Next 24 hours: Calendar Picks Up on Tuesday
Today’s report: Political Risk Fades Yet Again
The shakeup in late Friday trade from news of a coup in Turkey has long since come and gone, with the market finding comfort in the failed coup attempt and anyway once again mostly shrugging off any political risk in favour of an unwavering commitment to buy risk assets at every turn.
Wake-up call
Chart talk: Major markets technical overview video
- two-way flow
- BOE expectations
- Tokyo closed
- policy strategy
- Aussie retreats
- factory sales
- cooler CPI
- Geopolitical risk
- FundamentalsÂ
- USDTRY
Suggested reading
- How Brexit will Affect London's Luxury Property, J. Evans, Financial Times (July 15, 2016)
- As the Credit Wheel Creaks, L. Abramowicz, Bloomberg Gadly (July 15, 2016)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The recent break below previous key support at 1.1098 puts the pressure on the downside, exposing a drop to next medium-term support in the 1.0823 to 1.0912 area, which guards against the critical December 2015 multi-year base at 1.0521 further down. At this point, a daily close back above 1.1187 would be required to alleviate immediate downside pressure.
EURUSD – fundamental overview
A lot of choppy price action in the major pair in recent days, with the market ultimately lacking clear directional insight. Any gains from softer US data and post Brexit demand have been offset by more solid US data (this time US retail sales) and renewed risk off flow. Looking ahead, the economic calendar is exceptionally thin and the market will start to position into this week’s highly anticipated European Central Bank decision. US NAHB housing and TIC flows are the notable releases on Monday.
GBPUSD – technical overview
The latest bullish reversal week ends a sequence of consecutive weekly lower tops and suggests that an interim base could be in place at the recent +30 year low of 1.2797. Still, the overall downtrend remains well intact and any additional upside from here is likely to run in formidable resistance in the 1.3800s. At this point, a break back below 1.3105 would be required to put the immediate pressure back on the downside.
GBPUSD – fundamental overview
The Pound has done a good job mounting a decent recovery out from +30 year lows, with an overall well bid US equity market and recent surprise BOE hold helping to fuel the GBP gains. However, with the BOE flagging a rate cut and maybe more in August and with US retail sales coming in very healthy, hinting at the possibility for a sooner Fed rate hike, there has been plenty of interest to sell the UK currency into rallies. Looking ahead, we get a speech from BOE Weale, along with US NAHB housing and TIC flows.
USDJPY – technical overview
Signs of the possibility for a meaningful bullish reversal, though at this point the latest upside break would need to establish back above the 106.81 lower top to take the immediate pressure off the downside. Inability to break back above 106.81 will suggest the move is only corrective in nature ahead of a resumption of the current downtrend.
USDJPY – fundamental overview
Tokyo is out for holiday on Monday and there isn’t a whole lo to drive trade for the remainder of the day, other than some US data in the form of NAHB housing and TIC flows. We have however seen a nice little bid into the Monday open as the market unwinds the risk off trade in the after marker hours of Friday trade from news of what later would be a failed military coup in Turkey.
EURCHF – technical overview
Dips continue to be very well supported despite a recent intense decline into the 1.0600’s. 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 1.0800 compromises the constructive outlook.
EURCHF – fundamental overview
The SNB is feeling more relieved in recent trade, with the cross rate initially having been well supported on SNB intervention post Brexit, but now benefitting greatly from a resurgence in risk appetite as Brexit risk pauses for a breather. The SNB remains committed to stepping in to defend against unwanted Franc appreciation, but could have a difficult time down the road if risk liquidation resumes. While fear of Brexit has subsided somewhat, there is still way too much uncertainty surrounding the event to rule out the possibility for another sharp pullback in risk and wave of demand for the Franc.
AUDUSD – technical overview
The market has been struggling on rallies above 0.7600 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. But a break back below 0.7522 would be required at a minimum to alleviate immediate topside pressure. At the same time, a daily close above 0.7647 would negate the bearish outlook and invite a retest of the 2016 highs.
AUDUSD – fundamental overview
There have been signs in recent trade of demand stalling out for the Australian Dollar, with the currency pulling back since Friday after mounting an impressive rally for several days. It seems the combination of better than expected US retail sales and today’s softer Kiwi data have been contributing to this latest round of setbacks, with medium-term players stepping in and reportedly looking to reestablish meaningful Aussie short positions. Looking ahead, US NAHB housing and TIC flower the only notable standouts on the calendar for the remainder of the day.
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
The Canadian Dollar continues to be very well offered into rallies, with a recent run of strength once again well capped despite ongoing demand for OIL. It seems Friday’s impressive US retail sales data has been a major contributor of Loonie selling, with the US data increasing chances for a sooner than later US rate hike. Meanwhile, softer Canada factory sales have also contributed to this latest Loonie slide. Looking ahead, we get Canada international securities transactions, US NAHB housing and TIC flows.
NZDUSD – technical overview
Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader downtrend. A daily close below 0.7080 will helped strengthen the bearish outlook and accelerate declines back towards 0.6960, while only back above 0.7325 negates.
NZDUSD – fundamental overview
Last week’s news of a surprised unscheduled RBNZ economic assessment had already spooked Kiwi bears, with many upgrading the likelihood of an imminent RBNZ cut on this development. This expectation has intensified in Monday trade after New Zealand CPI came in cooler than expected. With inflation now running below the RBNZ’s objective for the seventh consecutive quarter and with the New Zealand Dollar recently trading up to uncomfortably elevated levels, all signs point to an adjustment of central bank policy, leaning more accommodative on August 11th. Odds for an August cut have risen to about 70%. It’s also worth noting that Monday’s softer Kiwi performances of services have done anything to help the commodity currency’s cause. Looking ahead, the only data of note for the remainder of the day is US NAHB housing and TIC flows.
US SPX 500 – technical overview
The market has stormed back to fresh record highs and there is scope from here for additional upside in the sessions ahead. Still overall, the prospect for the formation of a longer-term top is very much alive and any signs of exhaustion and a rolling back over below 2100 in the sessions ahead will strengthen this outlook and invite renewed downside pressure.
US SPX 500 – fundamental overview
Overall, it’s this across the board commitment from governments and central banks to continue to stimulate the global economy that has been fueling the ongoing bid tone in US equities. Investors still don’t seem to be bothered in any way that these gestures are lacking substance given already exhausted monetary policy. For now, the idea of easy money and lower for longer continues to support the market, surprisingly, even in the face of rising geopolitical risk and fear from an escalation in terrorist threats. Lat week’s Nice attacks and attempted military coup in Turkey have done nothing, or very little to rattle the market.
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 1300, with only a break below 1250 to compromise the outlook.
GOLD (SPOT) – fundamental overview
GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. Moreover, this rising geopolitical risk and fear of an escalation in terrorist activities is also inviting hard asset demand.
Feature – technical overview
USDTRY has been confined to a very well defined uptrend, with the market locked in a bullish consolidation off the record high from 2015. Any setbacks should be very well supported into the 2.7500 area, with an eventual break seen back above the 3.0750 record high exposing a fresh upside extension towards 3.5000 further up.
Feature – fundamental overview
The Lira was already offered in Friday trade on the back of solid US retail sales data which further supported the possibility for a sooner than later Fed rate hike. But setbacks in the emerging market currency accelerated in a big way into the Friday close on news of a military coup in Turkey. The Lira collapsed as the headlines broke, with the currency suffering its worst one day performance since the 2008 financial markets crisis. However, setbacks stalled shy of the 2015 record low (USDTRY high), before the Lira managed to stabilise early Monday, reacting to the news of what ultimately proved to be a failed coup attempt. Still, the coup reminds investors of instability in the country and also could open the door for a more autocratic Erdogan ruling, which in turn would be a bigger concern to investors.