Special report: Brexit Day Overview
Next 24 hours: Euro Not Ready to Break Out Just Yet
Today’s report: Pound in Focus as Article 50 Date Arrives
Most of today’s focus will be on the invocation of Article 50, putting the EU on official notice of the UK's exit. It will be interesting to see what, if any fallout there is in the immediate aftermath and if there is any impact on the Pound which has done a good job telegraphing this event over the past several months.
Wake-up call
Chart talk: Major markets technical overview video
- Month end
- Article 50
- repatriation flows
- SNB strategy
- market rally
- BoC Poloz
- Cross related
- Trump assurances
- Macro backdrop
- USDSGDÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Germany to Make Brexit Talks Difficult, L. Brinded, Business Insider (March 28, 2017)
- Funds Train Computers to Think Like Us, S. Kishan, Bloomberg (March 27, 2017)
Chart talk: Technical & fundamental highlights
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EURUSD – technical overview
The market has finally taken out critical resistance in the form of the 1.0875 December peak, triggering an inverse head and shoulders formation on the daily chart that projects gains towards 1.1400 in the days ahead. Still, the market will need to establish a daily close above 1.0875 to confirm the bullish formation. Inability to establish a daily close above 1.0875 could suggest a false break and negate the formation, opening the door for a resumption of the longer-term downtrend. A daily close below 1.0700 would strengthen this possibility and take the immediate pressure off the topside.
EURUSD – fundamental overview
Monday’s bullish breakout is now in question after the Euro pulled back on Tuesday, unable to establish above a major resistance point at 1.0875. Euro setbacks have been attributed to a combination of factors including profit taking into month end, an impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform, relatively hawkish comments from Vice Chair Fischer and a dovish ECB Praet. Looking ahead, we get German import prices, US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams. But most of the focus will probably be on fallout from the UK trigger of Article 50.
GBPUSD – technical overview
Despite the recent bounce, the market remains confined to a well defined downtrend while it holds below the December 2016 peak at 1.2775. Ultimately, rallies should continue to be very well capped ahead of 1.2775, with only a break above 1.2775 to compromise the bearish structure. Look for a daily close back below 1.2324 to strengthen the outlook, opening the door for a retest of the 2017 low just under 1.2000, which guards against the +30 year low from October 2016 at 1.1840.
GBPUSD – fundamental overview
Most of the focus today will be on the invocation of Article 50, putting the EU on official notice of the UK's exit. It will be interesting to see what, if any fallout there is in the immediate aftermath and if there is any impact on the Sterling exchange rate which has seemingly done a very good job telegraphing this event over the past several months. Still, the UK crossing over to the point of no return could rattle the Pound as the reality sets in. We’ve already seen a nice pullback on Tuesday, though it’s likely a good deal of these setbacks came from other drivers including an impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform, relatively hawkish comments from Vice Chair Fischer. As far as today’s docket outside of the Article 50 trigger goes, we get UK consumer credit, US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams.
USDJPY – technical overview
The market has broken down below critical range support at 111.60 which could signal the end of a 400 point bearish consolidation that now opens the next major downside extension towards a 400 point measured move that targets 107.60 in the days ahead. Last Wednesday’s daily close below 111.60 strengthens this bearish outlook and any rallies should be very well capped ahead of 114.00. Ultimately, only back above 115.60 would force a bullish structural shift.
USDJPY – fundamental overview
The Yen has been well bid over the past several sessions on the back of risk off flow and broad based US Dollar declines. But on Tuesday, the market got a bit of a break from this trend, with equities recovering nicely and the US Dollar making a comeback. An impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform and relatively hawkish comments from Vice Chair Fischer, were all seen propping the US Dollar, which managed to once again avert a test of the psychological barrier at 110.00. However, overall, it still feels quite shaky out there and the risk continues to point to additional safe haven demand, which should once again encourage a higher Yen. We also have Japanese fiscal year end repatriation flows, yet another Yen supportive driver at the moment. Looking ahead, we get US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams. But most of the focus will probably be on fallout from the UK trigger of Article 50.
EURCHF – technical overview
Rallies continue to be very well capped, with the market adhering to a broader downtrend of lower tops and lower lows. The most recent rally has stalled at 1.0826 where a fresh lower top is now sought ahead of the next major downside extension below the 2016 base at 1.0624 and towards 1.0400 further down. Only back above 1.0826 delays the bearish outlook.
EURCHF – fundamental overview
The SNB is in a quiet battle with the market, forced to contend with an ongoing wave of demand for the Swiss Franc in a less certain global environment, especially with the weapon of monetary policy worn down. The central bank has been committed to its mandate of ensuring the Franc does not appreciate further. But despite all efforts, the Franc continues to want to appreciate. It seems the central bank’s strategy has been to sell Francs when risk comes off and to do nothing when risk is back on and natural flows should be CHF bearish. But the trouble is, even with global equities elevated, arguably reflecting appetite for risk, the Franc hasn’t been able to weaken all that much. There have been some signs of the SNB perhaps making a little headway on reports of a boost in SNB reserves, but this latest pullback in equities could easily offset that advantage.
AUDUSD – technical overview
The impressive rally in 2017 has stalled out into significant medium-term resistance ahead of 0.7800. A recent break back below 0.7600 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7000 area in the days ahead. However, the market will need to hold below 0.7750 to keep the prospect of the bearish shift alive, with a subsequent break back below 0.7492 to confirm.
AUDUSD – fundamental overview
The Australian Dollar did a fabulous job holding up on Tuesday despite a wave of broad based US Dollar demand on the back of an impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform and relatively hawkish comments from Vice Chair Fischer. The primary driver of the relative outperformance came from a rally in the US equity market, with the risk correlated currency benefiting from the resurgence in investor demand for stocks. Copper prices also recovered, acting as another source of Aussie strength. Looking ahead, we get US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams. But most of the focus will probably be on fallout from the UK trigger of Article 50.
USDCAD – technical overview
The market remains very well supported on dips, with the latest bounce out from 1.3000 warning of a more significant bullish resumption. Any setbacks should now be very well supported above 1.3200 on a daily close basis in favour of an eventual push back through the multi-day peak at 1.3599 and towards 1.4000 further up.
USDCAD – fundamental overview
Bank of Canada Governor Poloz was on the wires on Tuesday but failed to have any impact on the Loonie with the central banker offering nothing in the way of any forward guidance. Perhaps this was a let down for some Loonie bulls, with the Canadian Dollar trading lower despite a recovering OIL market. It seems most of the Canadian Dollar weakness came from a broad based recovery in the US Dollar brought on by an impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform and relatively hawkish comments from Vice Chair Fischer. Looking ahead, we get US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams. But most of the focus will probably be on fallout from the UK trigger of Article 50. There is no first tier Canada data on today’s docket.
NZDUSD – technical overview
The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7400 compromises the outlook.
NZDUSD – fundamental overview
The New Zealand Dollar wasn’t able to benefit from the run up in stocks on Tuesday, with all of those gains flowing into an Australian Dollar that was the clear proxy for risk on flow in the FX market. This in conjunction with a broad based recovery in the US Dollar on the back of an impressive round of Tuesday US data highlighted by near 17 year high consumer confidence, comments from House Speaker Ryan that Republicans stand united on tax reform and relatively hawkish comments from Vice Chair Fischer ended up weighing on the commodity currency. Looking ahead, we get US pending home sales and more Fed speak, this time from Evans, Rosengren and Williams. But most of the focus will probably be on fallout from the UK trigger of Article 50. There is no first tier Canada data on today’s docket.
US SPX 500 – technical overview
An extended run to record highs is finally showing signs of exhaustion in 2017, with the market rolling over, taking out critical short-term support at 2350. This now opens the door for an acceleration of declines towards 2300 in the sessions ahead, with a daily close below this psychological barrier to suggest the possibility of a more significant structural shift. In the interim, rallies should now be well capped below 2375.
US SPX 500 – fundamental overview
The March pullback in the stock market is generating a lot of attention as investors begin to wonder if this is warning of a more significant reversal ahead. Stocks have been supported on easy Fed policy for so many years, but with the Fed now on course to normalise policy, this could finally be resonating with investors. Higher rates means less attractive valuations and considering where this market is trading, there is a strong possibility that a mass exodus could inspire an intensified liquidation. Moreover, with Trump policies failing to materialize, investors are worried they may have been too aggressive pricing it all in. The politics have come front and centre in financial markets, with Trump pulling his healthcare bill off the table, calling into question the President’s ability to actually follow through with tax cut and fiscal spending promises the market had aggressively priced in at the end of 2016. There has been some renewed hope into Wednesday on chatter Trump will push through tax cut and fiscal spending reform all at once. But at this point, it’s unlikely rallies on this hope alone will be sustainable.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out around 1120 in 2016. A recent bounce out from the 1200 area strengthens the outlook, opening the door for the next major upside extension towards a measured move into the 1330 area. Look for any setbacks to be well supported ahead of 1200, with only a break back below 1180 to compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty and systemic risk. All of this should 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. Of course, declines in the US Dollar post a dovishly perceived FOMC decision and worry over Trump policies have fueled additional gains in the metal.
Feature – technical overview
USDSGD has been in the process of correcting out from the critical high 1.4545 from earlier this year, putting in a series of lower highs and lower lows. However, the market has finally traded down into a strong previous resistance turned support area in the 1.3900s that could warn of the resumption of the more prominent uptrend. Look for a daily close back above 1.4100 to strengthen prospects for a bullish reversal. Ultimately, while the market holds above 1.3800, risk is tilted to the topside.
Feature – fundamental overview
The Singapore Dollar has been bolstered on US themes over the past several days. At the top of the list are the more dovishly perceived FOMC and a diminished confidence in President Trump’s ability to deliver US Dollar supportive policies. Meanwhile, local data has been mixed and less relevant. But going forward, the combination of still favourable US Dollar yield differentials and a deterioration in global risk sentiment are likely to have a bigger weighing influence on the emerging market currency. Dealers have also been talking of US Dollar demand ahead of 1.3900.