The Value of a Dollar

Today’s report: The Value of a Dollar

We come into Friday with the US Dollar lower across the board, with the exception of the Pound, which continues to suffer at the hands of Brexit uncertainty casting a dark shadow over the outlook for the UK economy. Plenty of economic data ahead highlighted by US retail sales.

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Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The market remains confined to a broader downtrend with any rallies classified as corrective. This latest bounce has stalled out into the 100-Day SMA, setting up the possibility for a lower top and bearish resumption towards 1.0912. At this point, only back above the 100-Day SMA at 1.1234 will delay the outlook and give reason for pause.

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  • R2 1.1234 – 2Aug high – Strong
  • R1 1.1192 – 11Aug high – Medium
  • S1 1.1112 – 10Aug low – Medium
  • S2 1.1046 – 5Aug low – Strong

EURUSD – fundamental overview

The Euro has been bouncing around this week, not really ready to commit in either direction. The single currency had initially been bid up on some broad based US Dollar selling, with the price action mostly driven off market expectations the Fed wouldn’t be in any rush to move on rates. But overall, there are still plenty of negative drivers weighing on the Euro, including super accommodative ECB policy and a Brexit overhang that are keeping any rallies well capped. On Thursday, the Euro was back under a bit of pressure, perhaps on comments from Fed Williams still expecting an additional rate hike this year. Looking ahead, the economic calendar is rather busy. Key standouts include German CPI, German GDP, Eurozone industrial production, Eurozone GDP, US retail sales, US producer prices, business inventories and Michigan confidence.

GBPUSD – technical overview

The latest break below internal range support at 1.3057 ends a period of bearish consolidation and opens the door for a direct retest of the +30 year low from July just under 1.2800. The latest daily close below 1.3000 strengthens the bearish outlook, while ultimately, only back above 1.3372 would take the immediate pressure off the downside.

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  • R2 1.3094 – 10Aug high – Strong
  • R1 1.3028 – 11Aug high – Strong
  • S1 1.2900 – Figure – Medium
  • S2 1.2798 – +30-Year low – Strong

GBPUSD – fundamental overview

Into Friday trade, the Pound is at the bottom of the pile yet again, down against the Buck on the week, despite a period of broad based US Dollar weakness. It’s clear the currency is having a very difficult time shaking off the uncertainty that surrounds Brexit, with the event casting a shadow over the outlook for the UK economy. Whereas other central banks have been underdelivering on expectations for accommodation, the BOE has met and exceeded expectations, reflecting the severity of the risk associated with this major event. And so, offers continue to pile in despite the currency trading just off +30 year lows, with the market now looking like it wants to consider fresh downside towards 1.2500. Certianly Thursday’s healthy US initial jobless claims and somewhat hawkish comments from Fed Williams have only added to the offered tone. Looking ahead, we get UK construction output along with a batch of US data including retail sales, US producer prices, business inventories and Michigan confidence.

USDJPY – technical overview

The latest topside failure sets up a prospective lower top at 107.49 ahead of the next major downside extension below the recent yearly and multi-month low at 98.99. At this point, only a break back above 107.49 would negate this outlook and give reason for pause. In the interim, look for any rallies to be well capped ahead of 104.00.

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  • R2 102.66 – 8Aug high – Strong
  • R1 102.00 – Figure – Medium
  • S1 100.97 – 10Aug low – Medium
  • S2 100.68 – 2Aug low – Strong

USDJPY – fundamental overview

The major pair saw a bit of a pop in Thursday trade on the back of a rise in US treasury yields and a concurrent push to another record high in US stocks. Still overall, rallies are finding plenty of offers from medium-term players worried about a less aggressive BOJ and the onset of risk liquidation flow as the limitations of monetary policy are reached. Looking ahead, the focus shifts to a batch of US data featuring retail sales, producer prices, business inventories and Michigan confidence.

EURCHF – technical overview

Not much doing here over the past several days, with the market confined to a range trade, roughly between 1.0800 and 1.1000. At this point, a daily close above 1.1000 or back below 1.0800 will be required for clearer directional insight. Until then, look for dips to be supported and rallies well capped.

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  • R2 1.1014 – 24Jun high – Strong
  • R1 1.0945 – 12Jul high – Medium
  • S1 1.0790 – 29Jul low – Medium
  • S2 1.0778 – 16Jun low – Strong

EURCHF – fundamental overview

SNB smoothing activity to prop the EURCHF rate has been helping to elevate the cross, but overall, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies. Last week, the market wasn’t too bothered by SNB Jordan comments that there was still room to intervene, perhaps offset by his concern over the central bank’s large balance sheet. Overall, this is a market going nowhere right now and it seems sell-stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been supporting EURCHF but are also looking extended which could invite Franc demand if the market starts to roll over from record highs in the sessions ahead.

AUDUSD – technical overview

The market has struggled on rallies above 0.7700 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. Look for a daily close below 0.7662 to strengthen this outlook and accelerate declines. Ultimately, only a daily close above 0.7700 would negate the newly adopted bearish outlook and invite a retest of the 2016 highs.

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  • R2 0.7835 – 21Apr/2016 high – Strong
  • R1 0.7758 – 11Aug high – Medium
  • S1 0.7662 – 10Aug low – Strong
  • S2 0.7569 –3Aug low – Medium

AUDUSD – fundamental overview

On Thursday, the Australian Dollar’s fate was directly tied to its Kiwi cousin, with Aussie initially rallying on what the market perceived to be a less dovish RBNZ, but then coming back under pressure as Kiwi fell off on the realization that rates were going lower and the New Zealand Dollar was overvalued. Early Friday, Aussie has been extending declines, finding relative weakness of its own after China retail sales and industrial production came in weaker than forecast.  Looking ahead, the focus shifts to a batch of US data featuring retail sales, producer prices, business inventories and Michigan confidence.

USDCAD – technical overview

Finally a major breakout in this pair, with the price clearing critical range resistance at 1.3189. The break ends a period of multi-week basing off the 2016 low and opens the door for a fresh upside extension towards a measured move objective into the 1.3500-1.4000 area. Any setbacks from here should be very well supported ahead of 1.2862.

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  • R2 1.3254 – 27Jul high – Strong
  • R1 1.3080 – 11Aug high – Medium
  • S1 1.2958 – 11Aug low – Strong
  • S2 1.2862 – 15Jul low – Strong

USDCAD – fundamental overview

A most impressive recovery in the OIL market on Thursday and unsurprisingly, this resulted in additional appreciation in the correlated Canadian Dollar. The Loonie had already been benefitting from some broad based US Dollar selling in recent days with many investors resigned to expectations the Fed isn’t going to be moving on rates any time soon. Yet with all of that said, Canadian fundamentals have been unimpressive and show the economy struggling more than many had anticipated and this is opening a clear contrast in the paths of the US and Canada, favouring the US Dollar side of the equation. There have been plenty of calls from some of the larger sell side shops because of this and dealers are reporting sizable USDCAD bids into dips. Looking ahead, the focus shifts to a batch of US data featuring retail sales, producer prices, business inventories and Michigan confidence.

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. As such, look for this latest surge to once again fizzle out, in favour of a resumption of declines. Key support now comes in at 0.6952, but a break below 0.7087 will get things going to the downside.

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  • R2 0.7341 – 11Aug/2016 high – Strong
  • R1 0.7265 – 10Aug high  – Medium
  • S1 0.7159 – 10Aug low – Medium
  • S2 0.7087 – 8Aug low – Strong

NZDUSD – fundamental overview

Thursday’s post RBNZ rate cut rally didn’t last long, despite Kiwi pushing to a fresh 2016 high. The market initially was buying Kiwi on what may have been a less dovish decision after chatter had swirled of a 50bp cut. However ultimately, the combination of the cut, talking down the elevated currency and signals of additional easing ahead, was enough to result in a quick reversal to the downside. Friday’s solid New Zealand retail sales have supported dips, though PMI data has come out below previous and is somewhat offsetting. Looking ahead, the focus shifts to a batch of US data featuring retail sales, producer prices, business inventories and Michigan confidence.

US SPX 500 – technical overview

The market continues to push to fresh record highs and there is scope from here for additional upside in the sessions ahead towards next key psychological barriers at 2200. 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. But initially, we would need to see a daily close below 2150 to take the immediate pressure off the topside.

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  • R2 2200.00 – Psychological – Strong
  • R1 2189.00 – 11Aug/Record – Medium
  • S1 2147.00 –2Aug low – Medium
  • S2 2136.00 – 12Jul low– Strong

US SPX 500 – fundamental overview

Thursday’s impressive recovery in the price of OIL was seen as a primary driver behind the recovery in stocks and push to yet another record high. Overall, the stock market has done a marvelous job steering clear of  underlying fundamentals, rallying at every turn and extending to fresh record highs. But with each passing day, there is a sense this artificial support from governments and central banks is running out, and even if there were more to pump in, there is no longer the same level of confidence this strategy will continue to be effective. For now, we’re living in a Goldilocks world where investors are feeling good about US economic data, and at the same time, aren’t expecting the Fed to move on rates. It will be interesting to see what Fed officials have to say on the matter over the coming days and if any hawkish comments spook this overinflated market. US retail sales, producer prices, business inventories and Michigan confidence ahead.

GOLD (SPOT) – technical overview

The recent break above the previous 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.

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  • R2 1375.20 – 6Jul/2016 high – Strong
  • R1 1367.30 – 2Aug high – Medium
  • S1 1310.90 – 21Jul low – Strong
  • S2 1303.90 – 1May low – Strong

GOLD (SPOT) – fundamental overview

Overall, 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.

Feature – technical overview

USDTRY has recently broken up to another fresh record high after a period of multi-month consolidation. The latest break through the previous peak from 2015 now opens the door for a measured move upside extension towards 3.3500 in the weeks ahead. At this point, setbacks should be limited with only a break back below 2.8390 to take immediate pressure off the topside.

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  • R2 3.0970 – 20Jul/Record – Strong
  • R1 3.0270 – 4Aug high – Medium
  • S1 2.9450 –50-Day SMA – Medium
  • S2 2.9260 – 18Jul low – Strong

Feature – fundamental overview

The Turkish current account deficit came out wider than expected on Thursday and this hasn’t been a help to the Lira which has done a good job recovering from record lows in recent days despite tension around this latest coup attempt. The CBRT has taken measures to try and stabilise the market, while broad based US Dollar weakness on scaled back Fed expectations and record high US equities have also all helped to support the Lira recovery. But this current account data reminds locals of the struggles in the local economy and risk for a resumption of what has been a broader Lira downtrend.

Peformance chart: Five day performance v. US dollar

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