about 50%. Looking ahead, we get a healthy batch of US data, highlighted by US CPI. Other releases out on the day include, housing starts, building permits and industrial production. On the official circuit, Fed Williams and Kaplan are scheduled to speak.
US SPX 500 – technical overview
The market looks to be in the process of carving the right shoulder of a head & shoulders top on the daily chart. Any additional upside expected to be well capped below 2100 in favour of the next major downside extension. Look for a break back below 2021 to strengthen this outlook and accelerate declines towards a measured move in the 1930 area.
US SPX 500 – fundamental overview
The stock market is once again looking vulnerable at lofty heights, with the 2016 rally continuing to feel like it has very little behind it. The fact that monetary policy is exhausted on a global scale is not something that should be a comfort to investors. Moreover, there is clearly a debate going on within the Fed and the case for slowing down the normalisation process may not be as much of a done deal as the market is pricing, something that could once again spook investors. But even if the Fed holds off, there is still the issue of this exhausted policy accommodation that ultimately should weigh more heavily on stocks going forward. Looking ahead, the market will be paying very close attention to today’s US CPI readings. Anything on the hotter side will likely weigh more heavily on stocks as it will suggest a more hawkishly leaning Fed, something investors don’t want to see.
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 1191. From here, any setbacks should be well supported, in favour of a higher low and the next major upside extension through medium-term resistance at 1307 and towards 1400 further up. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.
GOLD (SPOT) – fundamental overview
Overall, GOLD has been very well supported on dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and extended global equities. Whether the US Dollar is bid is becoming less relevant, with risk sentiment likely to be the primary driver going forward. Renewed weakness on this front will continue to bolster the yellow metal.
Feature – technical overview
USDSGD finally looks poised to turn back up after a period of intense correction from earlier this year. Overall, the structure remains constructive, with the most recent dip supported ahead of 1.3300. The recent break back above 1.3737 strengthens the outlook and opens a measured move upside extension towards 1.4000 further up. Ultimately, only a weekly close below 1.3300 would give reason for pause.
Feature – fundamental overview
Singapore non-oil domestic exports were down yet again in April, putting this series down 5 out of the past 6 months. Still, the fact that the drop was inline with expectation and an improvement from March readings was enough to inspire some demand for the emerging market currency. Meanwhile, Monday’s softer US data and renewed appetite for stocks also helped to prop the correlated market. But overall, scope for additional Singapore Dollar upside should be limited given recent MAS efforts and the prospect the central bank will step in to intervene in an effort to stem a further appreciation in the local currency. Looking ahead, the key focus for the remainder of the day will be on the US CPI results. We also get some Fed speak late in the day from Fed’s Williams and Kaplan.