Next 24 hours: Slow Moving Train Crash
Today’s report: Risk Rally Lacks Bite
The market has been relieved to see a little bit of a recovery out from Brexit lows, though there is no indication at this point to expect the recovery rally to be anything more than a short-term correction before renewed risk liquidation takes hold. Looking ahead, the EU summit will continue to attract most of the attention.
Wake-up call
Chart talk: Major markets technical overview video
- German data
- EU summit
- Japan officials
- markets stabilise
- home sales
- higher OIL
- unemployment rate
- confidence level
- alternative asset
- USDMXN
Suggested reading
- How EU Overreach Pushed Britain Out, M. Feldstein, Project Syndicate (June 28, 2016)
- Japanese Government Bonds and Brexit, D. McCrum, Financial Times (June 28, 2016)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The latest break below key support at 1.1098 puts the pressure on the downside, exposing a drop to next medium-term support at 1.0823, which guards against the critical December 2015 multi-year base at 1.0521 further down. At this point, a daily close back above 1.1200 would be required to alleviate immediate downside pressure.
EURUSD – fundamental overview
Leveraged account and macro fund short covering was behind some of the Euro bounce in Tuesday trade, with HFTs reportedly on the bid. EU leaders have been calling for a quick separation from the UK, while in the UK, there is no sense of rush. Economic data continues to take a backseat to all things Brexit and will continue to do so on Wednesday when German GfK consumer confidence, German CPI, the US personal consumption expenditure and US pending home sales are released. On Tuesday, US GDP readings and consumer confidence produced solid results.
GBPUSD – technical overview
The drop below the previous multi-year base from earlier this year at 1.3836 has accelerated declines to +30 year lows. At this point, technical studies are extended, though the focus is now on next major psychological support at 1.3000. Any rallies should be well capped into the previous base 1.3836 base and ahead of 1.4000. A daily close back above 1.4000 will now be required to alleviate immediate downside pressure.
GBPUSD – fundamental overview
The market finally calmed down on Tuesday after collapsing some 1900 points from Friday’s high, down to a +31 year low on Monday. Ongoing headlines out from the EU summit are likely to dictate flow, with European leaders looking for a quick break and UK officials in no hurry. Tuesday’s solid US GDP readings and above forecast consumer confidence data have been shrugged off, and all things Brexit will continue to drive direction until more clarity is offered. But looking at today’s calendar, the US personal consumption expenditure and US pending home sales are the key releases.
USDJPY – technical overview
The downtrend remains firmly intact with the market collapsing to fresh 2016 lows below critical psychological barriers at 100.00, exposing next key medium-term support in the form of the June 2013 base at 93.80. Daily studies are however unwinding from oversold territory, which could warn of some form of a correction and period of consolidation before the market considers any additional meaningful declines. Still, any rallies should now be well capped below 106.00.
USDJPY – fundamental overview
HFTs have been covering shorts into Wednesday, while pension funds have been bid into this latest dip towards 100.00. The recovery in the Nikkei has been helping to support the major pair a bit, though at this point, it’s difficult to determine if the flow is really risk on in nature or nothing more than a quick corrective bounce before the risk off Brexit fear comes back into the foreground. Economic data hasn’t been a factor in price action, with US GDP readings and consumer confidence above forecast, while Japan retail sales was softer. Perhaps reassurances from Japan’s Abe, Kuroda and Aso that markets have calmed and Japan stands ready to respond to unwanted Yen appreciation from Brexit outflow, have also been behind this latest USDJPY recovery. Looking ahead, the EU summit will be the primary focus, while on the data front, we get the US personal consumption expenditure and US pending home sales.
EURCHF – technical overview
Dips continue to be very well supported despite last week’s intense decline, with the market unable to establish a daily close below 1.0700. From here, there is risk for a more meaningful bounce that extends back to the range highs in the 1.1130 to 1.1200 area. Only a daily close below 1.0700 negates.
EURCHF – fundamental overview
The cross rate has done a good job absorbing this latest wave of unwanted inflow into the Franc post Brexit. The unsettling Brexit development had invited a massive round of Franc demand, putting the SNB in the uncomfortable position of needing to step in to intervene on behalf of the overvalued currency. The market has since stabilized but things will get more intense if sentiment turns back down. As we look forward, Brexit headlines will continue to dictate flow.
AUDUSD – technical overview
The latest topside failure suggests the market is looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a break below 0.7145 to confirm the 0.7647 lower top, opening the door for an acceleration towards the 2016 low at 0.6827 further down. A daily close above 0.7500 would be required to alleviate immediate downside pressure.
AUDUSD – fundamental overview
The Australian Dollar has received a bit of a lift into Wednesday on the back of renewed risk appetite post Brexit and the better than previous Aussie new home sales data. Tuesday’s solid US GDP readings and consumer confidence haven’t really factored into trade and for the most part, it’s going to continue to be about risk appetite and headlines revolving around Brexit. Today’s EU summit will therefore be important to track. Later in the day we get the US personal consumption expenditure and US pending home sales.
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. A higher low looks to be carving at 1.2655 with a break back above 1.3189 to confirm the higher low and basing outlook, opening an acceleration of gains towards 1.3500 further up. Only back below 1.2655 negates.
USDCAD – fundamental overview
Price action in the Canadian Dollar has been fairly intuitive of late, with the currency under pressure overall on risk off flow from Brexit, but finding some demand into Wednesday with OIL prices rebounding and the Brexit sell off pausing for a breather. Looking ahead, Brexit headlines and OIL direction will continue to influence direction, while on the data front, the US personal consumption expenditure and US pending home sales are the key standouts.
NZDUSD – technical overview
The rally to fresh 2016 highs has stalled out, with the market sharply reversing course after trading up just shy of 0.7300 this past Friday, putting in an intense bearish outside day formation. From here, look for a daily close below 0.6963 to officially confirm the bearish shift and open a further drop to next key support at 0.6675 further down.
NZDUSD – fundamental overview
The New Zealand Dollar has made a nice recovery into Wednesday trade, with the currency benefitting from a return of risk on flow as the Brexit liquidation pauses for a break. Also helping to support the Kiwi rate is this latest upward revision to the New Zealand unemployment rate to 5.2% from 5.7% previous. Still, with FinMin English warning over the possibility for additional RBNZ rate cuts if warranted, and with plenty of Brexit risk still out there, this latest rally could very well find renewed offers rather quickly. Looking ahead, today’s EU summit will be important to track, while later in the day we get the US personal consumption expenditure and US pending home sales.
US SPX 500 – technical overview
The latest intense drop back below critical support at 2020 officially puts the pressure on the downside, opening more pronounced declines over the coming sessions. Last Friday’s failure to clear the record high from 2015, followed by this sharp pullback now opens the door for a deeper drop to the 2016 base at 1808. Any rallies from here should be very well capped ahead of 2080.
US SPX 500 – fundamental overview
US and global equities are really going to be put to the test in the days ahead. The equity market has come back under intense pressure in the aftermath of the Brexit vote. The expectation is that this event could now pose a systemic threat to the global economy. And even if governments and central bank’s try to prop the market up as they have done since the 2008 financial crisis, with monetary policy tools exhausted, there isn’t a lot of incentive left in the tank. This could ultimately open the door for a more accelerated decline back to SPX500’s 2016 lows just ahead of 1800. Economic data is taking a major backseat to all things Brexit but as far as data on Wednesday data goes, the US personal consumption expenditure and US pending home sales are due.
GOLD (SPOT) – technical overview
The recent break above the 2015 peak at 1307 strengthens the case for a longer term base with the market confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a measured move at 1400. Any setbacks should be very well supported ahead of 1200.
GOLD (SPOT) – fundamental overview
GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium-term players on the back of fears over the limitations of exhausted monetary policy, a downturn in risk sentiment and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with a fresh batch of interest stemming from this latest uncertainty surrounding Brexit.
Feature – technical overview
USDMXNÂ has recently broken to a fresh record high, with the market trading up to as high as 19.5190 thus far. From here, look for any setbacks to be very well supported ahead of 18.0800 in favour of the next major upside extension through 19.5190 and towards major psychological barriers at 20.000 further up. Only back below 18.0780 would take the immediate pressure off the topside.
Feature – fundamental overview
There is no denying the Peso’s role as a proxy for risk, with the emerging market currency hit hard post Brexit, trading down to fresh record lows against the Buck, before recovering into the new week as Brexit fears notch down just a  bit. But overall, the fallout from Brexit and negative implications for the global economy and risk correlated assets should add pressure on the Banxico when it meets later this week. The market is now torn over whether the central bank will look to raise 25bps or 50bps to keep the Peso from additional deterioration.